European Franchise Newsletter n35

FRANCE

• Submission to a significant imbalance: consideration of the criterion of economic dependence
• Commercial agents: the Paris Court of Appeal rules that the French provisions are not an overriding mandatory rule

AUSTRIA

• Impermissible clauses in customer contracts of franchise fitness chains – Recent Supreme Court rulings

GERMANY

• Franchise fees: No consideration of COVID-subsidies for calculating the franchise fees
• Franchise disputes with start-up franchisees in Germany – what is the competent court?

NETHERLANDS

• Exclusion of the Dutch Franchise Act: (Im)possible?
  
  

PORTUGAL

• Franchising and distribution Law: The clientele compensation, under Portuguese Law
  
  
  

POLAND

• The Polish consumer protection authority’s crusade in the land of consumer price information

SPAIN

• The compensation for clientele in distribution contracts

UNITED KINGDOM

• Deceptive trade marks: a quick guide

• What next for online marketplaces? Product safety and liability reforms in the UK and the EU

EUROPEAN UNION

• Resale price maintenance: the Court of Justice of the European Union delivers a potentially important ruling

FRANCE

Submission to a significant imbalance: consideration of the criterion of economic dependence

CA Paris, section 5, Ch. 4, 7 June 2023, No. 22/19733

Following an investigation by the Directorate-General for Competition, Consumer Affairs and Prevention of Fraud (DGCCRF), the Minister of the Economy summoned GE Energy Products France on the grounds that the agreements it concluded with suppliers contained clauses that were significantly imbalanced. To convince the judges, the Minister of the Economy submitted thirty anonymised minutes of hearings of persons presented as suppliers of GE Energy Products France.

In an initial ruling rendered on 12 June 2019, the Paris Court of Appeal sanctioned GE Energy Products France on the grounds of significant imbalance, based on these reports (CA Paris, 12 June 2019, No. 18/20323), but this decision was overturned on 11 May 2022 by the Court of Cassation on the grounds of the right to a fair trial (Cass. Com., 11 May 2022, No. 19-22242).

This time, the Paris Court of Appeal was hearing the case anew on referral from the Court of Cassation.

The debate first focused on the issue of the admissibility of anonymised minutes - which will not be examined here because the Court of Appeal ruled along the lines decided by the Court of Cassation - but also, and this is what attracted attention, on the concept of "submission" (to a significant imbalance).

The Paris Court of Appeal first recalled the definition given to this notion by the Court of Cassation, namely that it implied demonstrating "the absence of effective negotiation, or the possibility thereof, of the litigious clauses or obligations".

For the Court:

• submission may result from the use of threats or retaliatory measures;
• the overall structure of the market cannot in itself characterise submission but may constitute "an indication of the existence of an imbalanced bargaining power which makes it difficult to engage in genuine negotiations";
• the inclusion of clauses in a standard agreement or an adhesion contract may constitute a relevant criterion for a submission or attempted submission;
• the question of the presence or absence of consideration for the obligations imposed "is primarily part of the assessment of the significant imbalance" (not the submission), but remains useful in characterising a possible submission or attempt at submission, since the absence of reciprocity may reflect a willingness to submit. However, if a quid pro quo exists in the agreement, the Court points out that its "clearly unfavourable nature" or "lack of manifest interest" is irrelevant in identifying a submission or attempted submission;
• the fact that the buyer states in its general terms and conditions of purchase that they take precedence over the sellers' general terms and conditions of sale is "inoperative, even for the purposes of assessing an attempted submission".

In this case, the Court decided to focus on the structure of the market and the balance of economic power between GE Energy Products France and its suppliers.

The Court considered that the existence of a state of economic dependence was a "relevant criterion for assessing the balance of power and the existence of a submission" and noted that, in the case at stake, the suppliers had very diversified activities, that their commercial relations with GE Energy Products France therefore varied greatly in importance, and that a majority of suppliers had other varied market opportunities, and that although GE Energy Products France had a strong position downstream, giving it "real negotiating power", "the structure of the upstream market on which it obtains its supplies does not give rise to any structural imbalance such as to indicate that it is impossible to negotiate the terms it offers", given that some suppliers enjoy a “"quasi-monopoly" situation in their relationship with GE Energy Products France”.

This decision is in line with the trend in case law that emerged a few years ago, in which the courts examined the unavoidable nature of the partner and the freedom of the alleged victims to contract or terminate (Cass. Com., 26 April 2017, No. 15-27865; CA Paris, 11 January 2019, No. 17/00234; CA Paris 24 March 2021, No. 19/13527; Paris Commercial Court, 28 March 2022, No. 2018017655; Paris Commercial Court, 2 September 2019, No. 2017050625).

