Category: Legal news

Cass. 1^re civ., 7 June 2023, no. 22-12.757

In its ruling of 7 June 2023, the First Civil Chamber of the French Supreme Court held that the decision declaring inadmissible the action to set aside the award did not entail its exequatur. Consequently, a person intending to enforce an award cannot rely on Article 1498, paragraph 2 of the French Code of Civil Procedure in case of inadmissibility and is not exempt from applying for the exequatur of the award rendered in his favour.

Although the first commentators on this judgment seemed to favour this position and noted the consistency of such a decision, this was not self-evident insofar as Article 1498, paragraph 2 of the French Code of Civil Procedure makes no distinction as to the reasons that would lead the judge to dismiss the action for annulment.

In its ruling, the French Supreme Court introduced a difference in the enforcement regime depending on the grounds for dismissal, in order to prevent the award from escaping the judge’s control. However, certain inadmissibilities (in particular those based on Article 1466 of the French Code of Civil Procedure) require the judge to examine the award in greater detail. It is therefore not certain that such a solution is justified in all cases.

The background

On 15 November 2013, a sole arbitrator was appointed to rule as an amiable compositeur on a dispute between the shareholders of two companies belonging to the same group.

An action for annulment has been brought against this award.

In a ruling of 17 March 2016, the Douai Court of Appeal declared the action to set aside the award admissible, notwithstanding the failure to submit the notice of referral to the Court electronically, as the e-Barreau platform did not include a reference to “an action to set aside an arbitration award”.

The Douai Court of Appeal in a decision of 18 January 2018, – after qualifying the arbitration as domestic – then set aside the arbitral award on the grounds that the arbitral tribunal had ruled without fulfilling its functions.

On 26 September 2019, the French Supreme Court quashed and set aside the Court of Appeal’s decision handed down on 17 March 2016 declaring admissible the action for annulment which had not been made by electronic means, as required by Article 930-1 of the French Code of Civil Procedure. This led to the annulment of the judgment of 18 January 2018 setting aside the award.

Following this judgment of 26 September 2019, the case was referred to the European Court of Human Rights (ECHR). In a judgment of 9 June 2022 (ECHR, sect., 9 June 2022, no. 15567/20), it ruled that “(…) the Cour de cassation had displayed a formalism which the guarantee of legal certainty and the proper administration of justice did not require and which must therefore be regarded as excessive“.

However, as this decision had no effect on the case under review, the beneficiary of the award, who regained his title following the reversal and annulment of the judgment setting it aside, sought to continue its enforcement. To do so, he did not apply to the relevant jurisdiction for an exequatur, believing that he could rely on Article 1498, paragraph 2, which provides that: “The dismissal of the appeal or of the action for annulment confers exequatur on the arbitral award or on those of its provisions that are not affected by the court’s censure“.

To contest the enforcement of the award, its opponent argued that the reversal without referral of the decisions of the Douai Court of Appeal on 26 September 2019 was insufficient to grant the exequatur on the award and that the judgment of the French Supreme Court, insofar as it declared inadmissible the action to set aside the award, did not constitute a dismissal decision within the meaning of Article 1498, paragraph 2 of the French Code of Civil Procedure.

In its judgment of 3 February 2022, the Douai Court of Appeal was not convinced by this argument and held that the French Supreme Court’s dismissal of the action for annulment on the grounds of inadmissibility did confer exequatur on the award, with the result that the beneficiary of the award did in fact have a writ of execution enabling him to implement the enforcement measure at issue.

However, in a ruling dated 7 June 2023, the French Supreme Court overturned this decision on the grounds that, as the action for annulment had been declared inadmissible, this had not had the effect of conferring exequatur on the award.

The desire to ensure a prima facie review of the award

This position taken by the French Supreme Court is understandable given its concern to ensure that an arbitration award is subject to judicial review before it is incorporated into the French legal system.

When reviewing the award, the Court checks that the award exists and is not contrary to French public policy.

The logic here would be that when the court dismisses the action for setting aside the award as inadmissible, it would not examine the objections raised on the merits and would therefore not have the opportunity to rule, either at the request of the parties or of its own motion, on whether the award complied with public policy.

This line of reasoning calls for at least three comments.

Firstly, the French Supreme Court makes a distinction based on the reason for dismissal, that Article 1498 of the Code of Civil Procedure does not. While the reason for dismissal in the case of inadmissibility does not relate to the merits, it is still a dismissal.

Secondly, certain inadmissibilities require the judge to examine in detail the objections raised. This is the case in particular with the inadmissibilities under Article 1466 of the French Code of Civil Procedure, according to which a party that has refrained from invoking an irregularity before the arbitral tribunal is deemed to have waived its right to invoke it. The parties may not, however, waive irregularities that are a matter of public order of direction. In such a case, the judge hearing the appeal is therefore required to examine all the claims raised to ensure that none have been waived and that those that have been waived do not affect public order of direction. In such a case, there is therefore an adversarial debate on all the claims raised.

Lastly, in the case at hand, the Douai Court of Appeal reviewed the award after initially declaring the action for annulment admissible and found no breach of public policy. Admittedly, its ruling was subsequently set aside, but it seems reasonable to think that if the award was manifestly violating public policy, the appeal judge would have noted this of its own motion.

The implications of the distinction in the enforcement regime according to the grounds for dismissal of the action for annulment

The position taken by the French Supreme Court implies to hurry up to request the exequatur of the award to the judicial tribunal or, where applicable, to the first president or the competent Conseiller de la mise en état (in domestic arbitration, where the award is subject to provisional enforcement).

In this case, if an action to set aside the award in question is brought and that the action is upheld, the enforcement order will lapse at the same time as the award.

If the challenge of the award is dismissed and the beneficiary of the award has obtained an enforcement order beforehand, a distinction must be made depending on the reason for the dismissal. Indeed:

• Either the dismissal is on the merits, in which case the rejection decision constitutes the writ of execution;
• Or the dismissal is due to the inadmissibility of the appeal, in which case it is likely that only the enforcement order issued by the competent judicial tribunal or the Conseiller de la mise en état, which is supposed to be only a provisional step, would survive and constitute the writ of execution enabling the enforcement of the award to continue.

