Month: October 2023

In four long-awaited decisions dated July 21, 2023[1], the French Supreme Court (Cour de cassation) gave a unified response to two questions that had been the subject of debate between its chambers, concerning the qualification of the two-year time limit under Article 1648 of the French Civil Code for bringing an action under warranty for hidden defects, and the time limit within which such an action may be brought.

As a reminder, the first paragraph of Article 1648 of the French Civil Code states that:

“The action resulting from hidden defects shall be brought by the purchaser within two years of discovery of the defect (…)“.

As you will have noticed, this paragraph does not qualify the legal nature of the two-year period allowed to the purchaser to bring an action in warranty for hidden defects.

As a consequence, the silence of this paragraph led the first civil chamber and the commercial chamber of the French Supreme Court to qualify it as a prescription period that could be suspended, while the third civil chamber of the French Supreme Court considered that it was a foreclosure period that could not be suspended.

The position of the French Supreme Court was therefore eagerly awaited, and it is through four cases that it came to unify the existing case-law solutions.

• Qualification of the two-year time limit (case n°21-15.809)

In the first case submitted to the French Supreme Court, a producer of long-life food products for professional use, sourcing packaging pouches from a supplier, applied to the competent court for an expert’s legal report due to abnormal swelling leading to the deterioration of certain pouches. Once the expert legal report had been issued, the producer sued his supplier for damages. The supplier then argued that the two-year limitation period under Article 1648 of the French Civil Code could not be suspended by a legal expert report claim.

It was in this context that the French Supreme Court specified that Article 1648 of the French Civil Code has not specifically qualified the time limit granted by the first paragraph to the buyer to act in warranty against the seller and then noted that this time limit had sometimes been qualified as a foreclosure time limit and sometimes as a prescription time limit, so that the requirements of legal certainty make it necessary to adopt a single solution.

The search for this unified solution led the French Supreme Court to look for the legislator’s will.

On the one hand, the French Supreme Court points out that the reports accompanying ordinance n°2005-136 of February 17, 2005[2] , which replaced the short limitation period of Article 1648 of the French Civil Code with a two-year period running from the discovery of the defect, as well as its ratification bill, mention the existence of a limitation period.

On the other hand, it recalls that the goal pursued by the legislator is to enable any buyer, whether a consumer or not, to benefit from reparation in kind, a price reduction or its restitution when the thing is affected by a hidden defect, the buyer must be able to take action against the seller within a period which may be interrupted or suspended.  

Consequently, the French Supreme Court deduced from the above that the two-year limitation period from Article 1648 of the French Civil Code is a limitation period that can be suspended when the judge grants a request for an investigative measure such as a legal expert report.

• Twenty-year time limit (cases n°21-17.789, n°21-19.936, and n°20-10.763)

The three other cases submitted to the French Supreme Court were about the relationship between the two-year time limit for bringing an action under warranty for hidden defects and the five-year limitation period under Article L.110-4 of the French Commercial Code.  

In these three cases, the defendants argued that the plaintiffs’ action was time-barred, in that the two-year limitation period of Article 1648 of the French Civil Code was, in their view, locked into the five-year limitation period of Article L.110-4 of the French Commercial Code. The defendants therefore argued that the double time limit for bringing an action had been established by case-law up to that point, since, as a reminder:

• In civil sales, prior to the entry into force of the law of June 17, 2008 on prescription in civil matters[3] , case-law held that the two-year time limit for an action under warranty for hidden defects was enclosed within the ordinary law time limit of Article 2262 of the French Civil Code, which provides for an extinctive prescription period of thirty years.

With effect from the entry into force of the aforementioned law, the new Article 2224 of the French Civil Code has reduced the duration of the ordinary law prescription period to five years, giving it a sliding starting point: the day when the holder of a right knew or should have known the facts enabling him to exercise it.