Consequently, to determine whether a submission exists, one of the criteria to be examined is whether or not there is a genuine and serious alternative to the offer made by the company accused of subjecting its co-contractors to a significant imbalance. Where there is an alternative, the other contracting parties will in principle not be forced to enter into a contract or accept obligations that would be unfavourable to them.
This position is to be welcomed.

However, the Court took care to complete its analysis by pointing out other corroborating evidence: in this case, nearly 30% of the suppliers had not subscribed to GE Energy Products France's special payment system (which was criticised by the Minister of Economy) and some of the suppliers (14 according to the Court) had negotiated the contract terms. The Court noted that "although few in number, these cases confirm the possibility of genuine negotiation".

The Court concluded that there had been no submission and, consequently, that the provisions on significant imbalance (current article L.442-1, I, 2° of the French Commercial Code) were not applicable.
 

Commercial agents: the Paris Court of Appeal rules that the French provisions are not an overriding mandatory rule

CA Paris, Ch. Com. Int, 4 July 2023, No. 20/18196

In this case, a French commercial agent (Velma) and an American company (MCC) had entered into a commercial agent agreement in 2015 ("Agency Agreement"), under which Velma had become MCC's exclusive representative in France and Africa. The agreement was governed by the laws of the State of New York.

In 2020, MCC decided to terminate the relationship due to Velma's alleged failure to fulfil its contractual obligations. Velma then brought the dispute before the Paris Commercial Court, seeking the application, as overriding mandatory rules, of the protective provisions of the French Commercial Code on commercial agents (article L.134-1 et seq. of the French Commercial Code, derived from Directive 86/653/EEC of 18 December 1986), while challenging the validity of the post-term non-competition clause.

Dismissed in first instance on the ground of the laws of the State of New York, Velma appealed the decision and asked the Paris Court of Appeal to reverse it and, in the alternative, to refer a question to the European Court of Justice (ECJ) for a preliminary ruling on the scope of the effectiveness of the 1986 Directive in domestic law, so that French law would prevail over the law of the State of New York chosen by the parties to govern their contract. Velma also requested that, assuming that French law relating to commercial agency was not an overriding mandatory rule and that the conflict of laws rule had to be applied, the Court should recognise that the protective provisions of the 1986 Directive constituted EU public order and that it was not possible to apply a foreign law that excluded any compensation of the agent in the event of termination of the contract.

The Paris Court of Appeal first applied the criteria laid down by the ECJ in the Trendsetteuse case (ECJ, 4 June 2020, C-828/18) to confirm that the contractual relationship between the parties qualified as a commercial agency, since it was not conditional on the existence of a power to negotiate prices.

Then, in line with the case law of the Court of Cassation (Cass. Com, 28 November 2000, No. 98-11.335; Cass. Com, 5 January 2016, No. 14-10628) and its own recent case law (CA Paris, 13 February 2020, No. 16/15098, CA Paris, 23 November 2021, no. 19/15670), and despite the case law of the ECJ (ECJ, 9 November 2000, Ingmar, C-381/98), the Paris Court of Appeal firmly rejected the characterisation as an overriding mandatory rule of the rules governing commercial agency, taking the view that the EU directive merely laid down minimum protection rules. The provisions at stake are not intended to automatically replace the foreign law (this is the mechanism of overriding mandatory rules) but to provide a "minimum framework of protection" applicable if the foreign law does not comply with it (see on this subject: Cass. Com., 7 September 2022, No. 18-15964).

According to the Court, it is therefore in the field of international public order that the issue must be addressed. On this point, the Court referred to Article 17 of the Hague Convention of 14 March 1978 on the Law Applicable to Agency (identical to Article 21 of the Rome I Regulation on the law applicable to contractual obligations) and pointed out that the law chosen by the parties may be set aside if it is "manifestly incompatible with the public policy of the forum". According to the Court, although the law of the State of New York does not automatically provide for a termination indemnity in favour of the agent, nothing prevents the parties from contractually providing for such an indemnity. The Court concluded that the State of New York law was not manifestly incompatible with French law.

This decision raises questions because the State of New York law, by making the indemnity merely optional, is clearly not in line with the "minimum framework of protection" sought by the ECJ and recognised by the Court of Cassation.

Having decided to apply the law of the State of New York, the Court of Appeal therefore ruled on the dispute in accordance with the rules of that State and (i) rejected the claim for compensation for termination, (ii) upheld the claim for compensation for the absence of notice period, (iii) rejected the claim for damages for wrongful performance of the agency agreement, (iv) recalled that the agent must be remunerated for his work, and (v) validated the post-term non-competition clause.

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