Resolving Large Commercial Disputes in France: From Litigation to Processes of Alternative Dispute Resolution (ADR)
On Litigation: A Familiar Face
Litigation remains the most familiar method of dispute resolution, with its fixed rules of civil procedure and win-lose approach. French legal tradition is based on civil law, with a public/private law divide governing its legal structures.
The public law branch regulates the points at issue between the country’s numerous administrative agencies and private persons, whereas private law takes on matters of commercial and civil proceedings – essentially all the rest. Throughout our review we focus mainly on the workings of the ordinary courts of civil litigation and their functions for debt collection in France.
The French system of civil and commercial courts is built around a hierarchical three-tier pyramid of inferior courts of general jurisdiction, intermediate appellate courts and the courts of last resort.
At the first level stand side by side both the civil courts, tribunaux d’instances et tribunaux de grandes instance, and the commercial courts, tribunaux de commerce.
As per the Law No. 2019-222 of 23 March 2019 the inferior civil courts have merged under a single tribunaux judiciaire and hold de facto jurisdiction over the private disputes exceeding a fixed threshold of EUR 10,000. There exist, however, certain cases of laws conferring authority of specific cases to other courts.
Commercial courts function a little differently. Commercial courts judges are elected members of the business community as opposed to the traditional French career judge, trained within the French National School for the Judiciary (ENM) and have special jurisdiction over issues between traders, credit institutions and commercial companies, as well as over commercial deeds like promissory notes and bills of exchange.
The Courts of Appeal, Cours d’appel, stand as the second tier of this structure and the first level of appellate review. They are in charge of first hearing the appeals brought against the decisions of the civil and commercial courts.
The Court of Cassation, Court de Cassation, represents the highest level of appeal in the French court system. The specificity of their role lies in the scrutiny, not of the facts of the case, but of the potential legal and procedural of lower court rulings. Trial judges are solely competent on the factual matters of cases.
The discovery process seen in the Common Law system functions differently within the France system where the parties are not bound by a duty of disclosure before the courts. Judges in these cases take on the role of arbiters in the impartial evaluation of the evidence presented by the parties over the course of the trial proceedings. They may request or expedite the submission of evidence in certain cases. However, in instances of commercial disputes, proof is understood in broader terms with all types of evidence deemed relevant as long as specific laws do not stipulate otherwise. These elements of proof range from presumptions with basic facts to witness-based evidence.
A Brief Introduction to Alternative Dispute Resolution and its French Particularities
In Law No 2019-222 of 23 March 2019, French legislators took a step towards integrating ADR within court procedures. From January 1st, 2020, admissibility of specific payment and claims of neighbouring disputes will both be required, with various exceptions, to pass through mediation and conciliation processes. Litigation will serve as a method of last resort in such cases.
On Arbitration: A Binding Method of Alternative Dispute Resolution (ADR)
France was one of the first signatories of the New York Convention (UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958) and hosts the headquarters of the ICC in Paris. The Code of Civil Procedure in its 2019 reform [Law No 2019-222 of 23 March 2019] specifically aims to establish compulsory mediation in cases of low-financial impact and provides an online legal framework for cost and time efficient ADR proceedings. France has provided for third party funding to be made available in cases of arbitration proceedings.
Articles 1443 and 1507 of the Code of Civil Procedure respectively stipulate distinctive conditions of validity for domestic and international arbitration agreements. In the case of domestic arbitration agreements, a certain formality is required for the validity of proceedings. International arbitration agreements broadly understood under French law as involving international trade are not conditioned by any formal requirements.
In cases of commercial arbitration, the procedural rules in the disclosure and submission of evidence are to be defined by the contracting parties. Under article 1464 of France’s Civil Code of Procedure, domestic arbitration proceedings are subject to legal requirement and de facto confidentiality unless otherwise stipulated by contracting parties. The arbitration agreements drafted can also include the final distribution of costs of proceedings. Alternatively, the charge falls under the authority of the arbitrator.
