The challenges of the new case law on anti-competitive practices in subcontracting and recovery of the CICE

Latest development in French case law on competition restrictive practices (pratiques restrictives de concurrence): the enforcement of the prohibition on obtaining an advantage without consideration or a disproportionate one to subcontracting relationships and to the claw back by the client of a part of the CICE French tax credit received by its subcontractors

Decision of the Commercial Division of the French Judicial Supreme Court (Cour de cassation) of 11 January 2023, No. 21-11.163

In its decision of 11 January 2023, the French Judicial Supreme Court specified that the relationship between a construction company and its subcontractors and the unilateral implementation by the former of a 2 percent rebate on the prices invoiced by the latter because they benefited from a French tax credit fall within the scope of application of the prohibition on obtaining an advantage without consideration or a disproportionate one.  This conclusion can reasonably be extended to all subcontracting relationships.  The French Judicial Supreme Court also stated that courts could make use of this prohibition when conducting a judicial review of prices.  The Court have not ruled that in principle, rebate contractual clauses and unilateral practices aimed for the client at clawing back a part of the tax credit from which its subcontractors qualify as obtaining an advantage without consideration or a disproportionate one.  Therefore, these clauses and practices must be analyzed on a case-by-case basis to ensure that they do not risk being qualified as such and being prohibited.

1. Regarding competition restrictive practices, Article L. 442-1(I)(1°) of the French Commercial Code (Code de commerce, hereinafter “FCC”) prohibits the fact by any person carrying out production, distribution, or service provision activities to obtain or attempt to obtain from the other party an advantage that does not have consideration or is obviously disproportionate to the value of the consideration granted in the context of commercial negotiations, or the execution or performance of a contract.  This prohibition was initially provided in Article L. 442-6(I)(1°) FCC up to the entry into force of French Ordinance (ordonnance) No. 2019-359 of 24 April 2019 which transferred it to Article L. 442-1 FCC (Ordinance No. 2019-359 of 24 April 2019 revising Title IV of Book IV of the French Commercial Code relating to transparency, competition restrictive practices and other prohibited practices, Art. 2).
2. The prohibition on obtaining an advantage without consideration or a disproportionate one is quite old since it was implicitly mentioned in French Ordinance No. 86-1242 of 1^st January 1986 (French Ordinance No. 86-1243 of 1^st December 1986 relating to the freedom of prices and competition, Art. 36(1°)) and was fully introduced into French law by French Law (loi) No. 2001-420 of 15 May 2001 known as the “NRE Law” (French Law No. 2001-420 of 15 May 2001 concerning new economic regulations, Art. 56).  The purpose of this provision is to participate in the rebalancing of relationships between distributors, especially large-scale distributors, and suppliers by ensuring that the advantages, including payments, provided by the latter to the former in the context of the commercial cooperation between them have a counterpart given by the former to the latter which value is equivalent to these advantages.
3. For instance, the Court of Appeals (cour d’appel) of Colmar ruled that a commercial cooperation agreement by which a distributor had its supplier to fund the construction of a new warehouse infringed said prohibition.  For the Court, this advantage was not the counterpart of any specific commercial service for the supplier because the storage and its organization, which fall under the responsibility of the distributor as a buyer, do not contribute to stimulating the resale of the supplier’s products for its benefit (Court of Appeals of Colmar, 12 June 2008: BICC 1^st March 2009, No. 296).
4. In this context, the Court of Appeals of Paris in 2020 (Court of Appeals of Paris, 4 November 2020, No. 19/09129) then the French Judicial Supreme Court (Cour de cassation) in 2023 (French Judicial Supreme Court, Commercial Division (chambre commerciale), 11 January 2023, No. 21-11.163) had to determine whether the prohibition on obtaining an advantage without consideration or a disproportionate one could apply to relationships between a construction company and its subcontractors.  In this case, the company 3J Charpentes was the subcontractor of the company OC Résidences which activity is the construction and marketing of individual houses.  The latter unilaterally imposed an exceptional discount of 2 percents on the price of the services that the former invoiced it on the grounds that this subcontractor benefited from the French tax credit for competitiveness and employment (crédit d’impôt pour la compétitivité et l’emploi, hereinafter the “CICE”).
5. In a letter dated 24 June 2013, the company 3J Charpentes challenged the deduction of this 2 percents discount under the CICE and refer the situation to the French Business Mediator (médiateur des entreprises). Following the failure of the latter’s mediation, it lodged a complaint with the Regional Directorate for the Economy, Employment, Labor, and Solidarity (Direction régionale de l’économie, de l’emploi, du travail et des solidarités) of Occitanie on 7 November 2023.