In the absence of any enforcement order, rejection of the recourse against the arbitration award on the grounds of inadmissibility will oblige the beneficiary to refer the matter to the relevant judicial tribunal in order to enforce the award.

Conclusion

The position taken by the French Supreme Court imposes a procedural burden that does not appear to be justified in any event. And probably none of this would have happened if the electronic configuration system for appeals against arbitration awards had been correctly configured…

A normative frenzy?

In the framework of the “green deal” to achieve climate neutrality in Europe in 2050, the EU Commission and Parliament have issued many new rules in environment and ESG matters. At which point some of the member states leaders (France, Belgium…) have called for a “break” in the normative activity, to allow some time to assimilate the new provisions.

What is true is that the number and scope of the new and upcoming rules might seem somewhat overwhelming to companies: the SFDR (reporting on sustainable financial products), taxonomy (definition of sustainable activities), the CSRD (corporate sustainability reporting), the CSDD (sustainability due diligence), the ETS (revision of quota trade), the CBAM (carbon tax for importations), the SCF (social climate fund) … quite a list!

However, this succession of texts is no random pile, and the EU seeks consistency and complementarity between the rules. In the preamble of the CSDD recently voted by the EU Parliament (and not formally adopted yet), the complementarity with CSRD is “to increase effectiveness of both measures [CSRD and CSDD] and drive corporate behavioral change for those companies.”

What is CSDD about?

The CSDD introduces in an EU directive a “duty of vigilance” for companies falling into its scope, to perform a due diligence of their impact on environment, sustainability, social and human rights, not only in their own activities (already addressed in the CSRD), but also throughout the value chain (i.e. all upstream and downstream business relationships for the production of goods and services).

Once this due diligence has been conducted, companies will have to do their best to eliminate or at least mitigate the risks, which will depend on their capacity to influence their business partners.

The duty of vigilance shall be included in the corporate governance policies, controlled internally and give lieu to public communication.

Member states shall include sanctions for any transgressions by companies   in their transposition of the CSDD, as well as civil liability mechanisms and public control. In France, where a similar obligation has existed with a more restrictive scope since 2017, some trials, mostly initiated by NGOs, are ongoing against major companies (TotalEnergies, BNP Paribas, La Poste…) based on insufficient endeavors.

The companies will bear the costs of the due diligences and the resulting changes in their organization. In this regard, the European legislator has included companies from third countries operating in the EU within the scope of the Directive, which should reduce the competition distortion for EU companies, and could trigger changes of corporate habits outside EU borders too.

How CSDD will directly impact foreign companies?

Some foreign groups will fall directly within the scope because of their subsidiaries or activities in the EU, when fulfilling conditions of turnover.

The scope thresholds are not yet final, as the Directive has entered through its final stage of discussions between the EU Council, Commission and Parliament.

The first two had agreed on thresholds, depending on sectors, with “high-impact” sectors (textiles, agriculture and extraction-related) being more easily subject to the duty of vigilance.

The Parliament has adopted a wider position, with overall reduced thresholds, for a more ambitious text.

According to EU estimations (based on the Commission / Council thresholds), around 4,000 non-EU companies would be directly impacted.

Once formally adopted, after the ongoing discussions between the member States (probably sometime in 2024), the duty of obligation will apply between 2 and 5 years to companies, depending on their size. This schedule would be consistent with the one regarding the reporting on sustainability (CSRD), which also impacts some foreign companies.

Who ?	Commission and Council	Parliament
EU companies	·         more than 500 employees and ·         net worldwide turnover of MEUR 150 Application 2 years after publication ·         more than 250 employees and ·         net worldwide turnover of MEUR 40 if more than 50% of that turnover is generated in high-impact sectors Application 4 years after publication	·         more than 250 employees and ·         over MEUR 40 in net worldwide turnover   Application between 3 and 5 years after publication
Non-EU companies	·         net EU turnover of MEUR 150 Application 2 years after publication ·         net EU turnover of MEUR 40 if more than 50% of that ·         turnover is generated in high-impact sectors Application 4 years after publication	·         net worldwide turnover of MEUR 150 if at least MEUR 40 was generated in the EU   Application between 3 and 4 years after publication
EU parent companies of a group		·         More than 500 employees and  ·   over MEUR 150 in net worldwide turnover
Non-EU parent companies of a group		·         More than 500 employees and  ·         over MEUR 150 in net worldwide turnover if at least MEUR 40 was generated in the EU   Application between 3 and 4 years after publication

How CSDD may indirectly impact foreign companies?

The indirect impact must not be neglected either: many companies not falling within the scope of the CSDD have intricate business links with companies subject to the duty of vigilance obligation.

The latter will apply their due diligence and risk-mitigating obligations, which will inevitably have an impact on their business partners.

The appreciation of the “best endeavors”, and therefore the impact on foreign companies, will depend on the capacity of the debtor of the obligation to get what it requests:

• A company performing its due diligence towards a business partner for which it represents a limited volume of activity, best endeavors could be achieved by requiring information and sending a few reminders, depending on the willingness of the foreign company to comply.
• On the contrary, economically dependents partners in the value chain will to some extent be forced to provide detailed information when instructed, and being summoned to modify some of their ways, if not compatible.

When to prepare?

There is time before the duty of vigilance enters into force, but it is recommended to use this time to prepare, especially for companies within the scope of the CSDD, as the adaptation requires a certain volume of work, and has impact on corporate governance. For example, it could be considered to start favoring partners applying ESG principles compatible with the EU provisions to eliminate the risks ahead.

For companies only indirectly impacted, it is advisable to start a reflection on how they will respond to due diligences requests and react to change of habits. And, as usual, power lies behind the money: powerful EU companies will most likely shift their risks on to their co-contractors, demanding as a new standard for the appropriate documents to be transmitted and for the appropriate behaviors to be enforced. Failing to comply will result in a breach of contract and liability.

