Challenging the Fragmented Treatment of Distribution Agreements in EU Private International Law
This post was contributed by Heloise Meur, who is a lecturer at Paris 8 University.
International distribution agreements are a significant source of litigation which result in legal uncertainty. First, these contracts are not typical ones: they belong to a group of contracts which organize a kind of cooperation between the parties. Second, they are particularly subject to emerging forms of economic regulation. That has revealed a mismatch between traditional conflict-of-law methods and the structure of distribution agreements. It was therefore necessary to consider a more appropriate legal treatment of distribution agreements and try to resolve this mismatch.
This topic is central to the reflections presented in this book, which stems from a PhD thesis on Distribution Agreements in Private International Law, supervised by Professor Sylvain Bollée, which was recently published with Bruylant (Les accords de distribution en droit international privé).
To this end, the work first provides an overview of the inconsistencies in the treatment of distribution agreements under current private international law, highlighting the causes of dysfunction in traditional conflict-of-law and jurisdictional rules (Part I). It then proposes a renewed and coherent approach to the treatment of distribution contracts in private international law (Part II).
Critique
The overview of the difficulties raised by current private international law successively addresses the traditional issues, relating to the fragmented treatment of the contractual aspects of distribution agreements (Part I – Title 1), followed by the more recent issues, concerning the uncertain methodological treatment of the competition-related aspects of international distribution (Part I – Title 2).
Distinguishing between Framework and Implementation Contracts?
The traditional difficulties associated with distribution agreements in private international law stem, first and foremost, from the existence of a distinct category of “framework distribution contract,” separate from the implementation contracts that typically comprise the overall distribution arrangement (Part I – Title 1 – Chapter 1). The recognition of a “framework distribution contract” category makes it particularly challenging to apply the connecting factors used in contract conflict of laws. As a result, neither the obligation forming the basis of a claim under Article 7(1) of the Brussels I bis Regulation nor the characteristic performance under the Rome Convention can be identified. Attempts to simplify matters by classifying the framework contract as a “provision of services” under Brussels I bis (Case C-9/12, Corman-Collins), or by applying objective criteria under Articles 4(1)(e) and (f) of the Rome I Regulation did not resolve all difficulties arising from the reduction of the distribution contract to a framework contract. Moreover, these attempts of simplifications have generated new questions: What constitutes a “distribution contract” within the meaning of Article 4(1)(e) of Rome I Regulation? Where is the place of delivery of a “distribution service” under Article 7(1)(b) of Brussels I bis?
Secondly, treating framework distribution contracts as a distinct category in private international law introduces risks of contradiction, resulting from the potential application—possibly by different courts—of different laws to each contract within the overall distribution arrangement (Part I – Title 1 – Chapter 2). The strong interdependence between framework contracts and their implementation contracts makes it difficult to clearly separate issues pertaining to each individual contract. The termination of the framework contract halts the conclusion of implementation contracts. A breach of obligation in one contract may lead to the non-performance of an obligation contained in another one which takes part to the distribution operation. Therefore, a coherent legal treatment of distribution agreements lies on the parties, who must choose the law applicable to the entire contractual arrangement. However, equally complex questions regarding the extension of choice-of-law clauses or jurisdiction clauses—whether state or arbitral—across the entire arrangement appear. No existing remedy adequately resolves this difficulty.
— The distinction between framework distribution contracts and their implementation contracts, posited as an axiomatic starting point, appears as the first source of the difficulties in the legal treatment of distribution agreements.
Competition Law
More recently, the majority of caselaw relates to disputes concerning the competition-related aspects of distribution agreements (Part I – Title 2). These agreements raise broader questions about the relationship between private international law and competition law. First, distribution agreements constitute vertical restraints, which are strictly regulated under European competition law. In addition, the application of French law on restrictive trade practices, as set out in Title IV, Book IV of the Commercial Code (Articles L440-1 to L444-1 A) ), further complicates matters.
Both European competition law and French law on restrictive practices are particularly relevant to distribution and share a common feature: their mandatory nature, which does not easily accommodate territorial boundaries. As a result, distribution agreements have come to exemplify the complexity of the relationship between competition law, broadly understood, and international contract law, which is fundamentally based on the principle of party autonomy. This relationship is marked by a recurring tension between classifying competition-based claims as either tortious or contractual (Part I – Title 2 – Chapter 1), reflecting an underlying uncertainty regarding the appropriate methodological approach. Indeed, classifying such claims as tortious allows them to be removed from the contractual domain and from the principle of party autonomy, which would otherwise often lead to the application of overriding mandatory provisions (lois de police) to ensure the enforcement of competition law in its broadest sense. However, each of these approaches presents implementation challenges that continue to undermine the predictability of legal outcomes (Part I – Title 2 – Chapter 2).
