The Court of cassation ruled in a decision rendered on the 6th of September 2011 that a third party could use the sudden termination of a commercial relation to claim indemnities if this termination also caused a prejudice to this third party.

Cour de cassation, 6 septembre 2011, Chambre commerciale, pourvoi n°10-11975

An import-export company called DENIS FRERES had a subsidiary in Thailand called COMMERCIAL COMPANY OF SIAM.

In 1974, CCS was contacted by a producer of industrial yeast called LESAFFRE. LESAFFRE wished to sell products in Thailand.

LESAFFRE reached an agreement with the French company DENIS FRERE who was charged to bring the products to Thailand and deal with the administrative and accounting aspects of the orders made by CCS from Thailand.

LESAFFRE signed a contract with DENIS FRERES and then DENIS FRERES subcontracted with CCS.

LESAFFRE discovered that the orders coming from Thailand started to diminish in 1998.

LESAFFRE terminated the commercial relations with DENIS FRERES on May 25, 1999.

DENIS FRERES found this termination sudden and asks to have a delay of two years before the termination.

LESAFFRE decided finally to grant a three month prior notice before terminating the commercial relations.

DENIS FRERES claimed damages for the sudden termination in a quite usual way applying article L 442-6 5° of the French commercial code:

The following acts committed by any producer, trader, manufacturer or person listed in the trade register render the perpetrator liable and entail the obligation to redress the prejudice caused:

(...)

- Suddenly breaking off an established business relationship, even partially, without prior written notice commensurate with the duration of the business relationship and consistent with the minimum notice period determined by the multi-sector agreements in line with standard commercial practices. When the business relationship involves the supply of products bearing the distributor's brand, the minimum notice period is double that which would apply if the products were not supplied under the distributor's brand. In the absence of such agreements, the decrees issued by the Minister for the Economy may determine a minimum notice period for each product category, taking due account of commercial practices, and may lay down conditions for the severing of business relations, paying due regard to their duration. The foregoing provisions do not affect the right to cancel without notice in the event of the other party failing to discharge its obligations or in the event of force majeure;

The company from Thailand who had no direct commercial relations with LESAFFRE decided also to claim damages together with DENIS FRERES.

The Court of appeal of DOUAI decided to grant damages to both DENIS FRERES and CCS.

The manufacturer decided to appeal to the Supreme Court (Cour de cassation). LESAFFRE argued that it was impossible for a Court to grant damages to a third party for the sudden termination of a commercial relation.

The Supreme Court ruled that a third party can obtain damages if he has suffered a prejudice caused by the sudden termination of a commercial relation.

The Supreme Court had already ruled that a contractual misconduct could be used by a third party to claim damages for a tort action.

The sudden termination or break-up of a commercial relation could be eventually seen as a contractual misconduct even if the notion of sudden break-up is wider.

This decision could have an important impact on a practical level since it will probably multiply the number of claims based on a sudden termination of a commercial relation.

A company who terminates a commercial relation will now be facing claims from the former commercial partner but also from all other companies involved in the distribution process. All subcontractors could find interest in claiming damages if a commercial relation is terminated on a higher level of the commercial chain.

The decision to terminate a commercial relation will therefore be even more dangerous than before.

A company should therefore be very cautious before terminating the contract without a long prior notice. All terminations should be very carefully studied before hand.

The conditions and consequences of the termination should be analysed before taking and notifying any decision.

By Olivier Vibert, Avocat, Paris.

Réf. 2011-10-02

The order for payment procedure is often seen as a quick and efficient way of collecting debts. It can also be tricky, especially when the creditor and debtor are in two different countries of the European Union.

During the enforcement procedure on the French territory, two questions to the Cour de cassation were raised:

- Was the debtor a consumer and therefore could the Italian company use the ricorso per decreto ingiuntivo (Italian order for payment procedure) or did the French courts have jurisdiction using the jurisdictional exception for consumers of article 15 of EU regulation 44/2001 ?

- Was the service of the order for payment to the debtor correctly made and therefore could the enforceability of the order for payment in France be declared ?

Cour de cassation, 1st civil Chamber, April 12, 2012, decision number 10-23023

This decision concerned the execution of an Italian order for payment on the French territory.

An Italian company had made some house renovation work for a French client in the South of France, near Nice. The Italian company had established an invoice for this work but the Client hadn't paid the invoice.

The Italian company wishing to collect its debt on the French owner undertook litigation in Italy. The Italian company rather than suing the French client in France, preferred the Courts of San Remo.

The Italian company used a special procedure called the “ricorso per decreto ingiuntivo” which could be translated as a request for an order for payment. The court of San Remo on the 9th of June 2008 gave right to the Italian company and ordered the debtor to pay.

The Italian decision had then notified by registered mail to the French individual on the 21st of June 2008.

A certificate was established by the Court of San Remo on the 9th of June 2008 in order to testify that the Italian decision was enforceable. This certificate had been issued according to article 54 of EU regulation 44/2001.

The Italian company then sought recognition before the French court of Nice in order to enforce the decision against the debtor.

The French court considered that the decision was enforceable and rendered a declaration of enforceability. This decision was then served.

The debtor appealed from the declaration of enforceability.

The appeal court confirmed the first instance decision and declared enforceable in France the Italian order.

The debtor decided to bring the case before the French civil and commercial Supreme Court or Cour de cassation.

On the Italian jurisdiction,

Considering provisions 15, 16, 35 and 45 of EU regulation 44/2001 the debtor argued that the Court of appeal hadn't correctly determined whether the Italian court had jurisdiction.

