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Enforceability of jurisdiction clauses in international matters: the issue of privity of contracts

26/09/2014

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In recent years, the case-law related to enforceability of jurisdiction clauses in international matters got denser and led to several decisions which entail a practical interest for companies which does not weaken.

The decision Refcomp rendered by the Court of Justice of the European Union on February 7th 2013 constitutes the beginning of this case-law evolution (EUCJ, 7 February 2013, C543/10).

Because of disorders which occurred after renovation works in the air-conditioning system of a building, the French property developer introduce proceedings against the Italian manufacturer of the compressors integrated in this air-conditioning system, the Italian installator (integrator) and the Italian seller before the Paris first degree Court (“Tribunal de Grande Instance”) in order to have them condemned in solidum to the compensation of the damage suffered.

The Italian manufacturer challenged such jurisdiction and invoked a jurisdiction clause, mentioned in the contract it concluded with the fitter of the air-conditioning groups, in favor of the Italian courts. Having to judge this dispute, the Cour de Cassation decided to suspend its decision and to seek a preliminary ruling from the EUCJ regarding the enforceability of such a clause.

In February 2013, the EUCJ rules that the jurisdiction clause embodied in the contract concluded between the Italian manufacturer of the compressors and their Italian purchaser cannot be enforced against the third-party French sub-purchaser (i.e. the property developer) who, in the course of a succession of contracts transferring ownership concluded between parties established in different Member States, purchased the compressors and wishes to bring an action for damages against the manufacturer, unless it is established that he gave his effective consent to such clause.

By refusing the automaticity of the enforceability of a jurisdiction clause against the sub-purchaser of goods who acquired them as a consequence of several contracts transferring ownership, the EUCJ seems to call into question the principle of direct action as we currently know it under French law.

For the record, the French Cour de Cassation does traditionally rule that, in a sequence of contracts transferring ownership, the arbitration clauses are automatically transferred as accessories of the action right (being itself an accessory of the substantial right transferred (Cass Civ 1st, 27 march 2007, n°04-20842)).

In rupture with this approach, the Cour de Cassation complied, in September 2013, with the European position and ruled that the decision of the Paris Appeal Court which declared the jurisdiction clause agreed between the manufacturer and the purchaser of the compressors unenforceable against the French property developer (sub-purchaser of the concerned compressors) was justified as the Court had been able to record that the sub-purchaser did not accept this clause (Cass Civ 1st, 11 September 2013, n°09-12442).

The Cour de Cassation has just confirmed this new position in a slightly different case as it did not involve any sequence of contracts transferring property but a group of contracts (Cass Com, 4 March 2014, n°13-15846).

A first license agreement had been concluded with Microsoft France and then, because of material difficulties which appeared in the achievement of the agreed project, a second agreement covering the same services was signed with Microsoft Ireland Operations. A clause granting jurisdiction to the Irish courts was embodied in this second agreement.

Having to face persistent material difficulties, the buyer company had sued Microsoft France before the Commercial Court of Paris in order to obtain, on a principal basis, the nullity of the two aforementioned agreements. Microsoft France then argued that the French courts had no jurisdiction and cited the jurisdiction clause embodied in the second agreement to which it was not a party.

The Paris Appeal Court confirmed the jurisdiction of the Paris Commercial Court relying on the fact that the clause which granted jurisdiction to the Irish courts was included in an agreement to which Microsoft France was not a party, so that this company could not enforce it against its purchaser. Thus, it was a strict application of the privity of contracts principle which justified, in the present case, the decision of the appeal court judges.

The Cour de Cassation does not validate this reasoning and considers that the appeal court judges should have sought if, on the date of formation of the agreement between the purchaser and the Irish company, the clause granting jurisdiction to the Irish courts was not known by Microsoft France and had not been accepted by the latter in its relationships with its purchaser.

Thus, in keeping with its position of 2013 and with the EUCJ’s position, the Cour de Cassation confirms that a jurisdiction clause cannot in principle be enforced against a third party, either as part of a sequence of contracts transferring ownership or in the presence of a group of contracts, unless it can be demonstrated that the third-party has accepted such clause.

However, an uncertainty remains as to the conditions laid down by French courts in order to make a jurisdiction clause enforceable against a third party. On this point, the Cour de Cassation seems to be more demanding than the EUCJ: indeed, whereas the latter defines as the sole criterion of enforceability of such a clause, the effective consent of the third party, the Cour de Cassation requires, for that same enforceability, that the person who invokes it proves that the third-party knew about the existence of the litigious clause at the time of conclusion of the agreement but also that it had accepted it in its relationships with a party to the contract encompassing the said clause.

From a practical standpoint, it should be very difficult to satisfy the proof requirements laid down by the French Supreme Court and it might be desirable to have a new ruling of the Cour de Cassation on this issue.

Stéphanie de Giovanni and Aliénor Fèvre, lawyers

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Authors

Picture of Aliénor Fèvre
Aliénor Fevre
Associate
Paris
Stéphanie de Giovanni