Commercial Litigation

The field of dispute resolution in France revolves around three key processes: litigation, arbitration and alternative dispute resolution (ADR) methods such as conciliation and mediation.

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.

While litigation remains a familiar option, its reputation as the costliest and lengthy method of dispute resolution has led courts across jurisdictions to strongly encourage adherence to alternative methods such as arbitration, mediation and/or conciliation. ADR is compelling in its efficiency, however its methods are based on the consent of the contracting parties. Courts themselves cannot formally require for attempts to be made before final litigation.

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.

The French legal system has created a warm environment for the growth and success of arbitration methods. The binding nature of an arbitral award or decision has reinforced its importance within commercial disputes in France notably in the fields of services to companies, trade, real estate, construction as well as finance and insurance.

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.

French law stipulates that parties can enter into mediation agreements in all fields of law and without resorting to state-regulation. Mediation allows contracting parties to approach non-governmental organizations such as the ICC, Centre for Mediation and Arbitration of Paris, International Arbitration Chamber of Paris, French Arbitration Association or the European Institution for Mediation and Arbitration. In French legal tradition, mediation decisions often have legally binding effects.

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.

The legal fee structures allowed under french regulations provide for a formal written agreement to be concluded in a lawyer/client relationship. These contracts must either stipulate the fees or have them be determinable, including the variety of fees potentially actionable.

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.

The general rule under French law states a de facto public-nature for settled court proceedings. A confidentiality clause can be requested however by either party, found primarily in bankruptcy and insolvency cases under the auspices of individual right to privacy.