The debtor considered that he should be qualified as a consumer. The Court of appeal refused to qualify the debtor as a consumer by simply stating that the contract concerned house renovation works.

Could the jurisdictional protection of a consumer be excluded simply by a reference to a real estate contract ?

The Cour de cassation overruled the Court of appeal's decision. The Appeal Court didn't correctly determine the jurisdiction. According to the Cour de cassation, the Court of appeal couldn't refuse to apply the jurisdictional exception for consumers by simply putting forward that the contract concerned house renovation works.

Even though the contract concerned the accomplishment of house renovation works the client could remain recognisable as a consumer.

On the validity of the notification by registered mail,

The Cour de cassation needed to answer a second argument.

The Client or debtor argued that the Italian hadn't been correctly notified. Court decisions must normally in France be served by a bailiff with certain requirements. EU regulation 393/2007 provides rules for the service of decisions within the E.U..

The debtor considered that the Italian decision hadn't been notified correctly.

The Court of appeal to declare the enforceability of the Italian decision in France held that:

- the Italian had been notified by registered letter, which has been confirmed by the judicial officer of the San Remo Court,

- the notification by registered letter is accepted by article 14 of Regulation 1393/2007,

- the Italian court had then issued a certificate of enforceability on the Italian territory.

The Cour de cassation overruled once more the decision of the Court of appeal.

For the Cour de cassation, the Court of appeal should have examined in details whether the notification of the Italian decision (order for payment) by registered mail had been made in sufficient time and in such a way as to enable the defendant to arrange for his defence.

The Cour de cassation in this decision made a strict application of article 34 §2 of EU regulation 44/2001.

“A judgment shall not be recognised:

(...)

2. where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so;”

The Court of appeal, considering the application made to enforce the decision in France was obliged to review all conditions of article 34 of the EU regulation 44/2001.

If Article 14 authorizes a notification by registered letter such notification could raise questions. Article 7 provides that “The receiving agency shall itself serve the document or have it served, either in accordance with the law of the Member State addressed or by a particular method requested by the transmitting agency, unless that method is incompatible with the law of that Member State”.

The service therefore must respect the laws of the addressed Member State. In the present case, the service of the Italian decision needed to respect the laws of France. The Court of appeal needed to examine thoroughly whether the service was correct.

The French Supreme Court wants the French judges to examine if the service of the order is correct before ruling on the enforceability of the order on the French territory.

In the order for payment procedure, the validity of the notification of the order is vital. If the order isn't served correctly it cannot have any legal power. The order must also be served within a certain delay otherwise the effect of the order lapses. Until the order is served correctly the debtor remains within the faculty of forming an opposition.

In the present case the choice of notifying the order by simply a registered letter could be discussed. Notifying a decision by registered letter therefore means taking a risk if the service doesn't comply with the rules of the other Member state.

To avoid such difficulties it could seem preferable to use the direct service of article 15 or to use both the service by registered letter and the regular service by the receiving agency.

The case will therefore have to be examined once more by an appeal Court. It will be interesting to see how this case will end up.

By Olivier Vibert, Avocat, Paris.

IFL AVOCATS

Réf. ENG 2012-04-23

Cour de cassation Civil chamber, May 26 , 2010 - Decision N°09-66344 (NIMES MATERIAUX v. X )

The Cour de cassation ruled on May 26, 2010 that when a title retention clause is inserted in a sale of goods, until the property is transferred, the buyer can only be declared responsible in the event of a robbery if he has committed negligence in securing the goods.

A Company named NIMES MATERIAUX had sold some goods to Mr X. A title retention clause had been inserted to the sale contract.

The goods were delivered to the buyer but before the transfer of property they were stolen.

The seller sued the seller to obtain the payment of the sale's price and penalties. The Court of appeal found that the goods had been delivered and stolen after safe receipt of the goods by the buyer. The buyer was therefore the guardian of these goods and was therefore responsible for their loss.

The Cour de cassation, French civil and Commercial Supreme Court, censured this decision. The Cour de cassation refused to consider that the buyer could be declared responsible of the loss of the goods unless proof is provided that he committed negligence.

The position of the Supreme Court is that when a good is submitted to a title retention clause and until the price's payment, the buyer only has a best effort obligation.

The buyer who has received the goods, but who isn't their owner yet, is only obliged to make its best efforts to ensure a normal security of the goods.

The seller won't be able to consider the buyer responsible unless he proves that the buyer has committed negligence securing the goods.

This decision shows the downside of a title retention clause. Of course such a clause is a very effective security but it also affects the questions of liability.

The commercial sale contracts could state that the risks are transferred before the transfer of the full ownership. If nothing is stated in the contract, the rule provided by the Cour de cassation in this decision applies and the risks on the goods remain on the seller's shoulders as long as he retains the property.

Written by Olivier VIBERT, Attorney, Paris

IFL AVOCATS

This article has been published in the EUROPEAN JOURNAL OF COMMERCIAL CONTRACT LAW

The Counter-value in euros of a debt in a foreign currency must be determined at the date of payment, unless the payment has been delayed by one of the parties.

Cour de cassation, 1st Civil Chamber, May 20, 2009 - Decision N°07-21847 (WARNING. v. PACKARD BELL)

At a time when currency rates change very quickly, international contracts and relations can be deeply impacted.

The question raised to the Cour de cassation was to determine which rate should be chosen to evaluate the debt or credit.