On Mediation: A More Informal Procedure
The EU implemented the Mediation Directive (Directive 2008/52/EC) on mediation in civil and commercial issues in 2008. Its goal was to promote methods of alternative dispute resolution by increasing the accessibility of parties to mediation. France incorporated the Mediation Directive into its national legislation in 2012 through a Decree No.2012-66. Previsions were made for parties to attempt amicable settlements of their disputes, facilitated by the help of professional mediators, or conciliators of their choice. In the case of a trial however, a mediator can be appointed by the ruling judge instead. These clauses continue to be conditioned by the consent of the parties to the dispute.
Mediation in France was measured by the Center for Mediation and Arbitration of Paris (CMAP) to result in successful agreements in 70% of cases undertaken. The study found that the method was used primarily in small disputes with claims rarely exceeding EUR150,000. The key industries concerned with the mediation in France are those of (1) Trade and distribution; (2) Industry and energy; (3) Employment; (4) Real estate and (5) Construction.
There are important specificities to mediation procedures within the French dispute resolution system relating to the extended powers of judges in promoting methods of amicable settlement to disputing parties. The judge can refer the participants, conditioned by their consent, to a third-party mediator. The role of the mediator is to facilitate an exchange between parties in the goal of solving the dispute without resorting to the costly methods of litigation.
As per Article 3 of the Law No 2019-222 of 23 March 2019, France has broadened the scope of this power by making it possible for judges to set these terms at any stage in the proceedings of the case. The judge can put an end to the mediation if the process is found compromised, in which case, the initial judicial proceedings are reopened. Pursuant to Article 56 of the Code of Civil Procedure, the claimant’s attempt at amicable settlement of the dispute must be documented in the writ of summons previous to the resumption of court proceedings. Contractual and court-ordered mediation differ in the key area of cost allocation. In contractual mediation, costs are distributed within the initial contract. In the case of court ordered mediation, the allotment is established within the order itself. In the event that the mediator fees are not paid, the decision is annuled and litigation is pursued.
In a similar effort in 2018, France published Decree No.2018-101 in which outside of commercial and civil matters, mediation would be made compulsory prior to litigation proceedings in matters of social and administrative decisions on the specific personal situations of civil servants and state benefits. The Decree establishes a trial period of four years for this experimental initiative.
On Legal Fees and Funding in France:
It is interesting to note that conditional fee agreements (CFA) such as those practiced in the United States are prohibited under French law. Contingency fees however are made possible in the event that the lawyer successfully argues the client’s case when coupled with more traditional modes of payment such as billable hours or task-based fees.
The funding for litigation differs from other jurisdictions where fees are customarily higher. The third-party capital funding of court cases is uncommon but not contrary to any regulation. However, the payment made to the lawyer can be made solely from the client themselves or someone rightfully appointed.
For considerations of insurance, article L.127-1 of the Insurance Code we find that legal protection insurance is authorized under French regulation and can cover the party’s diverse legal fees as well as the costs of the litigation covered by the contracted policy.
On the Confidentiality of such Court Proceedings:
On Recovering Debt in France:
Extrajudicial methods are prioritized at the start, with many debtors convinced after only the first written demand letter from a contracted bailiff. In addition, prejudgement charges are made possible, with the permission of the Court, before initiation of judicial proceedings in order to have the debtor’s assets frozen. Such measures act as a form of guarantee for the creditor, ensuring the debtor does not transfer the disputed assets.
Once the judiciary is involved the proceedings escalate in cost and complexity. In situations of uncontested claims of dues an initial order for payment or injonction de payer is submitted by the hired lawyer. If the debtor contests, the common solution is to begin a procedure of summary decisions, une procedure de refere allowing for the Courts to make a decision without the delays of a lengthy hearing. The next step would be to commence a civil procedure, procedure au fond acting as the costliest mode of dispute resolution.
On Interim Relief Proceedings in the French Code of Civil Procedure
While there exists extensive diversity in interim injunctions proceedings, they can be categorized as each fulfilling the functions found in measures such as freezing orders or garnishee orders, search orders and prohibitory injunctions. The structures of civil procedure and debt collection in France are aimed at ensuring efficient protection both of parties involved and of their court proceedings.