• In the case of commercial or mixed sales, Article L.110-4 of the French Commercial Code initially provided for a ten-year limitation period, then the law of June 17, 2008 reduced this period to five years to bring it into line with Article 2224 of the French Civil Code, without however specifying the starting point. The case-law has therefore clarified this starting point, considering that it can only result from the general law of Article 2224 of the French Civil Code, and start from the day the right arises.  

The French Supreme Court therefore ruled that the sliding starting point of the extinctive prescription period under articles 2224 of the French Civil Code and L.110-4 of the French Commercial Code should be merged with the starting point of the two-year period for bringing an action under the warranty for hidden defects, i.e. the discovery of the defect, and concluded that the extinctive prescription periods under Articles 2224 of the French Civil Code and L.110-4, I, of the French Commercial Code shall no longer be analyzed as special time limits for bringing an action under the warranty for hidden defects.

In view of the above,  the French Supreme Court has specified that the action for warranty of hidden defects is subject to a time limit of twenty years from the date of sale.

Finally, the French Supreme Court has ruled on the calculation of the twenty-year time limit when the sale was concluded before June 19, 2008, the date on which the law of June 17, 2008 came into force, and has specified that, in such a situation, the transitional provisions set out in Article 26 of the aforementioned law, reproduced in Article 2222 of the French Civil Code, will apply. In other words:

• In civil sales, the twenty-year period applies from the date of entry into force of the law of June 17, 2008, i.e. June 19, 2008, without its total duration exceeding the thirty-year period provided for by the former Article 2262 of the French Civil Code and which would have begun to run prior to the entry into force of this law;

• In the case of commercial or mixed sales, the twenty-year period applies if the former ten-year limitation period under Article L.110-4 of the French Commercial Code had not expired by June 19, 2008.

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[1]      n°21-15.809, n°21-17.789, n°21-19.936, and n°20-10.763.

[2]      Ordinance n°2005-136 of February 17, 2005 relating to the guarantee of conformity of the goods to the contract owed by the seller to the consumer.

[3]      Law n°2008-561 of June 17, 2008 reforming the statute of limitation in civil matters.

ECJ, September 14, 2023, Case C-27/22

In a ruling dated September 14, 2023, the European Court of Justice (ECJ) ruled that a financial fine imposed on a company by the competent national consumer protection authority for unfair commercial practices constitutes a criminal sanction when it serves a punitive purpose and carries a high degree of severity. In such a situation, the ne bis in idem principle applies.

This case concerns the application of the ne bis in idem principle, which means that an individual cannot be punished twice for the same facts with criminal sanctions.  This principle is protected at the European level by article 50 of the Charter of Fundamental Rights of the European Union (“the Charter”), which states: “No-one shall be liable to be tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union in accordance with the law“.

In this case, the authorities of two Member States (Italy and Germany) initiated sanction proceedings against the same group of automobile companies based in Germany.

Firstly, in 2016, the Italian Competition Authority (AGCM) imposed a fine of five million euros on these companies for committing unfair commercial practices, notably for installing software to distort the measurement of nitrogen oxide emissions levels in vehicles during emissions tests. This ruling was taken under national provisions implementing Directive 2005/29/EC of the European Parliament and of the Council of May 11, 2005 concerning unfair business-to-consumer commercial practices in the internal market. The companies appealed against this ruling.

Secondly, while the Italian was still pending in 2018, the Brauschweig public prosecutor’s office in Germany imposed a fine of one billion euros on one of the companies, also sanctioned in Italy, for manipulating the exhaust gases from certain diesel engines belonging to the same group of companies. Investigations had revealed that emission standards had been circumvented. Part of the fine (five million euros) was to penalize the specific behavior, while the remainder aimed to deprive the company of the economic benefit derived from the installation of the aforementioned software. This German ruling became final on June 13, 2018.

Finally, as part of the proceedings in Italy, the companies invoked the subsequent illegality of the Italian ruling for breach of the ne bis in idem principle.