According to the Cour de cassation, the Counter-value in euros of a debt in a foreign currency must be determined at the date of payment, unless the payment has been delayed by one of the parties.

PACKARD BELL had made an error in a bank transfer on the 28th of December 2001. An amount of 97.000 $ had been credited to the account of company named WARNING. The amount should have been transferred to one of PACKARD BELL's subsidiaries and not to WARNING.

WARNING didn't pay back the transferred amount.

WARNING was ordered to pay 110.116 Euros by a summary order. WARNING was allowed by a judge to pay the said amount in a fixed repayment schedule.

WARNING paid all her debt but then decided to claim the reimbursement of certain sums.

WARNING considered that the conversion in euro shouldn't have been made at the date of the first payment.

The Cour d'appel de LYON rejected WARNING's claims and ruled that the currency conversion had been correctly calculated by the summary judge.

WARNING raised the matter before the Supreme Court and argued that the counter value in euro of a debt in a foreign currency ought to be calculated on the payment date unless a party had delayed the payment.

WARNING considered that PACKARD BELL had taken too much time to claim the reimbursement of the money transferred by error. The Court of appeal should have converted the debt in Euros on the day of reimbursement or at least on the day the prior notice was sent by PACKARD BELLE to get reimbursed.

The Cour of cassation agreed with the legal position developed by WARNING.

When converting a debt in Euros the judge should take into consideration the date when the payment had been made unless one of the Parties had voluntarily delayed this payment.

The Cour de cassation considered that the Court of Appeal had correctly applied this principle. WARNING had tried by all means to delay the payment of its debt therefore the judge could decide to take into consideration the date of receipt of the wrong bank transfer.

Article Written by Olivier VIBERT

This article has been published in the European Journal of Commercial contract law (EJCCL)

The order for payment procedure is often seen as a quick and efficient way of collecting debts. It can also be tricky, especially when the creditor and debtor are in two different countries from the European Union.

During the enforcement procedure on the French territory, two questions to the Cour de cassation were raised :

- Was the debtor a consumer and therefore could the Italian company use the ricorso per decreto ingiuntivo (Italian order for payment procedure) or did the French courts have jurisdiction using the jurisdictional exception for consumers of article 15 of EU regulation 44/2001 ?

- Was the service of the order for payment to the debtor correctly made and therefore could the enforceability of the order for payment in France be declared ?

Cour de cassation, 1st civil Chamber, decision number 10-23023

This decision concerned the execution of an Italian order for payment on the French territory.

An Italian company had made some house renovation work for a French client in the South of France, near Nice. The Italian company had established an invoice for this work but the Client hadn't paid the invoice.

The Italian company wishing to collect its debt on the French owner undertook litigation in Italy. The Italian company rather than suing the French client in France, preferred the Courts of San Remo.

The Italian company used a special procedure called the “ricorso per decreto ingiuntivo” which could be translated as a request for an order for payment. The court of San Remo on the 9th of June 2008 gave right to the Italian company and ordered the debtor to pay.

The Italian decision had then notified by registered mail to the French individual on the 21st of June 2008.

A certificate was established by the Court of San Remo on the 9th of June 2008 in order to testify that the Italian decision was enforceable. This certificate had been issued according to article 54 of EU regulation 44/2001.

The Italian company then sought recognition before the French court of Nice in order to enforce the decision against the debtor.

The French court considered that the decision was enforceable and rendered a declaration of enforceability. This decision was then served.

The debtor appealed from the declaration of enforceability.

The appeal court confirmed the first instance decision and declared enforceable in France the Italian judgment.

The debtor decided to bring the case before the French civil and commercial Supreme Court or Cour de cassation.

On the Italian jurisdiction,

Considering provisions 15, 16, 35 and 45 of EU regulation 44/2001 the debtor argued that the Court of appeal hadn't correctly determined whether the Italian court had jurisdiction.

The debtor considered that he should be qualified as a consumer. The Court of appeal refused to qualify the debtor as a consumer by simply stating that the contract concerned house renovation works.

Could the jurisdictional protection of a consumer be excluded simply by a reference to a real estate contract.

The Cour de cassation overruled the Court of appeal's decision. The Appeal Court didn't correctly determine the jurisdiction. According to the Cour de cassation, the Court of appeal couldn't refuse to apply the jurisdictional exception for consumers by simply putting forward that the contract concerned house renovation works.

Even though the contract concerned the accomplishment of house renovation works the client could remain recognisable as a consumer.

On the validity of the notification by registered mail,

The Cour de cassation needed to answer a second argument.

The Client or debtor argued that the Italian hadn't been correctly notified. Court decisions must normally in France be served by a bailiff with certain requirements. EU regulation 393/2007 provides rules for the service of decisions in the EU.

The debtor considered that the Italian decision hadn't been notified correctly.

The Court of appeal to declare the enforceability of the Italian decision in France held that:

- the Italian had been notified by registered letter, which has been confirmed by the judicial officer of the San Remo Court,

- the notification by registered letter is accepted by article 14 of Regulation 1393/2007,

- the Italian court had then issued a certificate of enforceability on the Italian territory.

The Cour de cassation overruled once more the decision of the Court of appeal.

For the Cour de cassation, the Court of appeal should have examined in details whether the notification of the Italian decision by registered mail had been made in sufficient time and in such a way as to enable the defendant to arrange for his defence.

The Cour de cassation in this decision made a strict application of article 34 §2 of EU regulation 44/2001.

“A judgment shall not be recognised:

(...)

