Overriding mandatory provisions in international distribution matters

The electio juris clause, whereby the parties agree on the law applicable to the contract, is one of the most important clauses to be negotiated in an international distribution contract since it will determine the validity of the contract, the obligations of the parties and the termination conditions.
However, the parties should be aware that, notwithstanding their choice of law, some provisions of the country where the obligations of the contract are performed, considered as overriding and mandatory, may apply.

Within the EU, Article 9 of Regulation n° 593/2008 of 17 June 2008 on the law applicable to contractual obligations, define overriding mandatory provisions as “provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organization, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation”.

Some examples of overriding mandatory provisions applicable to international distribution contracts under French law are explained hereunder.

Article L. 330-3 of the French commercial code requires that any person who provides to another person a trade name, brand or corporate name, by requiring therefrom an exclusivity, shall provide to the latter a precontractual document giving truthful information allowing that person to commit to this contract in full knowledge of the facts.

This text applies to many distribution contracts such as franchise or exclusive distribution contracts. The Court of Appeal of Paris has ruled that article L. 330-3 was an “overriding mandatory provision”, meaning that if a foreign franchisor was to conclude a franchising agreement with a franchisee established in France, even if the parties elect a foreign law as applicable to the contract, the Franchisor would have to fulfill this obligation of information1.

Failure to provide the franchisee with all mandatory information provided by this article, the contract could be considered as null and void in case of litigation.

Article L.442-6 I 5° of the French commercial code has also been considered as overriding mandatory by French courts2. According to this article, any producer, trader, manufacturer who abruptly breaks off an established business relationship, even partially, without prior written notice commensurate with the duration of the business relationship and in line with standard commercial practices, shall be held liable.

This article applies to distribution agreements performed on the French territory, even if the suppliers and distributors are established in another country. Thus, the parties will not be able to terminate the contract without sufficient notice.

It is also very interesting to see that overriding mandatory provisions will bind the arbitrators, even if, unlike the judges, they do not have a forum.
Indeed, the parties are allowed to challenge the arbitration award before the court of appeal in various cases, and in particular, in case of contradiction with public order rules.
In the Eco Swiss case, the European Court of Justice has ruled for instance, that the arbitrators are bound by article 101 of the Treaty on the Functioning of the European Union on cartels. According to the reasoning of the court, article 101 constitute public policy and if the national rules of
procedure allow annulment of an award in case of failure to observe national rules of public policy, then the award failing to apply article 101 of the TFUE should be annulled3.
This means that, if the parties elect Paris as the seat of arbitration, and regardless of the parties’ place of business, French national rules being applicable, the provisions of article 101 of the TFUE will apply.

Based on the above, it is highly important for the parties to international distribution contracts to be aware of the overriding mandatory provisions applicable in the country where the contract is being performed, first of all once the contract is being negotiated and then in case of litigation.

 

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