6. After investigation by this Regional Directorate, the French Minister for Economic Affairs (ministre chargé de l’économie) served a writ of summons to the company OC Résidences before the Commercial Court (tribunal de commerce) of Bordeaux on 26 April 2017.  The Minister sought from the Court to rule the practices of the defendant as infringing the prohibition on obtaining an advantage without consideration or a disproportionate one. These practices consisted, on the one hand, in systematically deducting from the invoices of its subcontractors the 2 percents discount due to the CICE and, on the other hand, in granting itself a discount of 3 percents on invoices paid late.  By a decision of 18 January 2019, the Court granted the Minister’s claims and ordered the company OC Résidences to put an end to the disputed practices and to pay back the undue amounts collected on various of its subcontractors, including the company 3J Charpentes.
7. Firstly, the Court of Appeals of Paris, before which the decision of 18 January 2019 of the Commercial Court of Bordeaux was appealed, like the French Judicial Supreme Court ruled that the relationship between a construction company and its subcontractors falls within the scope of application of the prohibition on obtaining an advantage without consideration or a disproportionate one laid down by Article L. 442-6(I)(1°) FCC as drafted preceding the entry into force of French Law No. 2014-144 of 17 March 2014 (French Law No. 2014-144 of 17 March 2014 on consumption, known as the “Hamon Law”).  This drafting was the one in force when the practices of the company OC Résidences disputed by the French Minister for Economic Affairs were implemented.
8. The opinions of the Court of Appeals of Paris and the French Judicial Supreme Court seem difficult to challenge because the drafting of Article L. 442-6(I)(1°) FCC before being amended by French Law No. 2014-144 of 17 March 2014 did not limit the scope of application of the provision to relationships between distributors and suppliers but extend it to “any producer, trader, manufacturer or person registered with the directory of crafts” (“tout producteur, commerçant, industriel ou personne immatriculée au répertoire des métiers”), namely a craftsman, in his relationships with a “commercial partner” (“partenaire commercial“).  Said opinions would also conform to the will of the French Parliament, which has continued to extend the scope of application of Article L. 442-6(I)(1°) FCC, and most recently with French Ordinance No. 2019-359 of 24 April 2019.  This is also the solution adopted in 2015 by the French Commercial Practice Review Commission (Commission d’examen des pratiques commercial (CEPC), a French independent commission providing non-binding opinions on commercial practices to the French government, courts, business organizations, and the public) which asserted that the drafting of Article L. 442-6(I)(1°) FCC did not limit its application to commercial cooperation services provided by a distributor to its suppliers (CEPC, Opinion No. 15-22 of 21^st May 2015).
9. As a result of this constant extension of its scope of application, the prohibition on obtaining an advantage without consideration or a disproportionate one covers practically any type of commercial relationship between companies since French Ordinance No. 2019-359 of 24 April 2019 and to date.  It is enforceable on practices deployed, “in the context of commercial negotiation, the execution or performance of a contract, by any person carrying out production, distribution or service provision activities” (“dans le cadre de la négociation commerciale, de la conclusion ou de l’exécution d’un contrat, par toute personne exerçant des activités de production, de distribution ou de services“) (FCC, Article L. 442-1(I)(1°)).  For this reason, the opinions of the Court of Appeals of Paris and the French Judicial Supreme Court that the relationships between a construction company and its subcontractors fall under this prohibition remain valid.
10. Moreover, the very broad nature of the scope of application of the prohibition on obtaining an advantage without consideration or a disproportionate one makes it possible to assert that this prohibition could be enforced on all subcontracting relationships, regardless of the industry concerned.  The only limit would be that a legislative provision specific to an industry enacts a rule incompatible with this prohibition and for this reason requires the latter to be set aside according to the specialia generalibus derogant principle (Special laws derogate from general laws. See French Civil Code (Code civil), Art. 1105(indent 3)).
11. Secondly, the Court of Appeals of Paris had refused to enforce the prohibition on obtaining an advantage without consideration or a disproportionate one to the 2 percent rebate that the company OC Résidences unilaterally imposed on the invoices of its subcontractors because the latter benefited of the CICE.  The Court justified its decision by the fact that, although it could actually carry out a judicial review of prices since the disputed rebate and the prices resulting from its imposition had not been freely negotiated between the parties, this review could only be conducted under the prohibition of one party from subjecting or attempting to subject the other party to obligations creating a significant imbalance in the rights and obligations of the parties (FCC, Art. L. 442-6(I)(2°), transferred by the French Ordinance No. 2019-359 of 24 April 2019 to FCC, Art. L. 442-1(I)(2°)).
12. In 2017, the French Judicial Supreme Court ruled that French courts can verify the adequacy of the price to the good or service to this price, and thus carry out a genuine judicial review of prices when the price does not result from a free negotiation between the parties, and happens to result in a significant imbalance between the rights and obligations of the parties (French Judicial Supreme Court, Commercial Division, 25 January 2017, No. 15-23.547: D. 2017 Chron. C. cass. 1076, obs. Tréard; ibid. 481, note Buy; AJ contrat 2017.132, obs. Ferré and Pihéry; RTD com. 2017.601, obs. Chagny; RTD civ. 2017. 383, obs. Barbier; JCP E 2017, No. 1135, note Le Gac-Pech 255, note Béhar-Touchais; CCC 2017, No.  77, obs. Mathey; RJDA 2017, No. 286; LPA 19 May 2017, note Voisset; RLDA Apr. 2017.14, note Leroy and Beaumont; RLC March 2017.17, note Vanni and Martin; ibid. May 2017.32, note Grall and Malle).  The Court of Appeals of Paris made a strict enforcement of this precedent.