2. where it was given in default of appearance, if the defendant was not served with the document which instituted the proceedings or with an equivalent document in sufficient time and in such a way as to enable him to arrange for his defence, unless the defendant failed to commence proceedings to challenge the judgment when it was possible for him to do so;”

The Court of appeal, considering the application made to enforce the decision in France was obliged to review all conditions of article 34 of the EU regulation 44/2001.

If Article 14 authorizes a notification by registered letter such notification could raise questions. Article 7 provides that “The receiving agency shall itself serve the document or have it served, either in accordance with the law of the Member State addressed or by a particular method requested by the transmitting agency, unless that method is incompatible with the law of that Member State”.

The service therefore must respect the laws of the addressed Member State. In the present case, the service of the Italian decision needed to respect the laws of France. The Court of appeal needed to examine thoroughly whether the service was correct.

The French Supreme Court wants the French judges to examine if the service of the order is correct before ruling on the enforceability of the order on the French territory.

In the order for payment procedure, the validity of the notification of the order is vital. If the order isn't served correctly it cannot have any legal power. The order must also be served within a certain delay otherwise the effect of the order lapses. Until the order is served correctly the debtor remains within the faculty of forming an opposition.

In the present case the choice of notifying the order by simply a registered letter could be discussed. Notifying a decision by registered letter therefore means taking a risk if the service doesn't comply with the rules of the other Member state.

To avoid such difficulties it could seem preferable to use the direct service of article 15 or to use both the service by registered letter and the regular service by the receiving agency.

The case will therefore have to be examined once more by an appeal Court. It will be interesting to see how this case will end up.

By Olivier Vibert, Attorney, Paris.

IFL AVOCATS

Réf. ENG 2012-04-23

The modification of a letter of intent must be made in the same forms as the original letter of intent. A bank needs to prove that the intention to replace a result obligation by a simple best effort undertaking has been agreed upon in writing. What has been accepted formally must be amended in the same conditions.

Cour de cassation, Commercial Chamnber, January 19, 2010 - Decision N°09-14438 (NIEF PLASTIC v. LCL)

A letter of intent had been given by a company called NIEF PLASTIC to a French bank called LCL. The letter of intent consisted in supporting its subsidiary which had benefited from a loan from the bank.

The subsidiary was placed under a procedure de redressement judiciaire (receivership). The bank considered that NIEF PLASTIC hadn't fulfilled its obligations to support the subsidiary expressed by the letter of intent.

The question raised to the Cour de cassation was to interpret if the company had an obligation of result with the letter of intent or if the letter of intent only consisted in a best effort undertaking.

NIEF PLASTIC had in fact sent two letters of intent.

The first one clearly expressed a result obligation. The company realised the importance of its obligation and therefore a second letter had been sent to limit its engagement only to a best effort undertaking.

The Cour de cassation confirmed the court's of appeal decision.

No proof was provided that the bank had accepted to replace the result obligation by a simple best effort undertaking. The fact that the bank had credited the account after having received the modified letter of intent couldn't constitute a proof of the bank's consent to the modification.

This decision first of all confirms that the letter of intent where a company takes the engagement of taking all necessary measures to guarantee that the loan will be reimbursed must be analyzed as result obligation and not as a best effort undertaking..

The Cour de cassation then logically requires a formal proof of the bank's consent to replace the result obligation by a simple best effort undertaking.

What has been accepted formally must be amended in the same conditions.

Article written by Olivier Vibert, Attorney in Paris, France,

IFL-AVOCATS

This article has been published in the European Journal of Commercial Contract Law or EJCCL

The guarantor of promissory notes cannot benefit from the protection applicable to the surety.

By a decision rendered on June 16, 2009 the Cour de cassation had ruled that the protection of the surety provided by article L313-22 of the French Monetary and Financial code wasn't applicable to guarantees like promissory notes or surety bonds.

Cour de cassation, Commercial Chamber, June 16, 2009 - Decision N°08-14532 (X v. CAISSE REGIONALE DU CREDIT AGRICOLE MUTUEL DE LA TOURAINE ET DU POITOU)

A person had signed a surety engagement which secured the debts of his garage to a bank. The same person had also guaranteed two promissory notes to the benefit of this same bank.

The Garage didn't pay the amount of the loan in due time and therefore the bank sued its director both as a surety and as guarantor for the payment of the two promissory notes.

The director challenged these claims by stating that article L 313-22 of the monetary and financial code hadn't been respected. Article L 313-22 provides an obligation to inform the surety each year of the amount of the debt which is secured plus interests.

The Court of appeal condemned the director to pay a certain amount refusing to apply provisions of article L 313-22 to the guarantees given to the promissory notes.

The director appealed before the Cour de cassation.

The Cour de cassation approved the Court of appeal's decision. The guarantor of promissory notes couldn't benefit from the protection which was applicable to the surety.

The protection of the surety isn't extended by the court to other similar guarantees. Extending this protection to other securities could affect the effectiveness of commercial relations especially for international contracts when securities must be solid to ensure a certain trust between two companies. If guarantees were easily challengeable, the trust could disappear and the commercial relations fail.

By Olivier VIBERT, Avocat, Paris

Article published in the European Journal of Commercial Contract Law.

The first civil chamber of the Cour de cassation had in this case to determine a question of jurisdiction in a dispute between two parties in a commercial contract.

Cour de cassation Commercial Chamber, September 30, 2009 - Decision N°08-17587 (THINET INTERNATIONAL v. SAUDI BASIC INDUSTRIES CORPORATION)

A Saudi company had passed a construction contract for its head office in Riyadh. The contract had a clause defining the question of jurisdiction. A dispute occurred between the two parties. The French company undertook litigation before the court designated in the contract, one of the Saudi Courts.