As obligations, and therefore risks, regarding ESG and sustainability matters will arise in the next years, our next newsletter will be about the different types of risks.

Jacques Perotto, Partner and Maxime Hermes, Counsel

In a recent ruling rendered on 6 June 2023, the Paris Court of Appeal denied enforcement (exequatur) in France to an arbitration award upholding jurisdiction over a multi-billion dollar claim brought against Malaysia by heirs of the last Sultan of Sulu of the Island of Borneo.

This award on jurisdiction was issued by sole arbitrator Dr. Gonzalo Stampa in 2020 and was followed on the merits by a noteworthy award in 2022 by which Malaysia was ordered to pay USD 14.92 billion to the heirs of the Sultan of Sulu.

However, the Court of Appeal found that Dr. Stampa lacked jurisdiction to hear the case since his designation was based on an agreement which dated back to the 19^th century and referred the dispute to the holder of a position (dating back to the British Empire, Consul-General in Brunei) that no longer existed when the dispute arose. The Paris Court of Appeal deemed the arbitration agreement inapplicable and denied enforcement to the award on jurisdiction.

Background of the Dispute

The case revolves around the performance of an 1878 agreement signed by the Sultan of Sulu regarding the exploitation of natural resources of the North coast of the island of Borneo, and the subsequent payment of annual interest to the Sultan and his heirs or successors.

European explorers were granted exploitation rights in exchange for annual payments. When Malaysia gained independence from the British Empire in 1963, these rights were transferred to the Malaysian state, which continued to make annual payments to the heirs of the Sulan of Sulu until 2013.

Following failed negotiations over the contract price, in 2017 the heirs initiated arbitration proceedings under the confirmatory deed of the agreement signed in 1903 which provided that “[s]hould there be any dispute, or reviving of all grievances of any kind (…), then the matter will be brought for consideration or judgment of Their Majesties’ Consul-General in Brunei.”[1] It should be noted that the translation of this clause originally written in Jawi, a writing system used for Malay, and its interpretation, were subject to much debate between the parties.

Spanish and French Courts’ proceedings

The position of Consul-General in Brunei referred to by the confirmatory deed did not exist anymore in 2017 and the British Foreign Secretary refused to assume the role of arbitrator in the dispute. Malaysia also refused to proceed to the joint appointment of an arbitrator. The heirs thus filed an application before the Superior Court of Justice of Madrid for the appointment of an arbitrator, citing the 1878 agreement’s connections to Spain which had sovereignty over the territory when it was signed.

In 2019, the Civil and Criminal Chamber of the Superior Court of Justice of Madrid appointed Dr. Stampa as sole arbitrator. Dr. Stampa upheld his jurisdiction in an award dated 25 May 2020 (the “Award on Jurisdiction”).

Malaysia challenged the appointment of Dr. Stampa before the Superior Court of Justice of Madrid which, on 29 June 2021, annulled Dr. Stampa’s appointment.

The Sultan’s heirs obtained from the President of the Judiciary Tribunal of Paris an ex parte enforcement order of the Award on Jurisdiction and Dr. Stampa then relocated the seat of arbitration from Madrid to Paris on 29 October 2021.

On 28 February 2022, after four years of proceedings, the sole arbitrator delivered a final award in favor of the heirs of the Sultan, allocating them USD 14.92 billion in damages for Malaysia’s breach of the agreement (the “Final Award”).

Malaysia (i) lodged an appeal against the order granting enforcement to the Award on Jurisdiction, and (ii) initiated setting aside proceedings against the Final Award before the Paris Court of Appeal.

On 6 June 2023, the Court of Appeal denied enforcement to the Award on Jurisdiction, considering Dr. Stampa lacked jurisdiction under the relevant agreement.

In parallel, Malaysia initiated criminal proceedings against Dr. Stampa before the Criminal Court of Madrid.

The Paris Court of Appeal ruling on the Award on Jurisdiction

Malaysia contended inter alia that the sole arbitrator lacked jurisdiction over the dispute and that therefore, the award had to be set aside under article 1520-1° of the French Code of Civil Procedure. This decision has also been commented regarding its take on the challenge against the admissibility of the request for enforcement of the award, but we will focus on Malaysia’s challenges of the arbitrator’s jurisdiction.

The Court was tasked with determining the nature of the dispute resolution clause at stake, specifically whether it constituted a valid arbitration agreement, and if so, whether it had been correctly applied.

The Court commenced its analysis by examining the substantive content of the clause since the arbitration agreement was based on a clause written in Jawi. Multiple translations of the clause and expert reports were submitted by the parties, each differing in their respective wording. Applying the principles of “good faith” and “effectiveness” (effet utile), the Court scrutinized the various translations. On this basis, the Court qualified the clause as an arbitration agreement.

However, regarding the applicability of the clause, the Court emphasized the active role played by the former British Consul-General, Sir William Treacher, during the negotiations and his personal encouragement to the Sultan of Sulu to submit disputes to the British Consul-General. Consequently, the Court deemed the designation of the British Consul-General as the arbitrator inseparable from the parties’ consent to arbitration. Given that the position of British Consul-General of Brunei no longer existed when the dispute arose, the Court declared the arbitration agreement inapplicable.

Future Steps

The Paris Court of Appeal refusal to grant enforcement to the Award on Jurisdiction jeopardizes the validity and the enforceability of the Final Award, against which setting aside proceedings are pending before the same court. This ruling may also have consequences on the heirs’ ongoing attempts to enforce the Final Award in the Netherlands and Luxembourg, where they have already successfully seized assets belonging to the Malaysian state oil company Petronas.

According to reports, the heirs of the Sultan of Sulu are contemplating challenging the decision of the Paris Court of Appeal before the French Supreme Civil Court (Cour de cassation).

