The Paris Court of Appeal recently set aside an award on the grounds of a violation of the principle of equality of arms. The court had to rule on the Iraq war's impact on due process in arbitral proceedings between the Republic of Iraq and two German companies. This decision comes as a reminder that arbitration is a jurisdictional process where parties and arbitrators, while enjoying considerable freedom and flexibility, should be mindful of due process and fair trial guarantees.
The French courts recently supported the rigorous application of the principle of procedural estoppel and reiterated their commitment to the enforcement of agreements that govern arbitral proceedings. The principle prevents parties from relying on alleged irregularities that affect arbitration proceedings before the French courts if the requesting party has not initially raised them before the arbitral tribunal.
A recent Supreme Court decision confirms French law's strict approach in matters involving arbitrators' independence and impartiality. The court found that despite an arbitrator's previous disclosure that his firm had had an inactive relationship with the parent company of one of the parties to the arbitration, his later failure to disclose that this relationship had resumed created reasonable doubt as to his independence and impartiality.
The jurisdictional duality which characterises the French legal system triggers practical difficulties in international arbitrations, especially when they involve the recognition and enforcement in France of arbitral awards relating to issues of French administrative law. The Cour de Cassation recently decided on this issue, holding that civil courts have jurisdiction to rule on the recognition and enforcement of any foreign arbitral award.
The issue of sovereign immunity from enforcement is highly sensitive. It is regarded as a vital component of state sovereignty and as necessary to preserve peaceful relationships between states, and should be recognised as a matter of international comity. However, the interests of international commerce and private parties cannot be denied. The Supreme Court recently issued a key decision focusing on diplomatic assets.
The new law on the duty of vigilance for parent companies and principal contractors aims to improve the accountability of multinational companies, prevent serious incidents in France and abroad and allow parties to obtain compensation for losses which they suffer as a consequence of non-compliance. To achieve these aims, the law requires companies to draft an awareness plan and implement a monitoring and whistleblowing system. It also introduces penalties for non-compliance.
The Sapin II Law aims to support transparency, modernise business activity and combat corruption. It introduces measures to regulate executive pay in listed companies, simplify company law and modernise bond issues. Among other things, it has simplified the procedure for contributions of goodwill, abolished the prior authorisation requirement for certain transactions and simplified the procedure for issuing bonds.
The concept of de facto management makes it possible to hold a parent company liable for its subsidiary by requiring that it make up any shortfall in its assets if the subsidiary is insolvent. This ultimately leads to a piercing of the corporate veil. A recent Supreme Court ruling points to a shift in case law towards a more restrictive interpretation of de facto management, thereby reinforcing the corporate veil.
A recent landmark European Court of Justice (ECJ) ruling calls into question the type of liability incurred when an established commercial relationship is suddenly terminated. According to the ECJ, the liability is contractual, whereas for the French Supreme Court, tortious liability arises. The practical consequences of this ruling are significant in that EU law on jurisdiction differs substantially, depending on whether the liability in question is tortious or contractual.
The long-awaited reform of the law of obligations was recently issued by the Ministry of Justice. Even though the reform is mostly a codification of existing case law, it establishes a number of innovations, such as hardship and anticipatory non-performance. Legal advisers should pay close attention to the changes introduced by the reform when drafting, interpreting or enforcing contracts.
Following the introduction of Ordinance 2016-1635 and Decree 2017-1094, non-listed companies which previously were not required to disclose the identity of their shareholders and maintained confidentiality through shareholders' agreements must now disclose their beneficial owners not only when a company is set up, but also on a continuous basis. However, the definition of a 'beneficial owner' remains unclear.
The foreign investment rules provided under the Monetary and Financial Code were recently amended. M&A practitioners have welcomed the reform of the foreign investment rules, as it reduces the paperwork for foreign investments not falling within the scope of the prior authorisation regime. In addition, this reform has removed a cumbersome administrative procedure considered redundant.
The Macron Law and its implementation decree constituted breakthrough legislation for intercompany loans as they provide new exemptions to the French banking monopoly. The reform allows companies to overcome the difficulties faced when trying to secure a loan from banks and credit institutions. However, the newly authorised intercompany loans remain subject to several conditions that may significantly narrow the impact of this reform.
New rules on signing authorities were recently introduced in Article 1161 of the revised Civil Code in order to prevent direct and indirect conflicts of interest. However, the application of Article 1161 has become a source of concern for M&A practitioners and the impact of the new rules of representation of multiple parties in M&A agreements is a complex issue subject to ongoing legal debate.
In leveraged buyout transactions, institutional investors that retain the management team in order to continue to run the business often set up put and call options over the managers' shares, which are generally exercisable over any managers exiting the target. These put and call options often include good and bad leaver mechanisms. The Supreme Court recently affirmed the validity of bad leaver provisions, including price discounting mechanisms in the context of an employee's departure.
The new government has upheld its promise to reform French labour law and enacted five ministerial orders, one of which is dedicated to the so-called 'visibility and securing of working relationships'. In particular, a damages scale, which will be mandatory for the judge and parties, will be introduced to provide security and clarity regarding the consequences of potential litigation. This scale, through the predictability that it provides, is meant to remove uncertainty and allow the creation of jobs.
One of the key components of any franchise agreement is the transmission of know-how by the franchisor to the franchisee. Absent this, the agreement may be held null and void or requalified as a mere distribution agreement. In a recent decision, the Supreme Court held that the absence of any pilot outlet run by the franchisor does not amount to a lack of know-know transmission.
Under French civil law, a party to a contract has a duty of loyalty to its contracting party in the performance of the contract. The Supreme Court recently applied this duty of loyalty to a franchisor which had concluded a framework contract with a master franchisee. The court held that the franchisor did not cooperate with, assist or advise the master franchisee loyally. The court also held that it had terminated the framework contract in an unfair manner.
Franchise agreements often contain pre-emption rights allowing franchisors to take over the shares or assets of their franchisees with priority over third parties. The rationale behind these rights is to guarantee the continuity and consistency of the network that the franchisor has gradually built and avoid the leakage of know-how to competitors. Two recent court cases have shed some light on the validity of pre-emption rights and their enforcement with regard to franchisees and their shareholders.
Franchising agreements are often part of a wider relationship between a franchisee and its franchisor. Some franchising networks include a business lease granted by the franchisor or one of its affiliates. While the combination of a franchising agreement and a business lease may seem odd, there are several circumstances under which a business lease may be entered into alongside a franchising agreement.
After a heated debate, the National Assembly has finally adopted the bill relating to new freedoms and protections for undertakings and employees. Although the far-reaching amendment requiring franchise networks to establish social dialogue committees has been softened, most franchise networks will likely still be concerned that the new provision could negate the legal independence of franchisees and their authority over employees.