France is business friendly with a low rate of litigation

For foreign businesses, France represents a comparatively friendly environment vis-a-vis litigation, as France’s rate of litigation is half as much as in the UK, Germany and Japan – and approximately 1/3 as much as the United States.  So overall, if you are seeking to do business in Europe, France is a very attractive option if you are seeking to avoid business-related lawsuits.

It is important to note, however, that Civil Litigation in France is very different indeed from litigation in common-law jurisdictions.   For example, compared the United States, large-scale punitive damages are never awarded, and class-actions do not exist – thereby limiting exposure to liability for companies doing business in France.

However, while the French business climate is a friendly one for business, it is important for overseas companies to be aware of the differences between foreign jurisdictions and France’ unique litigation environment, and always be actively engaged with legal counsel well-versed in knowledge of the French legal system  – to both be prepared for potential commercial litigation and the unique process it is in France – as well as to proactively work to avoid litigation – by putting in place measures to protect your company by complying with French and EU law before you face litigation you may have avoided otherwise.

French Commercial Litigation: An Overview

Except for specific legal issues, such as patent property rights which are subject to the exclusive jurisdiction of the Tribunal de Grande Instance (which has jurisdiction to hear civil matters not within the exclusive jurisdiction of another first instance court), commercial disputes in France are brought before the Tribunal de Commerce (Commercial Court).

Matters can be brought, at the claimant’s request, before the Tribunal de Commerce of the defendant’s domicile or place of delivery of the goods or performance of the services, unless otherwise agreed by the parties.

Any person who has standing to act and who has a personal interest in the dispute may file a claim. It is the litigant(s), also named the claimant(s), who shall submit his(their) contentions before the Commercial Court. He (They) may issue proceedings against one or several other litigants called defendants.

A claim is generally started by a summons (assignation). This is a document which is notified to the defendant by a bailiff (a court officer) and contains (among other things) the following information:

  • The identity of the court where the claim will be heard.
  • A summary of the basis of the claim and the factual and legal arguments that support it.
  • Fast track trials might be available.

For example, to recover commercial debts in France, creditors might file a “petition for injunctive decree to pay”.  It is a process that may enable you to quickly obtain the reimbursement of sums that are owed to you by a debtor who is deemed to be a trader or a company. The injunctive decree to pay proceeding may be used independently of the debt’s amount. The claimed sum must be of a determined amount.

In which cases may an injunctive decree be obtained ? 

In the case of a debt that has not been impugned by the debtor, which may result from :

A contract : for example, an unpaid bill resulting from a sale, work, unpaid rent and/or reimbursement of a loan…

A regulated obligation : for example, contributions owed to a pension fund

The debt, if it has a commercial nature, may be presented on a form of a banker’s draft, a bill of exchange, a promissory note, an acceptance of the assigning of debts or shares.

The debtor must compulsorily be a trader or a company exercising its trading activity in Paris.

Moreover, the President of the Commercial Court has, within the limits of his jurisdiction and in the fields specified by the acts, a judicial power which enable him to rule upon disputes by a reasoned order. He may delegate part or all of his judicial powers to one or more members of the Commercial Court.

Thus, the President of the Commercial Court seized by way of petition may rule by orders in the following cases:

1- Appointment of an auditor of the merger proceedings

2- Appointment of a conversion auditor

3- Appointment of an auditor of the contribution proceedings

4- Authorisation for withdrawal of the funds blocked at the bank at the formation of the limited liability company (“SARL”)

5- Time extension for holding the general meeting where the annual accounts shall be approved

6-Appointment of an auditor charged to verify assets and liabilities

7- Contestation of a decision of refusal to register the company or the amendment of the memorandum and articles of association.

It shall be noted that the listing of the cases of cognisance of the President mentioned above is not exhaustive.

The length of time to obtain judgment depends on the relevant court’s workload.

In Paris, judgment is obtained:

In fast track proceedings: between 15 days and two months. In exceptional cases, a decision can be obtained in a few hours.

Before the Tribunal de Commerce: one to two years from the formal start of proceedings. If the decision is appealed, this takes about another one to two years. In exceptional cases, the procedure can be expedited.

Conclusion

Overall France has a business-friendly climate with lower exposure to litigation than in countries like the UK, Germany and the United States.  However as a non-common law jurisdiction, there are unique features of the French legal system, including the commercial litigation regime in France, that make it essential for foreign companies doing business or seeking to do business in France, seek expert legal counsel to proactively avoid the dangers of unnecessary litigation.

As the Australian Government’s Trade Authority has pointed out: Companies wishing to set up an office in France are strongly advised to take expert counsel before embarking on entering the French market.  Should you do so, you will find that France is an excellent place to headquarter your French and EU subsidiary, while avoiding the pitfalls of unnecessary and costly civil litigation.

Benoît LAFOURCADE

Co-Founder, Partner & Solicitor -
International Corporate Law & Litigation

Benoît, Delcade’s co-founder, is a Paris Bar lawyer and UK Solicitor (London).

Advisor for various embassies, working closely with the firm's team, Benoît offers his services to French and foreign companies requiring cross-cutting strategic and legal support in business law.

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