Sudden termination of a supplier / distributor relationship : tort or contractual ?

The Court of cassation applying the CJEU case law ruled that « an action for damages founded on an abrupt termination of a long-standing business relationship is not a matter relating to tort, delict or quasi-delict within the meaning regulation 44/2001 if a tacit contractual relationship existed between parties. » (Cour de cassation, Commercial chamber, September 20, 2017 n° 16-14.812)

 

A Belgian company designed and manufactured agricultural equipment. These products were distributed in France by a French company since 2003.

The Belgian company terminated its commercial relationship with the French distributor 7 years later.

The French distributor filed a claim against the Belgian supplier for the brutal termination of established commercial relations.

The Belgian supplier argued that Belgian Courts had jurisdiction over this matter.

The Commercial Court of Paris declared itself competent.

The Court of Appeal ruled in favor of the jurisdiction of the Belgian judge.

The Paris Court of Appeal applied Article 5 (1) of the EC Regulation 44/2001 of 22 December 2000.

“A person domiciled in a Member State may, in another Member State, be sued:

1. (a) in matters relating to a contract, in the courts for the place of performance of the obligation in question;”

This provision then specifies that the place of performance is:
– for the sale of goods the place where the goods were delivered or should have been delivered,
– for the provision of services, the place where the services were provided or should have been provided.

The Court of Appeal thus classified the dispute as a contractual matter.

The distributor maintained that the claim for compensation for a sudden termination of commercial relations was of a tort nature in the absence of a framework agreement or a contract between the Belgian supplier and the French distributor.

The distributor asked for the application of Article 5 (3) of the same regulation to locate this matter on the French territory.

“A person domiciled in a Member State may, in another Member State, be sued:

3. in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur;”

For the distributor, in the absence of a contract, the sudden termination of long standing business relationships was of a tort nature.

The matter was raised to the Court of Cassation. Was the dispute related to a contractual or delict claim ?

The Court of Cassation applied the position of the Court of Justice of the European Union.

An action for damages founded on an abrupt termination of a long-standing business relationship is not a matter relating to tort, delict or quasi-delict within the meaning regulation 44/2001 if a tacit contractual relationship existed between parties.

This tacit contractual relationship must be based on a body of consistent evidence, “which may include in particular the existence of a long-standing business relationship, the good faith between the parties, the regularity of the transactions and their development over time expressed in terms of quantity and value, any agreements as to prices charged and/or discounts granted, and the correspondence exchanged”.

The Court of Cassation referred explicitly to a ruling of the CJEU of 14 July 2016 Aff. C-196/15 on a preliminary question raised on the qualification of an action for damages founded on an abrupt termination of a long-standing business relationship.

The Court of Cassation using the criteria defined by the CJUE, confirmed the Court of Appeal’s decision.

 

Several elements made it possible to qualify the contractual relationship according to the Court of Cassation:

– The fact that, during 7 years, sales of products were made by the Belgian Suppliers to the French distributor.
– The fact that these products were bought to be distributed in France

 

The Court of Cassation then confirmed the jurisdiction of the Belgian judge because the sales contracts terms and conditions included a « place of delivery » clause specifying that « the goods are supposed to be delivered from our stores before shipment ».

According to this contractual clause, goods were transferred to the distributor, in Belgium, at the supplier’s premises. The application of Article 5 (1) therefore led to give jurisdiction to Belgian courts.

Return to square one after more than two years of proceedings. The distributor will have to undertake a new legal proceeding before the Belgium Courts.

The contractual nature of a supplier / distributor dispute will be almost always contractual in the light of the criteria adopted by the Court of Cassation in this decision. The sale for several years of products to be redistributed in France covers nearly all supplier / distributor relationships.

Article 5 (1) of Regulation 44/2001 (for disputes arising before 10 January 2015) now replaced by Article 7 (1) of Regulation 1215/2012 (for disputes after 10 January 2015) will almost always define the jurisdiction for such claims.

 

Article Written by Olivier VIBERT, Partner at IFL AVOCATS.

Lawyer at the Paris bar Association.

 

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