Case law Developments in PIL

French Supreme Court Redefines Territoriality of Enforcement over Debts

In two judgments delivered on 10 December 2020, the French Supreme Court for civil and criminal matters (Cour de cassation) extended the reach of French attachments to any claims owed to third parties established in France, irrespective of whether the third party had its headquarters in France or abroad, and irrespective of the situs of the debt.

In the most spectacular case, the Cour de cassation allowed the attachment of rents owed by an American law firm to the United States of America with respect to a building in Paris, because the American law firm was a partnership with an office in Paris.

In both cases, the creditors were represented by French boutique law firm Archipel, which has engineered the most innovative enforcement strategies in recent years in France (in particular against foreign states such as Congo).

Background

The creditor in the first case was an employee of the U.S. embassy in Paris. After he was dismissed, he sued the U.S. in French courts. The U.S. raised a number of procedural arguments, including that it had not been lawfully served, and that the personal immunity of the Ambassador prevented that he be made a joint party to the proceedings (in addition to the U.S.). In 2009, the French court rejected the arguments of the defendants, held that the dismissal was unfair and ordered the U.S. to pay over € 130,000. The U.S. refused to pay. The plaintiff had passed away in the meantime, so his heirs went back to court to obtain an order that the U.S. complies with the judgment under penalty of € 1,000 a day. The U.S. argued that the judgment had not been properly served and still refused to pay (was that to Make America Great Again?). The total sum reached € 734,000.

The U.S. owns a building in Paris that it has been renting to Jones Day for its Paris office. I understand that Jones Day is a U.S. partnership headquartered in Cleveland, Ohio. The Paris office does not have an autonomous legal personality.

The French lawyers of the employee served Jones Day in Paris with an attachment order over the rents owed by the firm to the United States.

Traditional Paradigm: Situs of the Debt

Although it was never clearly formulated by the Cour de cassation, it was widely admitted in France that the focus of the principle of the territoriality of enforcement was the location of the relevant asset. As far as debts are concerned, this meant the situs of the debt. The understanding was thus that French enforcement authorities could attach debts located in France. As debts are intangibles with no genuine location, a rule was designed, which is not uncommon: debts were deemed to be located at the domicile of the debtor. For legal persons with branches in several countries, this meant at their headquarters.

On this basis, the Cour de cassation allowed French attachement orders to reach funds held in bank accounts in foreign banches of French banks. Although the court had not expressly said so, analysts agreed that the rationale for this outcome was that the debts of the foreign branchs were situated in France, at the headquarters of the French bank.

In this case, the debt was owed by an entity headquartered in the U.S. Under the traditional paradgim, it was thus situated in the U.S., and thus beyond reach of French enforcement measures. On this ground, the lower courts set aside the attachments. The employee appealed to the Cour de cassation, and his lawyers clearly argued that a shift in paradigm was necessary.

New Paradigm: Establishment of the Third Party

The Cour de cassation allowed the appeal and confirmed the validity of the attachment of the rents owed by Jones Day to the United States.

It held that French enforcement officers could reach any third party established in France, and that, for that purpose, a third party was established in France either if it had its seat in France or if it had there any “entity” with the power to pay the debt of the debtor.

The court then made clear that whether the situs of the debt  might have been in the U.S. was irrelevant.

These rules were deduced from a redefinition of the rule of territoriality of enforcement, that the court linked to the principle of sovereignty and independence of states, ie its view of public international law. The court held the said rule meant that constraint could only be exercised on a third party established in France. It was thus concerned with persons rather than assets.

Assessment

The shift from a paradigm focused on the location of intangible assets to a paradigm focused on the location of third parties is convincing. Intangible assets in general, and debts in particular, have no physical existence, and are thus located nowhere. The location of debts at the domicile of debtors is artificial, and it is unreasonable to determine the jurisdiction of enforcement authorities on such a factor.