The Court of Saudi ruled that they didn't have jurisdiction for commercial disputes. The Saudi appeal Court confirmed the lack of jurisdiction.

Since the Courts of Saudi designated by the contract didn't have jurisdiction for the dispute, the French company therefore decided to undertake a new litigation before the French Courts by applying article 14 of the civil code.

An alien, even if not residing in France, may be cited before French courts for the performance of obligations contracted by him in France with a French person; he may be called before the courts of France for obligations contracted by him in a foreign country towards French persons.

The Commercial court of Paris ruled that it had jurisdiction. The Appeal court confirmed the French jurisdiction.

The question was then raised before the Cour de cassation.

The Cour de cassation approved the Court of appeal's decision.

The Cour de cassation confirmed the criteria used by the court of appeal which were:

- THINET was a French company with its head office in Paris.

- The court designated by the contract's jurisdiction clause declared itself not competent to deal with this kind of dispute,

- finally the Court had found that no other courts in Saudi had been seized of this issue.

Article written by Olivier VIBERT,

This articles has been published in the European journal of commercial contract law EJCCL.

French judges rule that the participation to a fair each year several times in a row is an established commercial relation. If one of the party terminates suddenly this commercial relation by refusing to grant a stand in this fair, the other party can claim damages.

Cour de cassation Civil chamber, September 15, 2009 - Decision N°08-19200 (Société CHRISTIAN CARBONNIERES v. COMEXPO PARIS)

The Cour de cassation detailed its position with this decision regarding a sudden termination of commercial relations.

A company intervening in the wine industry as a trader CHRISTIAN CARBONNIERES, didn't have a stand in a fair in Paris called LA FOIRE DE PARIS.

CHRISTIAN CARBONNIERES had been participating for several years in a trade fair called “VINS ET GASTRONOMIE” which had been renamed “SALON TERRE DE FRANCE ET D'EUROPE”. These trade fairs were more generally part of “LA FOIRE DE PARIS” organised by COMEXPO PARIS.

COMEXPO informed CHRISTIAN CARBONNIERES by a notice sent on the 21st of september 2004, that traders were for the future not admitted to the trade fair. The organizers wished to limit the trade fair only to certain professions of the wine industry and traders were not welcome anymore.

CHRISTIAN CARBONNIERES, seeing his demand for a stand on the trade fair being rejected, undertook legal action against the organiser. This demand had been made on the ground of a sudden termination of established commercial relations.

The Paris Court of Appeal ruled that indeed the participation each year to a trade fair could be defined as an established commercial relation. This commercial relation had been terminated without any notice and therefore damages could be claimed by the wine trader.

For the Court of appeal the article L 442-6 I 5 of the French commercial code hadn't been respected.

The organiser COMEXPO decides to bring the case to the French civil Supreme Court.

The question brought to the Court was whether the participation to a trade fair each year for several years, could be seen as an established commercial relation even though their was only one trade fair per year and therefore their was only one contract per year with a term of one or two weeks.

The second question was to determine if the organizer had terminated these commercial relations by simply modifying the conditions of participation to the fair.

The Cour de cassation rejected the appeal. The Cour de cassation approved the appeal decision considering that the definition of established commercial relations wasn't conditioned by the existence of permanent and continuous relations between parties. For the Cour de cassation, a succession of punctual contracts could constitute established commercial relations.

For the Court of appeal, the commercial relations consisted in a series of services provided by the organizer to the person having his stand at this fair. These services were the allocation of a stand in the Fair, communications, promotions, invitations ...

The Court of appeal then had ruled that the contractual relations weren't continuous but the participation was renewed for more than ten years. The Court of appeal therefore ruled that the commercial relations were established.

This decision of the commercial court of the Cour de cassation resumes perfectly the difference between the termination of a commercial contract and the termination of commercial relations. In this case there was no termination of a contract since every year a new contract had been signed. The notion of termination of commercial relations is larger. It can of course include the termination of a contract but it can also consist in the non renewal of a contract with a fixed term. The protection of article L 442-6 I 5 of the French commercial code is therefore larger than the usual protection of a party in a contract.

By Olivier Vibert, Attorney, Paris.

Article published in European Journal of commercial contract law. EJCCL.

Cour de cassation 1st Civil chamber, February 25, 2010 - Decision N°08-14787

The owner of a property in France had given an exclusive mandate to a real estate agent in order to sell his house.

The real estate agent found a potential buyer for the property. The real estate agent had sent a promise to sell the property within the scope of his mandate.

The buyer accepted the promise to sell the house but the seller then refused to proceed with the sale of the real estate property, challenging the validity of the mandate.

Under French law the sale is made as soon as the agreement is found on the object of the sale and its price. The sale was therefore normally concluded and definite. Nevertheless the seller refused to pursue the sale.

The buyer undertook litigation to ask for the Court to enforce the sale. The seller challenged these claims by arguing that the mandate he had given to the real estate agent was in fact null.

The seller considered that the real estate agent hadn't respected the formalism of an exclusive real estate mandate. The real estate should have given one sample of the mandate immediately to the seller.

The Court of appeal ruled that the mandate wasn't null. For the court the fact that the seller hadn't received any sample could only invalid the clause concerning the exclusivity but not the whole mandate.

This decision was overruled by the Cour de cassation which considered that the whole mandate was null.