Ultimately, the Italian Council of State (the referring court) will ask three questions to the ECJ:

“1) Can the penalties imposed for unfair commercial practices under national legislations implementing Directive [2005/29] be classified as criminal administrative penalties?”

“2) Must Article 50 of the Charter be interpreted as precluding a national provision that makes it possible to uphold in court proceedings and make final a criminal financial administrative penalty against a legal person in respect of unlawful conduct in the form of unfair commercial practices, for which a final criminal conviction has been handed down against that person in the meantime in a different Member State, where the latter criminal conviction became final before the ruling in the judicial proceedings brought against the former criminal financial administrative penalty became res judicata“

“3) Can the provisions laid down in Directive 2005/29, with particular reference to Article 3 (4) and Article 13 (2) of that directive, justify a derogation from the principle ne bis in idem established by Article 50 of the Charter and by Article 54” of the Convention implementing the Schengen Agreement of June 14, 1985, between the Governments of the States of the Benelux Economic Union, the Federal Republic of Germany and the French Republic on the gradual abolition of checks at their common borders ?  [CISA]”

1. On the qualification of an administrative fine imposed for unfair commercial practices as a criminal sanction

Firstly, the ECJ points out that three criteria are relevant in assessing the criminal nature of the proceedings and penalties in question: the qualification of the offence under national law, the nature of the offence and the severity of the penalty.

Applying the aforementioned criteria, the ECJ concludes that a pecuniary fine imposed on a company by the competent national consumer protection authority for commercial practices constitutes a criminal penalty when it pursues “a punitive purpose and has a high degree of severity“, even if the penalty is classified as an administrative penalty by national regulations.

2. On bis and idem

To answer the second question, the ECJ outlines the two criteria for applying the ne bis in idem principle.

First of all, there must be a prior final ruling, meaning a decision that has definitively ruled on the facts subject to a second procedure, and that this ruling was made after an assessment of the merits of the case. This is the “bis” condition. The ECJ emphasizes that it does not necessarily follow that the subsequent rulings precluded by that principle can only be those which were adopted after that prior final ruling. Indeed, the ne bis in idem principle applies once a ruling of a criminal nature has become final. In this case, the ECJ states that the “bis” condition is satisfied (subject to verification by the referring court) since the German ruling became final during the appeal procedure of the contested Italian ruling.

Next, the ECJ assesses at the “idem” condition. The ECJ points out that Article 50 of the Charter prohibits the prosecution or punishment of the same person more than once for the same offence. It stresses that the criterion for assessing the existence of the same offence is the identity of the material facts ” understood as the existence of a set of concrete circumstances which are inextricably linked together and which have resulted in the final acquittal or conviction of the person concerned ”. Finally, it is essential to highlight that the ECJ states that for the ne bis in idem principle to apply, the facts must be “identical” and not merely “analogous” or “similar”, as explained by the referring court. This assessment falls within the competence of the national judge.

3. Restriction on the ne bis in idem principle

As a preliminary point, it should be noted that the ECJ dismissed the references to Article 54 of the CISA and Articles 3(4) and 13(2)(e) of Directive 2005/29 as irrelevant. Subsequently, the ECJ comments on the limitations placed on the ne bis in idem principle. In particular, Article 52 of the Charter provides that: “Any limitation on the exercise of the rights and freedoms recognized by this Charter must be provided for by law and respect the essence of those rights and freedoms. Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognized by the Union or the need to protect the rights and freedoms of other”.

Regarding the condition related to objectives of general interest, the ECJ states that duplication can be justified by pursuing distinct objectives through the imposed sanctions. Thus, it points out that the German ruling is based on ensuring that companies and their employees act in accordance with the law, and sanctions the duty of supervision in the course of business. The Italian ruling, on the other hand, is based on a breach of the Consumer Code (transposing Directive 2005/29), the purpose of which is to protect consumers and thus contribute to the proper functioning of the internal market. Thus, in this case, the ECJ considers that the two regulations in question pursue legitimate objectives that are distinct.

