Foreign manufacturers of goods or suppliers of services which are parties to distribution agreements in France should be aware of a particular aspect of French legislation that purports to grant distributors mandatory indemnification rights in the event of termination without cause and appropriate advance notice. This legislation is mandatory: it is a matter of public policy that shall be applied regardless of any contrary contractual provisions, including where the contract is international and governed by a foreign law (known as a 'loi de police'). The requirement is frequently raised in termination disputes where the distributor claims that an informal commercial relationship existed before the contract was concluded. Distributors frequently claim that the notice period that they were given did not allow them enough time to find new sources of business, all the more so when investments made under the contract were allegedly frustrated because of the early termination. The distributor which complains of receiving insufficient advance notice of termination may seek relief on grounds of tortious liability.
Should such a tort claim under a mandatory provision of French law be brought before a French court, notwithstanding the parties' consent to International Chamber of Commerce (ICC) arbitration to settle all disputes arising from or related to the agreement? This was the argument of a French distributor in a recent case. However, the French courts denied jurisdiction to hear the claim and compelled the French party to submit its claim to arbitration. Unsurprisingly, the Supreme Court upheld this decision. On June 8 2010 it ruled that the standard ICC arbitration clause to which the parties had validly consented applied to the claim for wrongful termination, irrespective of the fact that it was brought in tort on the grounds of a mandatory rule of French law.