— The tension between party autonomy and the mandatory nature of competition law has emerged as the new source of difficulty in the private international law of distribution.
Proposal
Following these observations, the present work proposes a more coherent treatment of distribution agreements by seeking to resolve both the original and contemporary sources of the identified difficulties. As a preliminary step, this renewed approach led to clearly define contractual and tortious matters within European private international law (Part II – Title 1). Only thereafter was a unified and more consistent treatment of the distribution contract within this clearly defined contractual domain proposed (Part II – Title 2).
After establishing the necessary methodological foundations for the emergence of an autonomous definition (Part II – Title 1 – Chapter 1), a redefinition of the contractual domain in European private international law was advanced (Part II – Title 1 – Chapter 2). Departing from the Jacob Handte solution (Case C-26/91, Jacob Handte), the Court of Justice gradually endorsed the criterion of contractual cause, which has become the sole criterion following the recent abandonment of the party identity requirement (Joined cases C-274/16, C-447/16, C-448/16, Flightrights;, Case C-337/17, Feniks). It is now sufficient to determine whether the claim could have been brought before a court if no contract existed between the parties—thus encompassing both the purely conventional effects of the contract and its statutory effects, such as obligations arising under the law on restrictive trade practices. This definition, which allows for greater autonomy of the contractual domain, has proven to enhance the predictability of legal outcomes. Unfortunately, its application by the Court of Justice remains inconsistent.
Single Category
Building on this clarification, the research undertook to propose a renewed and more coherent treatment of the distribution contract. This coherence was first achieved through a unified qualification of the contract under European private international law (Part II – Title 2 – Chapter 1). The “distribution contract,” encompassing both the framework agreement and its implementation contracts in accordance with applicable international instruments, is defined as the agreement by which an independent distributor obtains products or services from an independent supplier for resale on the market, with this purchase-for-resale operation facilitated by the imposition of vertical constraints. This (re)definition of the “distribution contract” category ensures both material unity—drawing inspiration from definitions found in European competition law—and structural unity of distribution contracts. As thus defined, the distribution contract cannot be reduced to the category of “the provision of services” under Article 7(1)(b) of the Brussels I bis Regulation, contrary to current jurisprudential interpretations.
This renewed treatment of the distribution contract could be the starting point for a rethinking of conflict-of-law rules, particularly by limiting the scope of party autonomy (Part II – Title 2 – Chapter 2). Indeed, the effectiveness of choice of law clauses now appears significantly undermined in light of the growing number of internationally mandatory rules to fight against anti-competitive practices. Moreover, distribution relationships typically involve a weaker economic party and a stronger one, the latter often seeking to choose the law most favourable to its interests, contrary to autonomy ratio legis. Consequently, legal predictability seems to require the abandonment of the principle of party autonomy in favour of an objective connecting factor in conflict-of-law matters—namely, the territory in which the distribution is carried out (see Article L444-1 A of the French Commercial Code).
Since the stronger party would no longer be able to select the applicable law solely based on its own interests, it appears sufficient to regulate the principle of autonomy through the principle of effet utile in matters of jurisdictional conflict. Following the approach of German judicial practice, a jurisdiction clause may only be disregarded if it is demonstrated that the court of a third State designated by such a clause will not apply the relevant internationally mandatory law. In such cases, a court of a Member State seized in breach of the clause may set it aside. Accordingly, the consistent application of protective foreign provisions and new European regulations by all courts within the Union will help foster a culture of loyalty in commercial relations, just as the application of European competition law has facilitated the emergence of a shared culture of competition.
Finally, the (re)definition of contractual and tortious matters can address existing challenges in positive private international law regarding the determination of the internationally competent court. As such, the creation of a specific jurisdictional rule for distribution contracts does not currently appear necessary. Indeed, disputes in international distribution, which primarily concern non-obligational effects, should principally fall under Article 4 of the Brussels I bis Regulation, thereby ensuring satisfactory predictability for the parties in resolving their disputes. At most, one might consider the creation of a special conflict-of-law rule applicable to competition matters, irrespective of whether the action is contractual or tortious in nature, to prevent the instrumentalisation of existing conflict rules—currently evident in the case law of the Court of Justice—for the purpose of advancing private enforcement.