While the shift in paradigm is convincing, the details of the new regime will have to be determined. The criteria for determining the establishment in France of third parties were not fully debatted before the court. It is not clear what the court meant by its reference to entities with the power to pay the debt of the debtor. I will report later on the second case in which a bank established in France was found not to be such an entity.

13 comments on “French Supreme Court Redefines Territoriality of Enforcement over Debts

  1. Matthias Lehmann

    Many thanks for this, Gilles. I am wondering why the judgment creditor did not simply seize the building. After all, it belonged to the U.S.

  2. Adrian Briggs

    Suppose the evidence were to have been that, if this order had been made and complied with by Jones Day, the US may still sue Jones Day for the rent before an American court, on the footing that the payment made in France under compulsion of law does not discharge the tenant’s rent obligation to the landlord. Apart from going to show that the application of a situs rule is unreliable, would it have played any part in the decision of the French court to expose the blameless third party to future litigation trouble ? It is hard to see that it would be principled to treat the tenant so casually or badly, but placing a focus on the doubly-imaginary situs of a debt, rather than on the lex contractus of the rent obligation which the French court is interfering with, does not seem to be a good idea.

    • It is unclear what a French court would have held. In the past, the court was confronted with unsubstantiated claims that the third party might face sanctions in the country of the “situs” of the debt (banking secrecy), but not to evidence of an actual risk. There is no doubt there could be multiple claims of jurisdiction over the third party, and thus risks of contradictory decisions. Is this new in private international law? No, it is very common. There are multiple techniques for addressing the issue. One of them is the one you mention. Another is more simply and more directly recognition of prior foreign public acts (judicial or non judicial): the US should recognise the French public act which has transferred the “ownership” of the debt. If the US does not recognise an otherwise legitimate claim of jurisdiction by the French legal order (meeting the minimum contacts requirements under the Due Process clause, I would think), that will no doubt be bad for the third party, but I am not sure why it should prevent France from making a legitimate claim of jurisdiction.
      I am not sure I get your point with the lex contractus. Do you mean that enforcement should only be possible in the country designated as governing the rent obligation?

    • PS: is the third party blameless? It chose consciously to operate in France without establishing a local subsidiary, and thus chose that its liabilities would be assessed at a global level. I do not know whether the reason was to decrease its tax obligations (here the tax obligations of its partners), but it should not come as a surprise than it would also entail being liable on all your assets to pay whichever debt. Any third party willing to avoid this can set up a local subsidiary, and third parties which have not know the consequences, from which they likely also benefit.

  3. There could be several reasons, but I guess the most important was that this would have been disproportionate, as the building is likely worth over € 10 million. This being said, if this was the only attachable asset of the US in/from France, then the principle of proportionality would likely not apply. Another issue is whether it could have been argued that the building was protected by an immunity, despite being used commercially.

  4. Adrian Briggs

    Blameless is because a tenant who owes money to a landlord, like a bank which owes money to its customer, can get caught up in a fight which is not of its making. It may be ordered by a court to make a payment; it may be sued by its customer for the debt. The idea that the bank should be at risk of having to pay twice is surely inadmissible (and I don’t think separate incorporation affects the principle, even though it may affect the answer); so also with the tenant. Whether a debt has been discharged is a matter for the lex contractus: whether Rome I Art 12, or common law, it is all the same thing. If the debt owed by the tenant to its landlord is not governed by French law, it is hard to see why the landlord should accept that its contractual right to the rent has been dissolved. If (on this hypothesis) as a matter of US law the tenant still owes the rent, even if the tenant has been forced by the French courts to make a payment to another, the tenant is in jeopardy for something for which it is has no blame (again, I do not think that separate incorporation or not has any part to play in the assessment of who should be at risk). Whatever else may be true – and much is, of course, esp so far as the recognition of judgments and orders is conerned – this does not look right: it is not the tenant’s fight. I think I think that the error proceeds from the belief that debts (and why debts ? Why not credits ?) have places as distinct from proper laws. Certainly courts are right to be disgruntled when judgment debtors don’t pay. That does not justify grabbing another off the street, over whom there is, no doubt, personal jurisdiction, and ordering them to pay instead.