In accordance with article 809 of the CPC, the appropriate measures ordered by the provisional relief judge are of two kinds and functions. Simply put, they are either in nature (a) preventative, or (b) restorative.
Preventative or restorative orders exist to interrupt acts of unfair competition or trading, limit effects of a strike or to prohibit illegal commercial operations.
It should be highlighted that the provisional relief judge can order the interim payment of a sum, despite an existing and serious dispute, if the intent is the interruption of a manifestly unlawful disturbance (ie. a failure to pay employees their due salary)
On the Specifics of Summary Proceedings in the French Code of Civil Procedure
This first text [Article 808 of CPC] stipulates three key conditions for a potential injunction: (1) the issue must be an expression of urgency and be either (2) absent a valid challenge or (3) justifiable through the existence of a dispute.
(1) Expression of Urgency
This expression of urgency acts as a legal standard and is subject to the sovereign appreciation of the trial judge. The different conditions of this urgency are assessed by the judge on the date he rendered his decision.
The following cases have been considered as such:
● measures aimed at putting an end to disorders affecting the structure of a building, likely to injure passers-by
● the request for the appointment of an administrator for a company whose operation was paralyzed because of the disagreement of the partners
● the request of a company that has not received sufficient deliveries from a supplier to be allowed to buy from other partners.
(2) Absence of valid challenge
The following cases have been considered to raise no valid challenges:
● the handing over of the keys to an apartment for which the price has been paid
● the eviction of the lessee in application of a resolutory clause in the lease,
● the allocation of a provision in the case where the obligation had been the subject of an IOU.
It should also be noted that the provisional relief judge (juge des référés) does not decide on a serious dispute when ruling on the grounds of inadmissibility.
(3) Existence of dispute
The judge will be able to order preventative and interim measures, before the final ruling on the merits of the dispute. In practice, many measures and injunctions are ordered under the justification of relevant dispute and they include the appointment of judicial administrators of a legal person, the confiscation of property or shares, the interruption of construction work on an affected building, or of a parent’s right to visit their child.
Article 809 of the Code of Civil Procedure (CPC)
“The president may always, even in the presence of a serious dispute, prescribe in interim proceedings the conservatory or restoration measures that are necessary, either to prevent imminent damage or to put an end to a manifestly illicit disturbance.
In cases where the existence of the obligation is not seriously disputed, the court may grant an advance to the creditor, or order the performance of the obligation even if it is an obligation of result”
In the cases stipulated within Article 809 of the CPC, the provisional relief judge has jurisdiction in two different situations, characterized by the existence or not of a valid challenge. The judge may order for preventative or restorative measures in order either to (1) prevent an imminent damage or (2) to stop a manifestly unlawful disturbance.
However, in situations where the contracts and due are without valid challenge, the judge may order either a garnishee order, granting the creditor an advance, or order its mandatory execution.
(4) Prevention of Imminent Damage
(5) Interruption of Manifestly Unlawful Disturbances
Examples of such unlawful disturbances are those of discrimination based on age of an employee, refusals for partners of a firm to vote on the modification of a company’s statutory purpose or the most common occurrence being that of eviction of occupants without rights or titles.
On Interim Attachment Orders:
The case for such as an attachment order is made most often in situations where the creditor fears the debtor may unlawfully sell off the disputed assets and claim insolvency protection. For this reason, the orders are made by simple motion by the creditor in discretion and without warning towards the debtor or their lawyers. The measure can be challenged in court by the opposing parties. An important element to note in such proceedings is that the defendant’s disputed assets must be located in France for such a measure to be successful. This is a significant limitation to the extent of debt collection regulations in France. Another set of conditions governs the creditor’s time-limit before the attachment order’s expiry date. The creditor must act on the dispute asset within a three month window of the court order and be ready to start an action in court within a single month of the order. The court’s interim attachment order is temporary and must be declared final and enforceable once the court has ruled on the whole of the dispute.
