National competition authorities and competent courts are, in their own territories, in charge of the implementation and enforcement of their national rules where only domestic enterprises are concerned.
National competition authorities are also empowered to apply the European competition regulation if various EU countries enterprises are possibly involved.
In order to escape this schizophrenic situation, and more seriously to harmonize their national rules with the EU texts, national authorities or courts progressively base their practices on regulations and guidelines in the EU treaty – more specifically the EU 330/2010 regulation and the guidelines on vertical restraints.
The latter has gradually become a sort of Bible for each national competition authority or court regarding the analysis of the relevant market, the de minimis or block exemptions.
As is well known, the EU regulation is under the control of the European Court of Justice, the jurisprudence of which is also inspirational.
Besides these European and national competition rules, the French Parliament, more than inspired by the Government and the Administration, introduced other rules in our commercial corpus, not directly related to vertical restraints or abuse of dominant position, but proscribing and punishing abusive commercial behaviors.
Article L442-6 of the commercial code, applicable not only to companies but also to enterprises in the sense of any entity having a commercial activity, describes various prohibited inter-party behaviours, sources of civil liability and fines.
The consequences of an infringement are incredibly heavy:
1. Besides the victim, which is allowed to claim, the Minister for economic affairs and the Prosecutor are also competent to refer the case to the Judge.
The idea is that the victim could prefer to renounce the claim out of fear of losing all its commercial relationships with its unfair but important partner.
Actually, the Minister initiates all judicial procedures and never Prosecutors.
2. In such a situation two types of consequences are incurred:
The Minister is admissible to act on behalf of the victim and can claim the reimbursement of sums unduly paid by the victim to the unfair enterprise.
Referring to mass market trials and relations between suppliers and retailers groups, amounts are extremely large.
For instance, one of the main mass market groups has been sentenced to reimburse more than €60,000,000 to its product providers (Cour d’appel Paris, 1er Juillet 2015).
But acting as the guardian of the public order, the Minister can also claim for the payment of a fine not exceeding €5,000,000, or three times the amount of the sums unduly received, or 5% of the turnover realized by the guilty enterprise in France.
For example, CARREFOUR has been sentenced to pay a civil fine of €60,000,000 (Cour de Cassation, 21 Janvier 2014).
Article L442-6 is now considered by the Court of Paris and the Conseil Constitutionnel as a criminal matter hence the application of criminal rules and of the European convention of human rights.
3. A focus needs to be made just on one item among 13 grievances: the significant imbalance in commercial relationship.
A commercial enterprise is liable in civil terms if it: “obtains, by subjugation, from a commercial partner a significant unbalanced agreement concerning rights and obligations of parties.”
Rules about the imbalance are included in civil law of many other countries in the EU, and also in ours, but the consequences are the nullity of the contract and eventually compensation for damage.
The fact is that the wording given by the article above is very uncertain and does not meet the criminal criteria but has however been considered in conformity with the French Constitution.
3.1. What does “subjugation” mean, and how could it be proved?
The answer depends on the personality and the economic/political sensibility of the Judge, being specified that, nationwide, the Paris Court of Appeal is the only one competent in this matter.
Under the chairmanship of a previous Judge, the fact that all contracts concluded between a retailer and its providers are exactly the same was considered as proof of the impossibility of any negotiation and therefore the proof of a subjugation.
However, with the current chairman, this previous jurisprudence has been abandoned and, in consideration of the criminal rules of evidence, there is no presumption any longer: direct evidence is required.
3.2. What are the “rights and obligations of parties”?
Beyond rights and obligations, the real question is whether the price should be taken into consideration.
Strictly understood, the price is neither a right nor an obligation but is the subject of obligations like payment or reimbursement.
Therefore, the Court of Paris has considered that the significant imbalance could not be applied to the price but can be applied to price clauses; for instance, indexation and revision clauses.
The Cour de Cassation disagreed with this analysis and included the price as a criterium of a potential imbalance.
Besides that, many types of clauses have been stigmatized:
- Obligation to take back unsold goods at the purchase price.
- Obligation to take back obsolete products when the upgraded one is released.
- Retroactive rebates.
Imagination is prolific in this matter.
4. How to measure the imbalance
Two possibilities exist:
The first is to consider separately each clause of the contract in search of an intrinsic imbalance to conclude with the liability of the unfair party.
The second is to consider the contract as a whole and to see if an inherently unbalanced clause is not counterbalanced by other provisions.
The latter was chosen by the Cour de Cassation.
Because of the technicality of the rule, this grievance was only implemented by the Minister against large country enterprises, but since then victim companies have begun to claim for the courts by themselves.
Consequently, more small but numerous lawsuits are in progress using this provision of the Law.
In the context of international business relations, the Law and the Cour de Cassation do not consider that these rules have the character of an international public order.
Therefore, these rules are only applicable to international contracts submitted to the French Law and consequently the first task for the Judge is to determine the law applicable to these contracts.
Without an election clause of the applicable law the Judge will have to implement the Rome 1 or Rome 2 regulations.
Our advice: Facilitate the task of the French judge and do not take any risk – expressly choose an applicable law that is not a French one.
Prepared by:
François REYE
Lawyer / Partner, TEN France
Associate Professor at the Faculty of Law of Poitiers