Comments

This historical and multijurisdictional case highlights the advantages of arbitration as a means of resolving disputes, such as flexibility and efficiency. However, it also illustrates the need for parties to carefully consider and review their arbitration clauses to address potential uncertainties that may arise. Unforeseen complications can emerge and render the arbitration agreement arguably not applicable anymore. In particular, while one of the advantages of arbitration is to choose the arbitrator, imposing excessively specific requirements in the clause for the designation of the arbitrator(s) can be interpreted as consenting to arbitrate on an intuitu personae basis, which may later hinder the applicability of the clause. Parties should strive for clarity, precision but also for adaptability in their arbitration agreements. By doing so, they can maximize the benefits of arbitration while minimizing the risks and uncertainties that may arise throughout the process.

For more information on this case please refer to Alerion’s newsletter on the multi-billion Final Award and its enforcement in France and Luxembourg.

Jacques Bouyssou, Partner, Marie-Hélène Bartoli Vallet, Counsel and Juan Diego Niño-Vargas, Associate

---

[1] Translation retained in the Award on Jurisdiction of 25 May 2020

The growing interest of consumers in quality products, with a lower environmental impact than other products from far away origin, has reinforced their desire to know more about the origin of the products they buy.

The legal tools that allow consumers to identify the origin of products and services offered by a company are extremely valuable for economic stakeholders. Indeed, such markers of origin guarantee the quality, reputation or characteristics of the product or service. In this matter, there are many mentions or labels that promote the origin of products or services, among which geographical indications and trademarks being the distinctive signs most used by companies.

However, these distinctive signs which help guide the consumer’s choice must not be used to mislead them about the origin of the products.

For example, recently, the emblematic chocolate TOBLERONE, was forced, under Swiss law, to change the Swiss visual identity of its brand because of the relocation of part of the chocolate production to Bratislava, Slovakia, from autumn 2023.

As a matter of fact, TOBLERONE chocolate was made in 1908 by Swiss artisans Theodore Tobler and Emil Baumann in Bern, the capital city of Switzerland. As a purely local product, the branding of TOBLERONE chocolate combines references to the country by depicting the Matterhorn Mountain and Bern’s heraldic animal, a bear, on the packaging. To this end, the international trademark “TOBLERONE” No. 1 533 540, filed in 2019, protects the packaging of its product on which, among other things, the said Swiss symbols appear. However, since 2017, Switzerland has strengthened its legislation on indications of origin in order to maintain the credibility of the label, to protect the country’s reputation and to not mislead the consumer. According to the so-called Swisness legislation, for a food product to be designated as “Swiss made”, at least 80% of the weight of the raw materials used must come from Switzerland. Consequently, the manufacture of TOBLERONE chocolate relocated in Slovakia no longer meets the conditions set by the Swiss law. As a result, the company can no longer use the Swiss national symbols, and has been forced to remove the emblematic Matterhorn Mountain from its visual identity by adapting its branding. Thus, a new international trademark “TOBLERONE” n°1 656 039 was registered at the beginning of 2022, using the generic image of a mountain this time.

As for France, the “made in France” label, which guarantees, in particular, luxurious savoir-faire and favourable working conditions for employees, is also regulated by the Consumer Code. Thus, in order to be able to bear the label “made in France”, a significant part of the product’s value must derive from one or more manufacturing steps located in France and its last substantial transformation must have occurred in France.

In addition to the different legislations that regulate indications of origin, intellectual property rights sanction a trademark that misleads the consumer, in particular as to the nature, quality or geographical origin of the product or service. As a result, the trademark will no longer fulfil its function as a guarantee of origin for the consumer, which may affect its economic behaviour.

Therefore, if, at the time of filing, the trademark is likely to mislead the consumer, it will be qualified as misleading (article L.711-2 of the French Intellectual Property Code). The French Intellectual Property Office or any third party may raise the invalidity of the trademark at the time of its registration or during a dispute. If the trademark is validly registered, but it is during its existence that it becomes deceptive, a third party may raise the revocation of the trademark in the context of infringement litigation, in particular by a counterclaim as a defensive strategy (Article L.714-6(b)) of the French Intellectual Property Code). A trademark is, for example, considered deceptive when it includes a geographical element that no longer corresponds to the origin of the goods.

When considering changes in commercial policy, in particular with respect to the place of manufacture of goods, it is necessary for each company owning intellectual property rights to ensure the integrity of its trademark in order to avoid the invalidity or revocation of rights.

Alerion’s lawyers in the IP/IT/Privacy Departments regularly assist their clients in all matters related to intellectual property, including the development of a trademark portfolio management strategy.

Corinne Thiérache, Partner, and Hanna Le Derrien, legal trainee

The processing of vehicle geolocation data has become a major stake for companies in many sectors: transport, logistics, vehicle rental, fleet management, insurance and vehicle financing, predictive maintenance, protection against theft, etc. This data allows them to manage in real time and anticipate the need for personnel and vehicles, to assist the user, to track journeys made, to invoice services (car-sharing, rental, financing, insurance), to identify – and block – stolen vehicles or to deal with traffic violations.

However, this data reveals the private lives of users of connected vehicles (construction equipment, buses, trucks, cars, motorcycles, mopeds, bicycles, e-scooters, etc.). Their processing (collection, analysis, use, storage, etc.) therefore raises major questions in terms of personal data protection and respect for fundamental rights and freedoms.

1. A strict framework provided by the GDPR and the guidelines

As early as 2006, the French Data Privacy Agency (“CNIL“) regulated the geolocation of employees’ vehicles (special rule “NS-051”, amended in 2015). After the adoption of the General Data Protection Regulation 2016/679 of April 27, 2016 (“GDPR“), guidelines were developed to regulate the collection and processing of geolocation data.

In France, the CNIL published a “Connected Vehicles and Personal Data” compliance pack in 2017[1] recalling the key principles to be respected with regard to Law No. 78-17 of January 6, 1978, as amended (French “Data Privacy Act“) and the GDPR. These principles include the obligation to have a legal basis, fairness in the collection of data, a legitimate purpose, application of the principle of proportionality, a limited retention period and the implementation of security measures.