In addition to the interim attachment orders gone over above, France allows for preliminary security rights over assets, une surete judiciaire, such as personal property or equity. These measures are regulated by articles R111-1 to R651-1 of the Code of Civil Enforcement Proceedings
On the Enforcement of Local Judgements:
The enforceability of the judgements is only possible once it collects a finality of decisions no longer actionable under the right to appeal. The exceptions exist in the situations where the debtor, the defendant party acquires a grace period by the judges or the creditors finds a title of provisional enforcement (Article 501, Code of Civil Procedure). Local courts find their judgements enforceable once the term of the appeal limit has expired and no subsequent appeal is deposited. Automatic enforcement proceedings are setup in cases of emergency interim measures (pursuant to Article 514 of the Code of Civil Procedure) and are otherwise subject to the decisions of the local courts (pursuant to Article 515 Code of Civil Procedure). In a larger understanding, foreign judgements are enforceable in France once the original copy has been provided to the losing party.
On the European Order for Payment Proceedings
On Civil Court Proceedings and Final Remedies:
We may find damages stipulated within penalty clauses, however they are under the final judgement of the judge that may revise the allocated amount written into the clause. There are possibilities for injunctions to be paired with penalties if need be.
On Civil Court Proceedings and Class Action Lawsuits:
The strict regulation of these actions differs from the US system with French laws limiting such class actions to an opt-in system. These groups must be brought on by associations having the strict purpose (registered and declared to government knowledge) of representing the interests of those who have suffered the disputed injury. The funding for such actions is done through the representing association, with third party funding remaining unregulated by french law. As of recent data, only 18 groups have filed for class action lawsuits in France making it a comparatively unpopular mode of litigation to Common Law jurisdictions.
The general rule states the losing party as the bearer of the legal costs. Under certain circumstances, judges can choose to place all or some of the burden of payment on the winning party (article 696 of the Code of Civil Procedure) such as the costs of court fees, translation and expert witness fees. The judges’ decisions are often taken in consideration of certain rules of fairness and financial situations of the disputing parties.
On Civil Court Proceedings and the Possibilities for Appeal:
France allows for parties to demand a second hearing, with first instance courts of appeals ruling on both factual and legal issues. The limit on the right to appeal in both civil and commercial cases is of one month from the date of the notification of the initial judgement. In a final application to the Court of Cassation, parties have two months from the court of appeal’s previous decision. In the event that the acting party resides outside of mainland France the limits are increased by a month and by two months when residing abroad.
On the Enforcement of Local Judgements:
The enforceability of the judgements is only possible once it collects a finality of decisions no longer actionable under the right to appeal. The exceptions exist in the situations where the debtor, the defendant party acquires a grace period by the judges or the creditors finds a title of provisional enforcement (Article 501, Code of Civil Procedure). Local courts find their judgements enforceable once the term of the appeal limit has expired and no subsequent appeal is deposited. Automatic enforcement proceedings are setup in cases of emergency interim measures (pursuant to Article 514 of the Code of Civil Procedure) and are otherwise subject to the decisions of the local courts (pursuant to Article 515 Code of Civil Procedure). In a larger understanding, foreign judgements are enforceable in France once the original copy has been provided to the losing party.
On Cross-border Litigation and International Disputes:
Art 3(3), Freedom of choice of the Rome Convention (1980)
“The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law at the country which cannot be derogated from by contract, hereinafter called ‘mandatory rules”
Art 9 (1), Rome I (2008)
“The respect for which is regarded as crucial by a country for safeguarding its public interest, such as its political, social and economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable”
Art 16 “Ordre public”, Rome Convention:
“The application of a rule of law of any country specified by this Convention may be refused only if such application is manifestly incompatible with the public policy (‘ordre public) of the forum”
French courts typically restrict their interpretation of this freedom within the limits of national public order. Issues of unilateral modification of contracts, corruption and equality amongst contracting parties are set aside by French authorities as constituting areas needing additional attention.
These specificities within France represent the essential derogations from the principles of international regulations of contractual obligations.
In summary, the debt collection procedures under French law rely on an escalating set of measures, ranging from an initial and amiable phase of settlement between parties to a set of judicial procedures often externalised to debt recovery agencies. The enforceability of titles received by the different courts allows for the protection of creditors while maintaining a strict risk and peril policy for the plaintiffs.