    • I agree that debts/credits (in French, certainly, “credits”) are rights, and that another possible analysis could be that their connection would be determined by the law which governs them. That would be a third possible paradigm for the issue at hand.

      Third parties are certainly not to blame for being involved in this fight. This being said, garnishment proceedings exist virtually everywhere, and I would suggest this reveals a wide understanding that third parties owe a duty of cooperation to enforcement authorities (whether judicial or not). The question is: the authorities of which country (which will obviously apply their law)? This is an issue of jurisdiction, and the answer should be the authorities of any country where the third party has a significant presence. So incorporation matters, and is indeed crucial. If you are a third party with a full office in Paris and you did not establish a local subsidiary, you accept that you should cooperate with French enforcement authorities seeking to enforce French judgments.

  5. Adrian Briggs

    Ah, the version of comity which is committed to respect for territoriality and the acts of sovereigns done to persons/things/actions located within their territory ? I have some sympathy for that, as it reflects a number of common law truths (and, I dare say, much else besides). Still, if the analogy with garnishment is pressed, an English court will, in its discretion, not make the payment order if it believes that the garnishee will still be liable to be sued by the judgment debtor for payment of the debt proposed to be garnished. One may well say that if you turn up in France you are subject to French legal process (when in Rome, do what the Romans tell you to do). Nobody doubts that. The question is whether the French court’s power to make an order it has, no doubt, judicial power to make should be trammeled by factors external to France but which the garnishee may wish to raise. The English view would be that such things do and should affect the discretion of the court.

  6. I would also answer this question positively. A French court should take into account certain external factors. For instance, it should take into account the existence of a foreign mandatory rule (banking secrecy law, for instance), which would result in an actual risk for the third party to be sanctioned for complying with the French order. But a French court should ignore the fact that the foreign legal order would not recognise its otherwise legitimate claim for jurisdiction and thus ignore its order to the third party. Comity goes both ways, as some US courts have held.

  7. Adrian Briggs

    The principle you propose, that the court should stay its hand when there is a risk of criminal liability if a respondent is made to perform an act, is fine as far as it goes, but it feels as though it belongs as part of the decision whether to make an order against a defendant. The garnishee is not a defendant, is not alleged to have any civil liability. He/it is ordered to do an act (because the court considers that it has jurisdiction to order him to act) which may expose him, again through no act or fault of his/its own (unless being American is a version of fault, which is a debate for another place and another day), to civil liability. That still strikes me as wrong. I think we may have arrived at the point on which we will have to agree to disagree; and I thank you for the exchange of view, which was, for me as I hope it was for you, a pleasure.

  8. The exchange was certainly a pleasure for me as well. It is also very much the project of EAPIL and this blog, which would want to be a forum for discussion of all PIL issues.

  9. Vassiliki Marazopoulou

    Thank you very much Professor Gilles Cuniberti for this post, as well as to everyone for this fruitful and in depth discussion. If I may add one more comment: It strikes me that the Cour de Cassation completely ignored the rule of art. 24.5 Brussels Ibis; not even to merely discard its application. Of course this could be attributed to French procedural rules (maybe none of the litigant parties invoked the rule or maybe the lower courts did actually take account of the rule?). However, seen purely from the Brussels Regulation point of view to merely refer to the principle of territoriality under French law and altogether discard art. 24.5 does not seem to me so obvious. After all, the respective jurisdiction established by art. 24.5 is exclusive, which means that the domicile of the parties is irrelevant.

    • Thanks for your comment. The peculiarity of French enforcement proceedings is that they are not judicial. Creditors can directly request an enforcement officer to enforce a judgment. Article 24 is only concerned with the jurisdiction of courts, and I think that it does not apply to determine the jurisdiction of non judicial authorities.

      Then, the jurisdiction of French courts to supervise the actions of French enforcement authorities is undisputable, I think, but that was not the issue.

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