Article 78 of the decree 72-678 only provides that the professional real estate agent needs to give a sample of the mandate to the owner. The sanction to this formality is that the clause isn't applicable.

The Cour de cassation therefore went beyond the decree by ruling that the whole mandate was null when this formality hadn't been respected.

This interpretation of article 78 and its consequences give a whole new interest to its formalism. If only the exclusivity clause had disappeared the real estate agent would have had no interests in applying the decree. The agent would have had the possibility of making the deal. To challenge the exclusivity once the sale was made would then have no sense.

It's interesting to see how in this decision the judge have interpreted article 78 of the decree to enforce this formality on practical terms.

Written by Olivier Vibert, attorney, Paris

Article Published on the EUROPEAN JOURNAL OF COMMERCIAL CONTRACT LAW.

A party in a contract cannot oppose a condition precedent clause if in fact this party has deliberately blocked its realisation.

Cour de cassation, 3rd civil Chamber, January 5, 2010 - Decision N°09-10524 (GRANDE PHARMACIE DE LA GARE v. PUEL)

A commercial lease had been signed between two parties. According to this commercial lease, the lessee had negotiated that he accepted the lease only if some modifications were made on the premises. These modifications needed an administrative authorisation.

This condition precedent had been drafted without any time limit.

The administration refused to deliver the authorisation for the repairs of the premises. This refusal wasn't definite but in fact the administration had asked for extra repairs which were more expensive than the lessee's expectations. Since the lessee had refused to make the repairs required by the public authorities, the administrative authorization never had been granted.

The lessee asked to cancel the contract, since the condition precedent never materialised.

The Court of appeal of Montpellier (19 november 2008) refused to cancel the contract on this ground. For the Court of appeal, the lessee had voluntarily caused the refusal from the administration. Therefore he couldn't possibly use this refusal to cancel the contract in his own benefit.

The Cour de cassation, approved the Court of appeal's decision. The Court ruled that the lessee had deliberately blocked the realisation of the condition precedent and therefore the lessee couldn't use this clause to escape from his initial engagement.

This decision shows the importance of drafting correctly the contracts and the importance of defining precisely the condition precedent. Hopefully for the lessor the judge has interpreted the contract in order to make sure a party couldn't use the contract's weaknesses to escape its engagements unfairly.

Article Written by Olivier VIBERT

Published in the EJCCL EUROPEAN JOURNAL OF COMMERCIAL CONTRACT LAW.

Cour de cassation, 3rd civil Chamber, January 5, 2010 - Decision N°09-10524 (GRANDE PHARMACIE DE LA GARE v. PUEL)

A commercial lease had been signed between two parties. According to this commercial lease, the lessee had negotiated that he accepted the lease only if some modifications were made on the premises. These modifications needed an administrative authorisation.

This condition precedent had been drafted without any time limit.

The administration refused to deliver the authorisation for the repairs of the premises. This refusal wasn't definite but in fact the administration had asked for extra repairs which were more expensive than the lessee's expectations. Since the lessee had refused to make the repairs required by the public authorities, the administrative authorization never had been granted.

The lessee asked to cancel the contract, since the condition precedent never materialised.

The Court of appeal of Montpellier (19 november 2008) refused to cancel the contract on this ground. For the Court of appeal, the lessee had voluntarily caused the refusal from the administration. Therefore he couldn't possibly use this refusal to cancel the contract in his own benefit.

The Cour de cassation, approved the Court of appeal's decision. The Court ruled that the lessee had deliberately blocked the realisation of the condition precedent and therefore the lessee couldn't use this clause to escape from his initial engagement.

This decision shows the importance of drafting correctly the contracts and the importance of defining precisely the condition precedent. Hopefully for the lessor the judge has interpreted the contract in order to make sure a party couldn't use its weaknesses to escape its engagements unfairly.

Article written by Olivier Vibert,

Published in EUROPEAN JOURNAL OF COMMERCIAL CONTRACT LAW.

Negligence of a commercial agent needs to be notified instantly and the termination of the contract should be asked promptly in case of serious negligence. If not the judges will consider that the principal has accepted the misconducts by his silence.

Cour de cassation Commercial Chamber, December 8, 2009 - Decision N°08-17749 ( SOCIETE AMG2R. v. SOCIETE MARINI SILVANO)

AMG2R had signed an agency contract with a company called MARINI SILVANO. The principal decided to terminate the agency contract. The agent therefore sued the principal to obtain damages for the termination.

The Court of Appeal of Lyon (30 april 2008) ruled that the agent had committed serious negligence in the execution of the contract. The Court of appeal nevertheless sentenced the principal to pay commissions for transactions made on the agent's territory.

Both parties challenged this decision before the Cour de cassation (French civil and commercial supreme Court).

The agent considered that the alleged misconducts had occurred one year before the termination of the contract. For the Agent, the principal, by not terminating instantly the agency contract, had accepted these misconducts. The court of Appeal couldn't therefore admit these negligence since they had been approved by the principal who didn't react for more then a year.

The Supreme Court overruled the Court of appeal's decision. The Supreme Court considered that the Court of appeal should have determined if the principal had accepted the misconducts by not reacting for more than a year. The principal should therefore be aware that negligence needs to be notified instantly and that the termination should be asked rapidly. Otherwise the judges will consider that the principal has accepted the misconducts by his silence.

This position of the Supreme is neither new nor original but it's always useful to remind the risk of leaving a misconduct unanswered.