The following year, the CNIL published guidelines on the geolocation of employees’ vehicles, replacing NS-051[2]. Geolocation devices installed in vehicles provided to employees may not be used to monitor compliance with speed limits, control employees or calculate their working hours. Their rights must also be respected (information on the processing, the purpose, the legal basis, the duration, as well as the rights of access, rectification, deletion, and opposition) and the employee representative institutions shall be consulted.

In 2020, the European guidelines 01/2020 on geolocation data for connected vehicles and mobility-related applications were published[3]. Strongly inspired by the CNIL guidelines, they set a European interpretative framework for the collection, processing, and use of geolocation data.

After recalling that the processing of location data raises concern as their “increasingly intrusive nature can put a strain on the current possibilities to remain anonymous“, the European Data Protection Board (“EDPB“) specified that vehicle and equipment manufacturers, service providers and other data controllers must be vigilant with regard to geolocation data, which can reveal life habits and infer the place of work, the residence, and even sensitive information, such as religion or sexual orientation. Location data should therefore not be collected unless absolutely necessary for the purpose of the processing.

Like the CNIL, the EDPB specifies that the collection of geolocation data shall comply with the following principles:

• an adequate setting of the frequency of access to the location data collected and the accuracy of such data in relation to the purpose of the processing,
• the provision of detailed information on the purposes of the processing,
• when the processing is based on consent, the collection of a valid consent (free, specific, and informed) distinct from the general terms of sale or use,
• the activation of location only when the user initiates a functionality that requires knowledge of the vehicle’s location, and
• setting a limited retention period.

Although these guidelines are not binding, the CNIL expressly referred to them in its sanction decision of March 16, 2023, against the company Cityscoot[4].

2. The sanction against Cityscoot

Cityscoot is an electric moped rental company. These mopeds are equipped with electronic boxes containing a SIM card and a GPS geolocation system, which collects geolocation data every 30 seconds when the scooter is active, and its dashboard is turned on.

The data is collected for the following purposes: processing of traffic violations, processing of customer complaints, user support (calling for help in case of a user’s fall), management of claims and theft. They are stored in three separate databases: a “moped database”, containing the data collected by the sensors attached to the moped; a “reservation database”, containing the dates and times of the beginning and end of each rental; and a “customer database” containing the data used to manage the billing.

The CNIL considers that this geolocation data is personal data, as long as it is possible to reconcile the company’s different databases, making it possible to assign positions or a route to a user.

In its decision, the CNIL considers that “none of the purposes put forward by the company justifies the collection of geolocation data every 30 seconds during the rental of a moped and the conservation of this data” and that “such a practice is indeed very intrusive in the private life of the users insofar as it is likely to reveal their movements, their places of frequentation, the totality of the stops carried out during a route, which amounts to questioning their freedom to circulate anonymously“.

Concerning the end of the rental and the resulting billing complaints, the CNIL notes that it would be possible “to put in place alternative and less intrusive mechanisms allowing the company to ensure that the user has indeed ended the rental or, on the contrary, to warn her/him when this is not the case, for example by sending a text message or confirming, through an alert via the application, that the rental has ended”.

For the management of traffic fines, the CNIL’s panel considers that “the collection and storage of moped position data every 30 seconds is excessive insofar as it concerns all the mopeds rented by the company, whereas it only serves an incidental purpose in the event that a user would need this data to contest a traffic violation”.

Similarly, only the last known position of the moped is necessary for the management of theft during a rental period. This assumption “is not sufficient to justify the collection of geolocation data every 30 seconds of all the users’ journeys”.

Finally, “the technical notification of the moped being too inclined or the call from the user” is sufficient to inform Cityscoot of an accident, in order to assist a user. Geolocation is therefore neither adequate nor relevant for this purpose.

As a result, the CNIL has imposed a fine of 125,000 euros on Cityscoot for breaches of Articles 5(1)(c) and 28(3) of the GPDR and a fine of 25,000 euros for the breach of Article 82 of the French Data Privacy Act.

This decision is in line with the one of July 7, 2022, against Ubeeqo, Europcar’s car-sharing subsidiary.

It is therefore incumbent on mobility actors implementing geolocation to strictly respect the following principles:

• obtaining a specific consent from the user that is distinct from the general conditions of sale or use;
• adequate configuration of the conditions of geolocation relative to the purpose of processing (activation/deactivation, frequency, accuracy, etc.);
• the option to deactivate geolocation at any time (if consistent with the service provided);
• activating geolocation only when the user launches a functionality that requires the vehicle’s location to be known, and not by default and continuously;
• informing the user that geolocation has been activated, in particular by using icons on App and/or vehicle dashboard;
• providing accurate information on the purpose of processing;
• defining a limited storage period.

For further information, please contact Alerion Privacy Team.

Frédéric Saffroy, Partner & Alice Bastien, Associate

---

[1] https://www.cnil.fr/sites/default/files/atoms/files/pack_vehicules_connectes_web.pdf (in French)

[2] https://www.cnil.fr/fr/la-geolocalisation-des-vehicules-des-salaries (in French)

[3] https://edpb.europa.eu/system/files/2021-03/edpb_guidelines_202001_connected_vehicles_v2.0_adopted_en.pdf (version 2.0 of March 9, 2021)

[4] Decision SAN-2023-003 of March 16, 2023 regarding the company Cityscoot

Keep it in mind #3: check your subcontractors comply with social and tax obligations

Any company entering a contract amounting to at least €5,000 for an obligation to perform work, services or commercial activities must ensure that its contracting partner fulfils social security and tax filing obligations.

To do so, the contracting partner must in particular provide a certificate issued by social security bodies at the beginning of the contract and then at least every six months.

In the event of non-compliance with this duty of vigilance, and if the company’s subcontractor is reported for illegal employment, the principal may be held financially liable for the payment of taxes, social security contributions, salaries and other charges of its contracting partner.

Alerion’s advice: include clauses in your commercial contracts providing an obligation for your providers to transmit the requested documents on a regular basis and implement a verification process

Retirement reform: the bill got through

After a tense political and social sequence of events, most of the retirement reform has been validated by the Constitutional Court.

