In a judgment of 23 November 2021, the Paris Court of Appeal ruled that the French provisions implementing the 1986 Agency Directive are not overriding mandatory provisions, and thus do not define French public policy.
It is hard to reconcile this judgment with the Ingmar case of the European Court of Justice.
Swiss company Guess Europe entered into an agency contract with a French company to market its products in France. The agency contract provided for the application of Swiss law and, it seems, arbitration in Switzerland.
After the French agent did not meet its target, Guess terminated the contract without paying any indemnity for termination. It then initiated arbitration proceedings seeking, inter alia, that it did not owe anything under the agency contract. Guess partly prevailed: the arbitrator ordered Guess to pay certain commissions, but ruled that it did not owe anything else.
In parallel, the French agent initiated proceedings before French courts against the French subsidiary of Guess seeking payment of commissions and production of certain documents for the purpose of determining the amount of its indemnity after termination. The action was dismissed on an unknown ground. The parties debated whether Guess France could be characterised as principal before both fora, so it is possible that the agent lost on the ground that Guess France was not concerned with these claims.
Guess Europe obtained a declaration of enforceability of the arbitral award in France. The French agent appealed and argued that the award was contrary to French public policy.
The main argument of the French agent was obviously that the European Court of Justice held in Ingmar v. Eaton (C-381/98) that
Articles 17 and 18 of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents, which guarantee certain rights to commercial agents after termination of agency contracts, must be applied where the commercial agent carried on his activity in a Member State although the principal is established in a non-member country and a clause of the contract stipulates that the contract is to be governed by the law of that country.
This strongly suggested that these provisions of the Agency Directive should be considered as overriding mandatory provisions by the Member States.
If so, it would also seem that these provisions should define the public policy of the Member States.
The Judgment of the Paris Court of Appeal
The Paris Court of Appeal, however, ruled that the French provisions implementing the Agency Directive (articles L. 134-1 et seq. of the French Commercial Code) do not define French international public policy. It held:
an internal mandatory rule, even if it is the result of the transposition of a European directive, the imperative nature of which has been recalled by the Court of Justice of the European Union, is only likely to come under the French concept of international public policy if, after having verified its applicability to the dispute, its disregard violates this concept, that is to say the set of rules and values whose disregard cannot be tolerated by the French legal order, even in international matters (§29).
The Court found, however, that the dispute fell within the scope of the Directive. But it then ruled that the purpose of the Directive is not to define the most essential values and principles which should trigger the public policy exception.
The Court ruled that the provisions of European Union law
even if they are described as mandatory, do not all pursue objectives aimed at guaranteeing essential principles or values whose disregard by the Member States cannot be tolerated in an international context (§ 39)
and that this was not the purpose of the aforementioned directive and its transposition, the objective of which
is essentially to harmonize and approximate the laws of the Member States with regard to the defence of the private interests of commercial agents without the protection of vital interests of those same Member States being at stake, or even if it is clear from such provisions that they are necessary for the implementation of a compelling policy of defending freedom of establishment or undistorted competition (§40).
The Court of Appeal relied on two judgments of the Cour de cassation in support of its position. One is pretty unclear, but the other one had indeed ruled that the French implementing provision was a domestic mandatory rule and thus not an overriding mandatory provision.
The debate in this case, however, was not whether French law should be applied to displace the application of the law of a third State, but whether it should be applied to displace the application of German law.
The Paris Court of Appeal certainly has a point. The reasons given by the ECJ to justify its decision show that its goal was not to assess whether the Directive serves the crucial interests of the Member States. Rather, the Court wanted to advance its own agenda of creating a single market, and used strategically private international law to that end.
This being said, there is a precedent, and it is binding on the Member States.