The Cour de cassation was then asked if the commission given to the agent by the Court of appeal were founded. These commissions were based on sales made in France. According to article L134-6 of the French commercial code (similar to article 7, 2 of the EC directive 86/653) when agents “are entrusted with a geographical sector or a specific group of persons, commercial agents shall also be entitled to the commission for any transaction concluded during the term of the agency contract with a person belonging to this sector or group.”

The problem was in this case that the agent hadn't specified any territory in his agency contract. The Court of appeal interpreted that the parties had defined the whole of France as the agent's territory. Despite the fact that nothing was specified in the contract, the Court of appeal interpreted the parties' will and defined the territory even though no territory was defined.

The Cour de cassation also overruled this interpretation. The Cour de cassation ruled that since no territory had been specified, the commission of article L134-6 of the commercial code couldn't apply.

The Court couldn't interpret the parties will and specify a territory when no territory had been defined in the contract.

by Olivier Vibert, Attorney in Paris

This article has been published in the European Journal of commercial contract Law.

The highest formation of the Cour de cassation has had the opportunity of ending a very long debate on the question of a credit partially guaranteed by a pledge.

The Cour de cassation ruled that when a debt was partly secured by a pledge, the payments made following the realization of this pledge should be appropriated first on the part of the debt which was secured by the pledge.

Cour de cassation, Plenary Assembly, November 6, 2009 - Decision N°08-17095 (NACC v. GAN)

A bank had a credit of 72.304 Euros over a Company.

Part of the credit consisted in an authorized overdraft for an amount of approximately 38.000 euros. The other part consisted in an unauthorized overdraft for approximately 34.000 euros.

The authorized overdraft of 38.000 euros had been secured by a pledge on furniture.

The furniture which had been pledged had been placed into an auction sale organized by an auctioneer called in France a Commissaire-priseur.

All the furniture was sold except two pieces of furniture. An amount of 46.000 euros was paid by the auctioneer.

The auctioneer then decided to give-back the two pieces of furniture which hadn't been sold to the debtor.

The bank claimed that the auctioneer should have given the pieces of furniture to the Bank since the debtor hadn't paid all its debts.

The auctioneer challenged these demands stating that the payment was higher than the secured part of the debt. For the auctioneer, the pledge therefore no longer existed and the two remaining pieces of furniture were free of any securities.

The dispute and the discussion lasted for years. The case was brought a first time before the 1st chamber of the Cour de cassation who ruled (25 may 2005) that the payment were first appropriated on the part of the debt which wasn't guaranteed and then on the part which was secured.

This position was of course very much in favour of the creditors interests who could keep the pledge or security as long as the debt existed.

The Case was sent back by the Cour de cassation to the Court of appeal of Paris (13 may 2008) who ruled against the decision of the Cour de cassation.

The case was therefore brought again to the Cour de cassation but to the Plenary Assembly, highest formation of the French Civil and commercial Supreme Court.

The Plenary assembly of the Cour de cassation ruled in this decision that when a debt was partly secured by a pledge, the payments made following the realization of this pledge should be appropriated first on the part of the debt which was secured by the pledge.

Therefore for the Plenary Assembly of the Cour de cassation, the payments of the auction sale were supposed to be appropriated first on the 38.000 euros which were secured by the pledge and then on the rest.

The payment of the price of the sale of 46.000 euros ended the security. The rest of the furniture was then free of any security.

The Plenary Assembly ruled that the auctioneer could perfectly give back the two pieces of furniture to the debtor since they had been freed of the pledges by the payment of 46.000 euros.

This position is very much in favour of debtors. Creditors cannot appropriate payments in their own interests on the part of the debt which hasn't been secured. The plenary assembly wants the payments to be first appropriated on the secured debt and then on the rest of the debt.

Article Written by Olivier Vibert

This article has been published in the EUROPEAN JOURNAL OF COMMERCIAL CONTRACT LAW (EJCCL)

réf. : EJCCL 5-1

In this decision, the Cour de cassation ruled that the arbitration clause inserted in a contract couldn't apply to the action brought by the receiver of a winding up procedure against a former contractor. The receiver has been considered by the Cour de cassation has a third party to the commercial contract.

Cour de cassation, 1st Civil Chamber, July 1, 2009 - Decision N°08-12494 (Encore Orthopedics Inc v. Enjalbert es qualité)

A distribution contract had been signed between a company in the US, and a company in France, the French company being in charge of distributing the products of the American company.

This distribution contract had a jurisdiction clause by which jurisdiction was given to an arbitration Court.

A first dispute had been already settled by the arbitrator but then the French Company was winded up.

The French Company's liquidator claimed that the American company had in fact acted as the chairman of the company and therefore asked the American company to support the debts of the French company.

This demand was brought by the liquidator before the French commercial Courts. The American company claimed the French courts didn't have jurisdiction since only the arbitration courts were designated by the contracts.

The Cour de cassation in this decision accepted the jurisdiction of the French Courts stating that the liquidator wasn't party to the contract and therefore wasn't engaged by these contracts.

Considering the type of action engaged, the liquidator indeed didn't represent the company's interests but its debtors. Therefore if the liquidator didn't act for the Company's interest he could be logically considered as a third party to the contract.

It could also have been argued that the liquidator wasn't really referring to the contract but to a more global situation which was larger than the sole execution of this contract. This argument hadn't been brought forward and the Cour de cassation therefore only qualified the liquidator as a third party to the contract to admit the French Courts jurisdictions.

By Olivier Vibert, Attorney, Paris Bar Association.