Among other measures, minimum age of retirement will be increased from 62 to 64.

Case law: loyalty obligation during sick leave

An employee participated in several badminton tournaments during his sick leave due to an elbow injury.

The employer dismissed him for violation of his loyalty obligation based on:

(i) the performance of such sport was likely to aggravate the employee’s injury or extend his sick leave.

(ii) the employee’s salary was paid during his sick leave.

Astonishingly, the Supreme Court ruled that the aggravation of the employee’s injury was not proved. Furthermore, the payment of the employer’s full salary, was not considered as a prejudice by the court. As a result, the employee’s dismissal was therefore not justified.

Warning: employees on sick leave can enjoy some leeway for their activities. Even if they are still bound by a loyalty obligation, performing an outside activity during sick leave does not necessarily qualify as misconduct.

French Supreme Court – 1^st February 2023, n°21-20.526

Focus: unlawful surveillance of the employees

Surveillance of the employees is subject to strict legal requirements. The proof of an act is often dismissed because it was not obtained legally, as illustrated in three recent decisions:

–    Declared purpose: a badge system was installed and declared to be used to control access to the premises. However, the employer used it to monitor employees’ activities.

The Court considered this evidence unlawful, insofar as the purpose of the badge system had been misused by the employer.

–    Prior information of the employees: during consultation of CCTV recordings, an employer had found that an employee was embezzling money.

The Court dismissed the CCTV recordings because the employee had not been priorly informed of the purposes of the devices, nor the legal basis justifying their presence.

–    Requirements on the diffusion of police reports: a bus driver had informed his employer that a block of tickets had disappeared. The employer transferred the CCTV recordings to the police, who found that the driver had been telephoning while driving and smoking in the bus. He was dismissed based on the content of the police report.

According to the Court, communicating the police report must be authorized by the Public Prosecutor in this specific case. The method of proof was therefore unlawful and could not be used to prove the driver’s misconduct.

Alerion’s advice: always have full visibility on compliance of your monitoring devices: purpose, adequation, works council and employee consultation, GDPR requirements…

From a preventive perspective, conduct a compliance audit; From a reactive perspective, consider gathering alternative evidence to demonstrate an employee’s misconduct.

French Supreme Court, 8^th March 2023, n°21-20.798, n°21-17.802, n°20-21.848

Case law: obligations of the parent company in case of sale

A company transferring the capital it holds in a subsidiary has no obligation to ensure, before the sale, that the transferee has a recovery plan guaranteeing the economic and financial viability of the subsidiary.

Therefore, if the subsidiary is then put into compulsory liquidation, the parent company will not be liable for the damages suffered by former employees made redundant after the transfer of shares.

Interest: while the parent company may be held liable for the financial situation of their subsidiary, in some situations, this decision is a clear and reassuring limitation of such responsibility.

French Supreme Court – 1^st March 2023, n°21-14.787

Do not hesitate to contact the Employment law team should you have any further questions.

Jacques Perotto, Partner, Maxime Hermes, Counsel, Anne-Sophie Houbart, Eloïse Ramos, Associates.

Two commercial practices in the pharmaceutical field to be noted: the first one illustrates a commercial strategy that leads to criminal fines; the second one shows that a protective commercial policy is not automatically an abuse of a dominant position.

Failure to comply with the French “anti-cadeaux” mechanism:

URGO Group sentenced to 6,6 million euros

The URGO Group has been sentenced to 6,6 million euros for failure to comply with the French legal “anti-cadeaux” mechanism¹.

Through its legal power of investigation, the French economic administration discovered illegal practices committed by the Urgo Group within 2015 and 2021, on the French market. The manufacturer distributed gifts to the pharmacists who bought its products or waived to have a discount on the purchase price, infringing the provisions of the French Code de la santé publique. Through this behaviour, the Urgo Group increased its profits and its market shares.

In addition to the confiscation of more than 5,4 million euros, fines totalling 1,125 million euros were imposed on the Urgo Group, in the context of a procedure of prior recognition of guilt².

The French economic administration assessed the fraud to 55 million euros and continues to investigate the pharmacists involved in the illegal practices.

Main rules

Published in 1993 and integrated in the French Code de la santé publique (Art. 1453-3 and seq.) the French anti-gifts rules implement an anti-corruption system to protect the independence of the actors of the Health sector. These rules provide a framework for benefits offered to healthcare professionals by manufacturers and prohibits, in particular:

• healthcare professionals from receiving benefits in cash or in kind, in any form whatsoever, directly or indirectly, from manufacturers;
• manufacturers from offering or promising benefits in cash or in kind in any form whatsoever, directly or indirectly, to healthcare professionals.

Under these rules, both pharmacists and manufacturers may be sued and sentenced by imprisonment and fines. Additional penalties such as temporary or permanent ban on practicing, confiscation of the gifts or disciplinary sanctions may also be imposed.

Cancellation of the record fine imposed on Novartis, Roche and Genentech for denigrating a “competitor” alleged as an abuse of a dominant position

In 2020, the French Competition Authority fined Novartis, Roche and Genentech 440 million euros for abusing their collective dominant position on the French market³.

The Authority blamed these laboratories for “abusive practices” to preserve sales of the drug Lucentis, prescribed for the treatment of age-related macular degeneration (“AMD”), to the detriment of a product thirty times less expensive, Avastin.

Following the development of the use of Avastin, an anti-cancer drug that was found to have positive effects in treating AMD patients, but which did not have a marketing authorization (“MA”) to treat AMD, the laboratories Novartis and Roche had adopted, between 2008 and 2013, “blocking” practices condemned by the Authority that consisted, in particular, in:

• a global and structured communication campaign tending to discredit ophthalmologists,
• an alarmist and misleading message to the French public authorities.

However, the Cour d’appel of Parisoverturned this decision and ruled that no anti-competitive practice had been established against Novartis, Roche and Genentech (February 16, 2023, No. 20/14632).

The Court distinguished between two periods: before and after the entry into force of the “Bertrand” Law in 2011 (adopted following the Mediator scandal), which restricts the use of non-approved drugs.

