A mandatory rule is not necessarily a component of international public policy

Paris Court of Appeal, Division 5, Chamber 16, 29 October 2024, No. 23/02368

The Paris Court of Appeal recently clarified the status, within the international legal order, of the rule of the French Commercial Code sanctioning significant imbalance, in particular whether or not this rule forms part of international public policy and the consequences of such a qualification.

In a decision opposing the Danish company Søstrene Grene to its former distributor in France, SG Distribution France SAS (“SGDF”), the Paris Court of Appeal was required to rule on whether former Article L. 442-6, I, 2° of the French Commercial Code, relating to significant imbalance, forms part of French international public policy.

The dispute arose in the context of arbitration proceedings initiated in 2021 by Søstrene Grene following the termination of the distribution agreements binding it to SGDF and its subsidiaries, with a view to establishing its own distribution network in France. The arbitral award, rendered by a Danish arbitral tribunal on 11 August 2022, was granted enforcement (exequatur) by an order of the delegate of the President of the Paris Judicial Court on 8 December 2022. It is this enforcement order that SGDF and its subsidiaries challenged on appeal.

In their appeal, SGDF and its subsidiaries sought the reversal of the order rendered on 8 December 2022 and requested the Court of Appeal to refuse enforcement of the arbitral award of 11 August 2022, invoking four legal grounds, all of which were dismissed by the Court of Appeal: breach of the adversarial principle, breach of the principles of contractual freedom and the binding force of contracts, breach of the rules governing insolvency proceedings, and finally—and most importantly—the Court ruled on whether the provisions of Article L. 442-6, I, 2° of the Commercial Code relating to significant imbalance, and Article 101 of the Treaty on the Functioning of the European Union (TFEU) relating to the prohibition of anti-competitive agreements, form part of international public policy.

It is this last point that is of particular interest here. The Court of Appeal first recalled, referring to recent case law of the French Supreme Court (Cass. 1st Civ., 17 May 2023, No. M 21-24.106), that when ruling on an application to set aside an arbitral award, the court assesses only the effects of the award on international public policy, and not whether the reasoning adopted by the arbitral tribunal to reach that award complies with international public policy. The Court then examined the classification of the various provisions relied upon by the appellants.

In order to reject the classification of Article L. 442-6, I, 2° of the Commercial Code as a component of international public policy, the Court of Appeal noted that “while the provisions of Article L. 442-6, I, 2° of the Commercial Code constitute a domestic mandatory rule, their violation cannot, as such, be regarded as infringing the French conception of international public policy.” While the Court could have confined itself to stating this principle, it went on to specify that “in the present case, the appellants’ reliance on these provisions forms part of a strategy aimed at protecting their private interests.”

This clarification suggests that, had the action been brought by the Minister for the Economy, as permitted by the Commercial Code, the Court of Appeal might have considered that a breach of this provision would have been contrary to international public policy. This reasoning appears to follow in the footsteps of the French Supreme Court, which, in its much-commented Expedia decision (Cass. Com., 8 July 2020, No. 17-31.536), recognised that these same provisions constituted a mandatory rule, insofar as compliance with them could be ensured by the Minister for the Economy.

In the present case, such a situation would be highly hypothetical, as the solution adopted by the Court of Appeal and the importance of qualifying a rule as a component of international public policy are relevant in an arbitral dispute, which seems incompatible with an action brought by the Minister under former Article L. 442-6, I, 2° of the Commercial Code.

Nevertheless, case law thus appears to persist in its assessment of the status of former Article L. 442-6, I, 2°, now Article L. 442-1, 2° of the Commercial Code, within the international legal order. This trend is open to criticism insofar as it varies depending on whether the action is brought by a private party or a public authority, to the detriment of legal certainty and clarity in French private international law, and therefore of its attractiveness.

By contrast, the Court of Appeal held that a violation of Article 101 TFEU, relating to the prohibition of anti-competitive agreements, would be contrary to international public policy, relying on the Eco Swiss judgment of the Court of Justice of the European Communities (CJEC, 1 June 1999, Case C-126/97).

After noting that these breaches had not been raised before the arbitral tribunal, the Court nevertheless examined them, ultimately concluding that no violation of European competition law had been established in the present case. In support of this conclusion, it emphasised in particular that the practices complained of “do not constitute one of the anti-competitive practices listed in the aforementioned articles,” a statement that raises some questions, given that the list set out in Article 101 TFEU is not exhaustive.

Through this decision, the Paris Court of Appeal appears to limit the grounds on which enforcement of arbitral awards may be refused due to the specific features of French economic law, while reaffirming the importance of European provisions in this field, particularly competition law.