This article has been published in the European Journal of Commercial Contract Law or EJCCL.

When commercial agency contracts are terminated the commercial agent needs to notify within one year of its termination its will its intentions of claiming damages.

In this decision the Cour de cassation rules that the claims made before a jurisdiction specialised for labour law disputes cannot stop this delay.

Cour de cassation Commercial Chamber, September 29, 2009 - Decision N°08-17611 (Système Log v. Grisez)

When commercial agency contracts are terminated the commercial agent needs to notify within one year of its termination its will its intentions of claiming damages.

Article L 134-12 of the commercial code provides that :

If their relationship with their principal ceases, commercial agents shall be entitled to an indemnity for the loss suffered.

Commercial agents shall lose the right to this compensation if they have not notified the principal, within one year of the cessation of the contract, that they intend to use their rights.

The legal successors of commercial agents shall also benefit from the right to compensation when the cessation of the contract is due to the death of the agent.

In this case, the agent in fact believed that the contract needed to be qualified as an employment contract. Doing so, the commercial agent claimed damages before French courts specialized for Labour law matters (Conseil des prud'hommes).

The commercial agent obtained nothing before the labour Law courts who said they didn't have jurisdiction for a litigation between a principal and its agent.

The commercial agent then decided to claim damages before the Commercial courts.

The commercial agent hadn't notified his will to claim damages within the year of the termination.

The commercial agent argued that the first procedure before the Labour law courts should be analysed as a notification of his intentions of claiming damages complying with article L134-12 of the French commercial code.

The Cour de cassation in this decision refused to qualify the first action as a notification of the commercial agent's intentions to claim damages for the termination of the agency contract.

The Cour de cassation considered that the first procedure was introduced to obtain damages on an employment contract. Therefore claiming damages for an agency contract was a claim based on a totally different ground.

The Cour de cassation refused therefore to have a wide interpretation of the notification of article L 314-12 of the French commercial code. The intention of the commercial agent to claim damages must be clearly expressed and this intention must be on the ground of the termination of the agency contract.

By Olivier Vibert, Attorney, Paris

Article published in the European Journal of Commercial Contract Law (EJCCL).

The notion of apparent representative can be crucial in commercial contracts. A company can be engaged by a contract sgned by someone appearing to be the representative.

This decision shows how a company can be engaged by someone acting has an apparent representative.

The French case law admits that a company can be engaged in a contract if a person acts apparently has its representative.

A company can be legally represented by its directors or by any persons acting on behalf of a proxy. This proxy can be a written proxy but it can also be an apparent proxy.

Cour de cassation 3rd Civil chamber, June 23, 2009 - Decision N°08-18983 (Société EST STRASBOURG v. LAROCHE)

In this case, the Cour de cassation has admitted that the company was engaged by a third party acting has representative.

A Civil Real Estate company (Société civile immobilière or SCI) was owner of a real estate good which was rented to another company. The owner accepted the extension of the lease agreeing on the price. The approval was sent by a lawyer who was in fact the son of the legal representative of the SCI who owned the place.

Then the owner tried to state to the tenant that he didn't accept the extension of the lease since this extension hadn't been duly accepted by the legal representative of the Company.

The case went to Court.

The appeal Court of Paris, found that the owner had accepted the extension of the lease and could be engaged by the letters sent by a third party acting apparently both as the owner's lawyer and as the son of the legal representative.

The Cour de cassation approved the Court's of appeal decision. The Cour de cassation ruled that the third party could legitimately appear for the tenant as the owner's representative considering that the third party said he was both the owner's lawyer and the legal representative's son.

This decision shows how French judges determine whether a third party can reasonably appear to one of the parties as a representative.

Article written by Olivier Vibert

Attorney, Paris.

This article has been published on the EUROPEAN JOURNAL OF COMMERCIAL CONTRACT LAW EJCCL Volume 2, Number 1/2, 2010

Cour de cassation 2nd Civil chamber, September 3, 2009 - Decision N°08-13952 (Torki v. BNP Paribas)

French case law implies the necessity for French banks to provide information and advice when they offer group insurances to their clients.

Most of the banking operations are now accompanied in France with insurance products. When an individual takes a loan, he's usually covered against certain risks by insurances. Usually banks offer to their clients insurance products made by insurance companies from the same group or with special agreements.

In this case the Cour de cassation, defined more closely the scope of the bank's obligations.

A doctor and his spouse subscribed an insurance contract which guaranteed a loan's payment. The Doctor got ill and stopped working being on sick leave.

The Doctor asked the insurance company to cover the monthly payments of the loan.

The Insurance company refused to take in charge the loan and stated that only the death or the absolute and definitive invalidity was covered by the insurance.

The Bank's client undertook litigation against the Bank to try and engage its liability considering the absence of sufficient information when subscribing the insurance.

The Court of appeal of Paris on November 16, 2007 ruled that the Client had already made several real estate investments and operations implying the subscription of similar products. The Court therefore considered that the Client could measure his engagements without a personalized presentation from the Bank to the client on his risks with respect of his personal situation.

The Supreme Court censured this decision. The Supreme Court ruled that the bank's obligation existed even if the Client has experiences in banking or financing operations.

Whatever the level of expertise the Bank needed to provide complete and personalized information for a better understanding of the engagements, opportunities and risks.

Article written by Olivier VIBERT, Attorney / lawyer/ in Paris.

This article has been published to the EUROPEAN JOURNAL FOR COMMERCIAL CONTRACT LAW (EJCCL Vol 2 n°1).