With regard to the practices performed for the period prior to this law, the Court found that the speech of the laboratories lacked “neither moderation nor caution” and that it was neither alarmist nor misleading. No eviction behaviour on the part of the laboratories was therefore characterized.

Regarding the practices that took place after the Bertrand Law came into force, according to the Court, Avastin had to be considered as being off the market for the treatment of AMD. As a result, the laboratories could not be accused of any eviction behaviour since these drugs could not be considered as competitor products.

Consequently, the Court cancelled the €440 million fine imposed by the French Competition Authority against these laboratories.

The Alerion Team in charge of Distribution and Commercial Contracts, Catherine Robin and Johanna Guerrero, is at the disposal of the French and foreign companies to draft and organise their commercial relationships.

Catherine Robin, Partner and Johanna Guerrero, Associate

---

[1] DGCCRF press release from January 27, 2023

[2] TJ Dijon, January 23, 2023

[3] Decision 20-D-11 of September 9, 2020

Alerion invites you to follow the news on distribution law.  To start this Serie, focus on the status of commercial agent. Inaugurated in 1958 in France, the status followed the European harmonization in 1986 and continues to evolve under the influence of the Court of Justice.

Episode 1 – Commercial agent status does not require the power to modify prices

Episode 2 – The possibility to derogate from the right to commission

Episode 3 – Compensation and serious misconduct of the agent

Episode 4 – Commercial agent operating outside the EU and French law

Episode 4

Commercial agent operating outside the EU and French law

For the first time, the French Cour de cassation rules that the status of commercial agent applies to the intermediary established and operating outside the European Union, when the contract is submitted to French law.

As previously mentioned in the Alerion Distribution Serie on Commercial agency, the status of commercial agent has been harmonized in the European Union (Directive 86/653/EEC of 18 December 1986, French Code de commerce).  At the end of the contract, the agent loses the fruits of his work but the status enables him to obtain compensation.  In France, according to French case law, this compensation is most often equal to two years’ commission calculated over the last three years of the contract.

In this case[1], a French producer had granted the distribution of wines and spirits in Canada to a Canadian agent.  The contract was governed by French law.  At the end of the relationship, the producer had refused to compensate the agent arguing that, without the ability to modify the price of the goods and due to the specificity of the importation of alcoholic beverage in Canada, the agent could not be qualified as a commercial agent.

During the proceedings, and before the judgment of the Cour d’appel, Court of Justice of the European Union ruled that a person who sells goods in the name and on behalf of his principal does not necessarily need to be empowered to change prices to be granted the legal status of commercial agent(Trendsetteuse case[2]) (cf. Episode 1).

It is within this context that the Cour d’appel of Paris granted the Canadian agent the status of commercial agent and the producer was sentenced to pay a termination compensation equal to two years of commissions.

The French producer then initiated an action in cassation, arguing in particular that:

• French law, as interpreted by the European Court, could not apply to a Canadian agent operating outside the European Union;
• The contractual relationship had been formed, performed and terminated prior to the judgment of the Court of Justice, which therefore had no application.

These arguments are rejected by the Cour de cassation, which rules that, pursuant to the Hague Convention of March 14, 1978, the parties had validly chosen to submit their contract to French law. Consequently, it is in the light of French law, as derived from the 1986 Directive and interpreted by European case law, that the criteria for qualifying as a commercial agent must be assessed.

The French law designated in the contract applies even if the commercial agent was established and exercised his activity outside the territory of the European Union.

In this respect, it should be noted that the 1986 Directive does not limit its scope of application to the territory of the European Union.  Each Member State was free to extend the protection of the status of commercial agent to intermediaries carrying out their mission in a third country.  The French legislator having chosen not to provide for any limitation as to the spatial scope of application of the text, the status applies in all its provisions, regardless of the place of establishment of the intermediary and the territory in which he carries out his mission.

The Cour de cassation also recalls that legal security does not consecrate an acquired right to a frozen case law.  Even if the entire relationship had taken place before the reversal of the Trendsetteuse case, at a time when the case law of the Cour de cassation and the Cour d’appel of Paris was more strict in granting the benefit of the status of commercial agent, since it required proof of the agent’s power to modify the price, the parties “cannot rely, in the event of a subsequent dispute, on the law as interpreted on the date of the conclusion of the contract.”  The reversal effected by the Trendsetteuse case is applicable even after the relationship has ended.

The Cour de cassation therefore dismissed the action.  The appeal decision[3] is confirmed in the sense that it had granted the Canadian agent the status of commercial agent after having noted that he was performing a negotiation activity, specific to this status, and the agent is enabled to the termination compensation, which, in this case, amounted to almost three million euros.

The Alerion Team in charge of Distribution and Commercial Contracts, Catherine Robin and Johanna Guerrero, is at the disposal of the French and foreign companies to draft and organise their commercial relationships. This case was followed by Alerion (first instance and appeal proceedings) and by SCP Matuchansky, Poupot et Valdelièvre (cassation).

---

[1] Cass. civ. 1^ère 11 January 2023, n°21-18.683

[2] CJUE 4 June 2020, aff. C-828/18, Trendsetteuse

[3] CA Paris, 20 May 2021, n°19/05011

Funfact #2: for a game ticket bought, get a complimentary exemption

Long live sports! Gifts offered (tickets, transport, accommodation…) by Works councils or employers to their employees for the 2023 Rugby World Cup or the 2024 Summer Olympics (both organized in France) will be exempt from social security contributions up to a limit of 25% of the Monthly Social Security Ceiling (i.e. €917 in 2023) per calendar year and per employee.

Case law: wet or scanned signature?

Numerous conditions apply for a signature to have the same probative value as a wet signature. However, the Supreme Court ruled that a scanned handwritten signature does not constitute the absence of signature.

Interest: The Court therefore adopts a pragmatic approach; challenging the validity of a scanned signature of a document should therefore be limited to situations where, for example, there is a doubt about the identity of the signatory or the intent to sign.