Next, the ECJ addresses the proportionality criterion, which is also laid down in Article 50 of the Charter. With regard to this criterion, the ECJ states that the duplication of proceedings and penalties provided for by national legislation does not exceed the limits of what is appropriate and necessary to achieve the legitimate objectives pursued. It states that the duplication of proceedings and penalties can be considered justified if three conditions are met. The cumulation must not represent “an excessive burden for the person concerned“, there must be “clear and precise rules making it possible to predict which acts or omissions are liable to be subject to a duplication” and, lastly, the proceedings in question must have been conducted “in a manner that is sufficiently coordinated and within a proximate timeframe“.

Regarding the first condition, the ECJ notes that the amount of the fine imposed by the Italian authority corresponds to 0.5% of the amount of the fine imposed in Germany, and that the company on which the German fine was imposed accepted this fine. The ECJ concludes that this calls into question the excessive nature of the accumulation.

Regarding the second condition, the ECJ notes that there is no evidence to suggest that the company in question could not have predicted that its conduct was liable to give rise to proceedings in at least two Member States.  Moreover, the clarity and precision of the texts in question do not appear to be called into question.

With regard to the third and final condition, concerning the coordination of proceedings, the ECJ points out that there appears to have been no coordination between the proceedings. Additionally, it is noted that the German prosecutor’s office took steps with Eurojust to prevent the duplication of criminal penalties. However, the Italian authorities did not abandon criminal proceedings, and the AGCM did not participate in this coordination attempt. While the ECJ recognizes that coordination, especially involving different Member States, can be challenging, it clearly emphasizes that this coordination requirement cannot be disregarded.

Two bills have been filed with the French National Assembly, the first on July 4^th, 2023 (n°1482) and the second on July 20^th, 2023 (n°1583), to introduce a right of withdrawal for contracts concluded by consumers at trade fairs.

As a reminder, the right of withdrawal is the right of a consumer to withdraw from a distance or off-premises purchase, except for certain goods or services expressly provided by the French Consumer Code, or for loan contracted to finance the purchase.

The right of withdrawal created by Directive no. 2011/83/EU of October 25^th, 2011, on consumer rights, was transposed into national law in 2014. The European directive granted a right of withdrawal to contracts concluded “in the simultaneous physical presence of the seller and the consumer, in a place which is not the business establishment of the seller“. French law has never recognized a right of withdrawal for contracts concluded at trade fairs or shows, taking an constant position both before (Cassation Court, July 10^th, 1995, no. 93-16.958) and after (Appeal Court, Aix-En-Provence, May 4^th, 2023, no. 21/02238) the transposition of the directive.

As presented in the proposed bills, the introduction of a right of withdrawal would provide greater consumer protection. On the one hand, an average of 1,130 trade fairs and exhibitions are held in France every year, generating more than 30.5 million euros[1] , and leading to the conclusion of numerous consumer contracts. On the other hand, the French National Institute of Consumption has reported that nearly 55% of professionals do not inform consumers of the absence of their right of withdrawal for contracts concluded at trade fairs, despite the legal obligation to do so[2] .  

The first bill extends the definition of off-premises contracts, listed in article L. 221-1 of the French Consumer Code, to contracts concluded between a professional seller and a consumer ” d) on the occasion of a fair or trade show, when this contract is concluded on a stand which is not the place where the professional permanently or habitually carries out his activity“. The notion of trade fair or exhibition is widely understood as “any commercial event“.

The second bill limits the right of withdrawal to transactions carried out during trade fairs and exhibitions if they exceed € 100. In this case, the usual fourteen-day period of withdrawal will apply.  

To this end, and as for other contracts benefiting from a right of withdrawal, the professional must inform the consumer of the existence and terms of the right of withdrawal, prior to the conclusion of the contract, in legible and understandable terms[3] . The penalty for failing to provide this information is that the consumer will benefit from a right of withdrawal for a further twelve months period following the expiration of the initial fourteen-day period (i.e., a total of one year and fourteen days).