13. In its decision of 11 January 2023, the French Judicial Supreme Court overruled this attempt to limit the judicial review of prices to the sole prohibition of significant imbalances.  Prevailing the letter of the provision prohibiting the obtaining of an advantage without consideration or a disproportionate one in its version applicable to our case, it affirmed that this prohibition can be enforced by French courts to review prices and thus opens a new basis on which the judicial review of prices can be performed.  Despite the changes to the drafting of the provision establishing said prohibition that have occurred since then, the opinion of the French Judicial Supreme Court remains perfectly valid to this date since in its current version, this provision remains wide and is not restricted to the case where prices were negotiated.
14. Third and lastly, the decision of the French Judicial Supreme Court of 11 January 2023 has not considered that in principle, contractual clauses and unilateral practices allowing a client to claw back a part of the CICE from which its subcontractor benefits through a rebate on the latter’s price qualify as the prohibition on obtaining of an advantage without consideration or a disproportionate one.  Making reference to the traditional case law in the matter, such clauses or practices could be qualified as such if the following items were met:
    • the rebate is not the consideration for real and concrete services provided by the client to the subcontractor (Court of Appeals of Paris, 29 June 2016, No. 14/09786 – Upheld by the French Judicial Supreme Court, Commercial Division, 26 September 2018, No. 17-10.173 – Court of Appeals of Paris, 15 January 2015, No. 13/03832: AJCA 2015, p. 137, obs. Fourgoux – Upheld by the French Judicial Supreme Court, Commercial Division, 15 march 2017, No. 15-18.381 – Court of Appeals of Rennes, 5 November 2008, No. 07/04842);
    • the services provided by the client in return for this rebate are of no interest to the subcontractor (Court of Appeals of Paris, 8 February 2017, No. 15/02170 – Court of Appeals of Paris, 1^st July 2015, No. 14/03593); and
    • the value of said rebate is manifestly disproportionate to that of the consideration granted by the client (Court of Appeals of Paris, 13 September 2017, No. 15/24117), knowing that evidencing the existence or absence of this manifestly disproportionate nature would prove to be particularly complex.
15. As a result, clients shall engage in a concrete analysis work to determine to what extent they can claw back a part of the benefit of the CICE from their subcontractors and at what level to set this claw back.  This analysis will be even more complicated to carry out since there is currently no case law adapted to a subcontracting relationship to help them do so, the courts having just recognized that the prohibition on obtaining an advantage without consideration or a disproportionate one applied to this type of relationship.
16. At this preliminary stage, one may wonder whether assistance services for obtaining the benefit of the CICE provided by the client to its subcontractors, particularly those falling within the category of small and medium-sized businesses and therefore poorly equipped for responding to the administrative procedures aimed at being granted the CICE, could be seen as a real, concrete consideration that is of interest to these subcontractors for a claw back of a part of the CICE benefited.  As for the level at which to set this claw back so that it is not considered as manifestly disproportionate, it would depend on the actual impact of these assistance services on the presentation and quality of the CICE application file.
17. As a reminder, the sanctions for infringing the prohibition on obtaining an advantage without consideration disproportionate are harsh in the hope of making them dissuasive.  Courts may impose on the author of these infringements, namely the client in our case, one or more of the following sanctions (FCC, Art. L. 442-4(I)-(II)):
    • upon the request of any interested person, compensation for all damages, direct and indirect, suffered as a result of the infringement;
    • upon the request of any interested person, the French Public Prosecutor or the French Minister for Economic Affairs, the restitution of the undue advantages collected on the victims and resulting from the infringement;
    • upon the request of the latter, the cessation of the infringement, if necessary, under periodic penalty;
    • upon the request of the same, the acknowledgment that the clauses or contracts supporting the infringement are null and void;
    • upon the request of the French Public prosecutor or the French Minister of Economic Affairs, a civil fine which amount may not exceed the highest of one of the following 3 caps:
      • 5 million Euros;
      • 3 times the amount of the advantage improperly received or obtained; or
      • 5 percents of the turnover excluding tax achieved in France by the author of the infringement during the last fiscal year ended since the fiscal year preceding that during which this infringement was implemented; and
    • in a systematic manner, the publication, distribution, or display, if necessary, under a period penalty, of the decision of the court or of an extract thereof according to the procedures decided by this court, including the insertion of this decision or an extract from it in the report drawn up on the operations of the fiscal year by the managers, the board of directors or the management board of the convicted company.