This post was contributed by Catherine Kessedjian, Professor Emerita of the University Paris Panthéon-Assas and Chair of the ADI/ILA 2023 Organising Committee.
In a judgment of 16 November 2022 (pourvoi n° 21-17.338), the French Supreme Court for private and criminal matters (Cour de cassation) addressed, among many other issues, the application of anational norms such as the Unidroit Principles on International Commercial Contracts.
This post will only focus on this issue.
Background
Conforama, a French Company, was contractually linked to Mab Ltd, a US company until the latter became bankrupt. Two creditors of Mab Ltd made a “saisie conservatoire” in Conforama’s hands of a certain sum that it owed to Mab Ltd. However, Conforama declared that Mab Ltd did owe it another sum of money (via several invoices issued by Conforama) and intended to apply “compensation” (set-off of debts) between the two sums in order to reduce the amount that it would have to pay to the creditors.
The Paris Commercial Court (First Instance) (Tribunal de commerce de Paris, 19 June 2019, n°2008006861) decided that Conforama’s invoices were issued without cause. Consequently, it ordered Conforama to pay the entire sum due to Mab Ltd.
Conforama appealed to the Paris Court of Appeal.
Legal Issue: Applicable Law to the contracts
At the centre of the controversy are several contracts between Conforama and Mab Ltd, from 2004 onward, titled “Commercial Cooperation” according to which Conforama issued the contested invoices. Article 4.2 of these contracts provided for set-off. French law is very strict when it comes to these types of contracts because they have led to abuses in the past. Particularly, former Article L.442-6 of the commercial Code provided that, in absence of proven counterpart, these contracts were to be declared null and void. The provisions on restrictive practices are now codified in Articles L. 442-1 to L. 442-4 of the Commercial Code (see in particular Article L 442-1 I 1°).
In this context, in order to avoid the application of French Law, Conforama argued that its cooperation contracts with Mabs were regulated by “general principles of law as applied to international commercial relations together with usages of international commerce” (translation of a quote made by the Court of Appeal out of Conforama’s brief). In addition, Conforama pointed out to Article 17 of the supplier contract of 15 July 2004 and Article 11 of its general terms and conditions of purchase of 14 October 2004 and also to the Unidroit Principles (Disclaimer: we did not have access to the exact wording of these contractual documents).
However, according to Conforama’s opponents, the cooperation agreement of 10 January 2006 referred to (former) Article 1289 of the French civil code on set-off of debts (cf. current Article 1347 of the French civil code).
The question of the applicable law to a “commercial cooperation” contract, was at the centre of the dispute with the following sub-questions: (a) what method should apply to define the applicable law when the contract is silent? (b) is the theory of “goup of contacts” helpful for applicable law purposes? (c) what role can play anational rules of law?
Application of the 1980 Rome Convention by the Court of Appeal
From this complicated contractual picture, the Court of Appeal rendered a very well-motivated decision centred on the mandatory character of French Law on the type of services Conforama pretended to invoice Mab Ltd (Paris, 30 March 2021, 19/15655). Wisely, the Court did not enter into the discussion on the matter of the ‘group of contracts’ theory or on the matter of the applicability of anational law. It simply said that the cooperation agreement did not include an applicable law provision and that the Rome Convention of 1980 (applicable ratione temporis) led the court to apply French law. Since the provisions of French law are mandatory, there was no need to go further into the arguments presented by Conforama.
Exclusion of Unidroit Principles by the Court of Cassation
At the level of the Court of cassation, Conforama altered slightly its story. Its argument can be summarised as follows. First, it argued that Unidroit Principles might be applied even though they are not mentioned expressly in a contract. Second, it insisted on the ‘group of contracts’ theory and argued that applicable law clauses contained in some other contracts did apply to all contracts that are related, including the “cooperation agreement”. Third, even if the court did decide that the contract did not include a proper choice of law clause, the cooperation contract is closely related to the distribution agreement and must be regulated by the same law.
In an unusual move for a decision that confirms the appellate decision, the Court starts with a broad pronouncement (§14 of the decision) and decides that (a) general principles applicable to international contracts, such as the Unidroit principles, may not be considered as “law” and (b) that they may not be chosen by the parties to regulate their contract according to article 3.1 of the Rome Convention of 1980.
Critical Assessment
First, this pronouncement was not necessary to the decision of the Court. It is an obiter dictum. The Court could have, as did the Paris Court of Appeal, decided that the Unidroit Principles did not apply in the case at hand (and limited its pronouncement to that) because they were simply not referenced in the contract that, apparently (although this is only implied in the discussion of the facts by the Court of Appeal) was silent on the applicable law. The Court could also reach the same decision on the basis of the mandatory nature of the applicable French provisions. Therefore, it had two avenues to confirm the Court of appeal decision without making a strong, bold, broad and overarching declaration.
Instead, for an unknown reason or out of sheer conservatism and strict positive law conception, the Court reverses years of understanding under French law (see already in that sense, Cour de cassation, 13 January 2021, 19-17.157), or at least in French doctrine, that under French law, general principles such as the Unidroit Principles could indeed have some application.
In addition, and more importantly, it was always understood that freedom of contract allowed parties to reference such non-state rules of law. This is reflected in Recital 13 of the preamble to the Rome I Regulation that reads as follows:
This Regulation does not preclude parties from incorporating by reference into their contract a non-State body of law or an international convention.
It is true that such a reference is not very common in practice. Indeed, parties may run a risk by limiting their choice of law to a non-State body of law either because that document is incomplete or would not cover the very question underlying the dispute, or because of the lack of case law to ascertain proper interpretation of these rules.
A final remark as to the effect of that part of the decision by the Court of cassation: it is rendered under the 1980 Rome Convention and not the Rome I Regulation. Strictly speaking, the Court will have to change its decision the next time it will be confronted with a similar provision in a contract regulated by Rome I. Indeed, under the Regulation, it is clear that the Court would not be able to say that parties are not allowed to choose non-State body of law as the applicable law to their contract.
I’m wondering if a difference should be highlighted, here, between choice of non-State rules as governing rules, and the incorporation of non-State rules as contractual terms, which still necessitates an analysis of governing law or rules of law. My understanding is that the Rome I Regulation does not actually allow a choice of non-State rules, but only allows their contractual incorporation (I understand that the latter is what the Recital refers to). This might be an important difference in a case like this – because rules incorporated as contractual terms are still subject to mandatory law.
Yes, that must be. If the real question is whether the unidroit principles may, as a matter of French domestic law (this being the lex contractus) be accepted or adopted by the contracting parties as part of their engagement, it’s a little hard to see what the fuss is all about…
I agree with you. This is what I tried to say in the blog but evidently it was not clear enough. My point is that the Court departed from a long standing belief that parties may choose anational rules as an “applicable law” clause (that would be their own risk).