The withdrawal period runs from the time that the consumer takes possession of the goods in the case of a contract for goods, or from the time the contract is concluded in the case of a contract of services.

However, for contracts under € 100, the right of withdrawal will not apply. In this case, as is already the case for contracts concluded at trade fairs and shows which do not benefit from the right of withdrawal, the professional will have to inform the consumer of this absence of withdrawal, in clear and legible terms, in a sufficiently visible space provided for such purpose in the sales contract offer.

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^[1] “Salons et Foires en France : un puissant outil de développement pour les entreprises”, Octobre 2013, Etude Médiamétrie.

^[2] Article L. 224-59 of the French Consumer Code

[3] Article L. 221-5 of the French Consumer Code

On July 10, 2023, the European Commission adopted a new adequacy decision concerning the transfer of personal data between the European Union and the United States[1].

As a reminder, this new adequacy decision follows the invalidation in 2020[2] by the Court of Justice of the European Union (“CJEU“) of the previous 2016/1250 adequacy decision (“Privacy Shield“) due to concerns about surveillance by US intelligence services. The CJEU, after analyzing U.S. legislation on access to the data of Internet service providers and telecommunications companies by U.S. intelligence services (Section 702 FISA and Executive Order 12 333), concluded that the privacy infringements on individuals whose data is processed by U.S. companies and operators subject to this legislation were disproportionate to the requirements of the Charter of Fundamental Rights. In particular, the Court ruled that the collection of data by the intelligence services was not proportionate, and that available remedies, including judicial remedies, for individuals regarding the processing of their data were insufficient.

The European Commission has since considered that the changes made by the United States to their national legislation now ensure an adequate level of protection for personal data transferred from the European Union to US entities adhering to the EU-US Data Protection Framework (“DPF”).

In particular, the European Commission reports that the U.S. government has established a new two-tier recourse mechanism, with independent authorities, to handle and resolve complaints from individuals whose data have been transferred from the European Union to companies in the U.S. regarding the collection and use of their data by U.S. intelligence agencies.

This two-tier recourse mechanism is structured as follows:

i. Complaints are initially examined by the “Civil Liberties Protection Officer”, whoserole is to ensure that US intelligence agencies respect privacy and fundamental rights.

ii. Data subjects can then appeal the decision of the “Civil Liberties Protection Officer” to a new authority called the “Data Protection Review Court”. This impartial, independent authority is composed of members external to the US government.

Data subjects will also benefit from several legal remedies in the event of incorrect processing of their data by US companies. These include independent dispute resolution mechanisms and a special arbitration panel.

Following the adoption of this new adequacy decision, transfers of personal data from the European Union to US organization adhering to the DPF, which are publicly accessible on the DPF website[3] , can once again take place freely without the need for appropriate safeguards such as standard contractual clauses (“SCC”) supplemented by measures recommended by the European Data Protection Board (“EDPB”). [4]

The European Commission will conduct periodic reviews in collaboration with European data protection authorities and US authorities to ensure that the DPF is working properly. The first review will take place one year after the entry into force of the adequacy decision.

It is worth noting the initial opposition from French Member of Parliament Philippe Latombe who, as a citizen, filed a complaint with the ECJ against the DPF on September 7, 2023. According to the MP, the DPF does not comply with the General Data Protection Regulation (“GDPR”) and the Charter of Fundamental Rights of the European Union. He also points out that it has only been published in English, which would contravene EU rules that require regulations and other texts of general application to be drafted in the official languages[5] . The complaint has since been dismissed on October 12, 2023[6] .