French Supreme Court – 14^th December 2022 – n°21-19.841

Calling an employee to announce their dismissal directly: not such a good idea

An employee must be notified of dismissal by registered letter with proof of delivery.

Thus, an employer calling an employee to announce the dismissal decision, on the same day as the dismissal letter is sent takes the risk of seeing the dismissal deemed verbal, and consequently unfair.

Warning: Although, in such a situation, the judge must determine which happened first, it will be particularly difficult to demonstrate the chronology of the facts on the same day. The employee has to prove that the conversation with the employer took place first.

French Supreme Court – 28^th September 2022, n°21-15.606

Case law: scope of a mobility clause

Is a mobility clause providing that the employee may be transferred to any other establishment of the company or subsidiary of the group applicable?

According to a constant position of the French Supreme Court, an employee cannot accept in advance a change of employer.

Warning: Consequently, a mobility clause providing that an employee undertakes any transfer from their workplace to another establishment of the company or subsidiary of the group located in France is null and void.

French Supreme Court, 14th December 2022, n°21-18.633

Focus: freedom of speech and “contamination” of the dismissal

Even though an employee had made threats and refused to perform some of his duties, as the employer also reproached him for challenging the group’s strategic choices (= freedom of speech), the dismissal was null and void.

Indeed, the Supreme Court ruled that when the dismissal letter mentions a reason linked to an employee’s fundamental right (e.g. freedom of speech), the dismissal is automatically null and void.

This applies even when other grounds were mentioned and could have justified the dismissal: the latest is definitely “contaminated” by the violation of the right.

Consequently, the “Macron scale” (damages cap) doesn’t apply and the financial exposure can no longer be controlled.

Alerion’s advice: drafting the dismissal letter requires the exclusion of any mention of a ground which could be related to a fundamental right.

Case law: working time monitoring and remote work

The employer shall monitor the working time of employees, and in particular check and ensure the employee doesn’t exceed the maximum work duration.

This principle is consistently applied by French jurisdictions. In a recent case, the Supreme Court specified that this also applicable when the employee is working remotely even though the company is not in a physical position to perform any checks.

Alerion’s advice: Make sure you have implemented tools to monitor working time of employees working from home!

French Supreme Court – 14^th December 2023 – n°21-18.139

Case law: The content of the agenda on the work computer is presumed to be professional.

Unless the employee identifies them as personal, folders and files created on the computer provided by the employer for work purposes are presumed to be professional. Therefore, the employer may access these documents without the employee’s presence.

While this solution is systematically rendered by the judges, the French Supreme Court also recently ruled that the data from an employee’s electronic agenda is presumed to be professional.

Interest: Such data may therefore be used as lawful evidence by the employer in case of litigation.

French Supreme Court, 9^th November 2022, n°20-18.922

Jacques Perotto, Partner, Maxime Hermes, Anne-Sophie Houbart, Eloïse Ramos, Associates.

Alerion invites you to follow the news on distribution law.  To start this Serie, focus on the status of commercial agent. Inaugurated in 1958 in France, the status followed the European harmonization in 1986 and continues to evolve under the influence of the Court of Justice.

Episode 1 – Commercial agent status does not require the power to modify prices

Episode 2 – The possibility to derogate from the right to commission

Episode 3 – Compensation and serious misconduct of the agent

Episode 4 – Commercial agent operating outside the EU and French law

Episode 3

Commercial agent – Compensation and gross misconduct

Several decisions in the commercial agency area have focused on the compensation owed to the commercial agent at the end of the contract. The Cour de Cassation now requires that, to deprive the commercial agent of the said compensation, the agent’s serious misconduct must be mentioned in the termination letter.

A commercial agent is an independent intermediary who has continuing authority either to negotiate or to negotiate and conclude the sale or purchase of goods in the name and on behalf of a principal (producer, manufacturer, traders or another commercial agent, C.com. Art. L. 134-1).

At the end of the relationship, the agent is enabled to compensation (C.com. Art. L134-12), the amount of which is generally equal to two years of commissions, calculated over the last three years. As the right to compensation is of public order, it is not possible to derogate from it. The commercial agent loses his right to compensation only in the event of serious misconduct, termination of the contract on his own initiative or in the event of transfer of the contract with the principal’s agreement (C.com. art. L134-13).

Several decisions have clarified the right to compensation of the commercial agent at the end of the contract:

• It is possible for a principal to take back a client from his agent’s portfolio and pay him in return the lump sum compensation provided for in the contract. Such a provision is authorized because it does not stipulate a lump-sum compensation for the loss resulting from the termination of the relationship with the principal (Cass. com., 5 October 2022, no. 20-16.665). 
• The death of the sole managing partner of an EURL with a commercial activity does not give rise to the right to compensation. Indeed, unless otherwise stipulated in the articles of association, the EURL is not dissolved by the death of a partner. The company still exists between the beneficiaries and heirs (Cass. com. 22 June 2022, n°21-11.675).
• The agent’s serious misconduct must be mentioned in the termination letter, otherwise the agent retains his right to compensation. With this decision, the Cour de Cassation adopts for the first time the position of the Court of Justice of the European Union. Until now, the Cour de Cassation held that the commercial agent could be deprived of compensation even if his serious misconduct was alleged by the principal after the termination letter (Cass. com. 16 November 2022, n°21-17.423).

The compensation to be paid at the end of the commercial agency contract is a cost to be considered in the implementation of a distribution network. The distribution via commercial agents is nevertheless particularly suited to develop business on foreign markets, due to the flexibility of the organization required and the knowledge of the market by the agent.

The principal must comply with the new requirement of the Cour de Cassation by mentioning the serious misconduct of the commercial agent in the termination letter. If not, the latter may retain his right to compensation. We believe nevertheless that a serious misconduct, even reported late, may lead to reduce the amount of the compensation.

The Alerion Team in charge of Distribution – Commercial Contracts, Catherine Robin and Johanna Guerrero, is at your disposal to assist in the drafting of your commercial agency contracts and for any pre-litigation and litigation in connection with this type of distribution.