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[1]https://ec.europa.eu/commission/presscorner/detail/fr/ip_23_3721

[2] ECJ, 16 July 2020, C-311/18, Schrems II: https://curia.europa.eu/juris/document/document.jsf;jsessionid=99B212F04D03066ED3C98B5A71ECF050?text=&docid=228677&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=589712

[3] DPF website: https://www.dataprivacyframework.gov/s/participant-search

[4] Recommendations n°01/2020: https://edpb.europa.eu/system/files/2022-04/edpb_recommendations_202001vo.2.0_supplementarymeasurestransferstools_fr.pdf

[5] https://www.usine-digitale.fr/article/le-depute-philippe-latombe-depose-un-recours-contre-le-data-privacy-framework-qui-lie-l-ue-et-les-etats-unis.N2168837

[6] https://curia.europa.eu/juris/document/document.jsf?text=&docid=278542&pageIndex=0&doclang=FR&mode=lst&dir=&occ=first&part=1&cid=225583

Rennes Court of Appeal, June 20, 2023, RG 21/04515

In a ruling handed down on June 20, 2023, the Court of Appeal of Rennes acknowledges that the granting of notice to a commercial agent does not exclude, as a matter of principle, the existence of gross misconduct attributable to the agent.

In this case, a principal notified its commercial agent of the termination of his contract, accusing him of several gross misconduct. However, a notice period of 3 months is granted to the commercial agent. Following this notification, the commercial agent, who carries out its profession within the company LVD as director, asked for the payment of a compensatory termination indemnity by the principal company. The latter refused to pay. As a result, LVD brought an action against the principal before the Commercial Court of Nantes, seeking payment of the termination indemnity, as well as compensation for the 16 missing days of notice.

In a ruling dated June 28, 2021, the Commercial Court dismissed LVD’s claims for termination and notice payments. As a result, the company LVD appealed the decision.

LVD’s claim relied on article L. 134-12 of the French Commercial Code, which stipulates that “in the event of termination of his relationship with the principal, the commercial agent is entitled to compensation for the loss suffered“. The company also invoked article L. 134-11 of the French Commercial Code regarding the calculation of the notice period.  The principal opposed these claims by invoking the gross misconduct committed by the commercial agent. He relied on article L. 134-13 1°, which stipulates that the indemnity provided for in article L. 134-12 is not due when “the termination of the contract is caused by the gross misconduct of the commercial agent“.

The question before the Court of Appeal of Rennes was whether the granting of a notice period by the principal automatically excludes termination of the commercial agent’s contract for gross misconduct. Then, if gross misconduct is compatible with the granting of a notice period, the question arises as to whether this notice period must be set in accordance with article L. 134-11 of the French Commercial Code.

On the first question, the Court of Appeal gives a negative answer. Firstly, like the lower court judges, it recognized the existence of gross misconduct on the part of the commercial agent. In this case, this gross misconduct was characterized by the agent’s lack of interest in his mission, his attitude, his vulgar and aggressive comments towards the principal’s employees, and his constant criticism of the principal’s commercial policy.

Furthermore, the Court states that “the granting of a notice period does not exclude, in principle, the existence of a serious fault attributable to the commercial agent”.

The Court of Appeal adds that “acceptance of a period of notice is only likely to remove the seriousness of the fault”. The words “only likely” therefore imply that it isnecessary to consider the alleged misconduct to assess its compatibility with a notice period. In this case, the Court of Appeal held that “given the nature of the established misconduct, its repeated character, and the clear attacks on the company’s personnel”, the granting of “a certain notice period for termination is not capable of removing the gravity from the gross misconduct”.

Finally, the Court of Appeal ruled that LVD should not be awarded the termination indemnity it had requested.

On the second question, the Court of Appeal once again replied in the negative. It held that the fact that the principal company, “in an effort to manage the situation as best as possible (…), by granting a certain notice period, was not obligated to comply with all the legal provisions relating to notice periods, especially when it is discretionary in the case of gross misconduct”. Therefore, the principal was not bound by the provisions of article L. 134-11 determining the notice period. Thus, the Court of Appeal dismisses the plaintiff’s claim for compensation related to the 16 missing days of notice.

This decision strengthens the principal’s freedom in determining the terms and conditions to terminate the commercial agent’s contract in the event of gross misconduct.