To quote this paper: L. CAMBOS DE GAULEJAC, “Restrictive competition practices: the Cour de cassation opens up a new shortcut for judicial price control”, Competition Forum – French Insights, 2023, n° 0051, https://competition-forum.com.

A recent ruling of the Cour de cassation (Cass. Com., January 11, 2023, no. 21-11.163) clarifies the concept and criteria of an advantage without consideration, in the case of price reductions imposed by a business partner.[1]

The case involves two companies, OC Résidences, a builder specialized in single-family homes, and its subcontractor 3J Charpentes. In 2013, OC Résidences implemented a systematic 2% discount on invoices from all subcontractors, attributing it to the tax credit for competitiveness and employment (CICE, “Crédit d’impôt pour la compétitivité et l’emploi”) provided by the French government to companies, including 3J Charpentes. It is noteworthy that the CICE was designed to enhance business competitiveness.

The subcontractors and the Minister of the Economy and Finance accused the company of two restrictive competition practices.

The action was brought on the basis of the former article L. 442-6, I, 1° of the French Commercial Code, which penalized “obtaining or attempting to obtain any advantage whatsoever that does not correspond to any service actually rendered, or that is manifestly disproportionate to the value of the service rendered”.

The Court of Appeal of Paris in its decision[2], rules that it could only allow the judge to scrutinize the 2% discount under the provisions of 2° of the same article, which addresses non-negotiated clauses leading to significant imbalances in the contractual relationship.

Upon appeal to the Cour de cassation, the Minister of the Economy and Finance and OC Résidences company contested the applicability of the text itself.

The Court’s ruling on January 11, 2023, addressed two key aspects:

Firstly, the Court’s affirmed the applicability of article L. 442-6 of the French Commercial Code (now equivalent to the new L. 442-1 of the same Code) to subcontracting relationships. It dismissed the argument relying on the adage specialia generalibus derogant, emphasizing that nothing in the 1975 law or the French Code of construction and habitation contradicts the text. The Court responds with the adage ubi lex non distinguit, stating that where the law does not distinguish, there is no reason to distinguish.

Secondly, the Court clarified that the discount could be contested under article L. 442-6, I, 1° of the French Commercial Code for undue advantages, irrespective of the nature of the benefit, even if it is in the form of a discount. This rejected the Court of Appeal’s argument that price control should be based solely on the grounds of significant imbalance (L. 442-6, I, 2° of the same Code).

Although the facts of the case were subject to the provisions of article L. 442-6 of the former Commercial Code, the solution should apply to commercial relations subject to the provisions of the new article L. 442-1 of the French Commercial Code, which is now applicable. This ruling is therefore of great importance for the legal regime governing restrictive competition practices.

On the whole, by it’s decision the French Supreme Court clarified that subcontracting relationships fell within the scope of the prohibition on obtaining an advantage without consideration or disproportionately (I) and that this prohibition could be used to exercise judicial control over the price (II).

I. The application of article L. 442-6, I of the French Commercial Code : French judges’ eenie meenie miney mo ?

The relationship between the law of restrictive practices and the general contract law or special laws relating to a sector or type of contract has been the subject of a lively debate in recent years, which now extends to the relationship between the various prohibited practices.

Normally, when different texts can be applied to one situation, the judges has always tended to favour  the criterion of the special relationship between the applicable texts. As Professor Chantepie[3] quotes, “thus, articles L. 442-1 and seq. of the French Commercial Code are not applicable to the banking sector[4] or in cases involving group law[5], which are considered to be more special. The same solution must be transposed to advantages without consideration (see in particular, in banking matters, CA Paris, 26 June 2020, no. 17/207)”.

The French law of restrictives competition practices is perceived as the common ground of special regimes derogating general contract law[6] but it’s application can by excluded if even more special regime can be applicated. Meaning that there is three shades of applicable law : the general contract law which is generally the French Civil Code articles, the law of restrictives practices (for instance article L. 442-6 of the French Commercial Code), and the special regimes that are specified in certain Codes such as the French Monetary and Financial Code or the French Building and Housing Code.

As mentioned before, French judges usually used to select the applicable law by ruling on the more special regime that could be applied.

Specifically, in this case, the appellant argued that the existence of a special regime protecting subcontractors precluded the application of the provisions of the former article L. 442-6 of the French Commercial Code. This argument was questionable on two counts.

On one hand, while the rules relating to contracts for the construction of individual houses are indeed a matter of public policy, they merely set out the formalities of the contract, without imposing any real protective measures for the benefit of the builder, the customer or the subcontractor (with the exception of the time limit for payment of the price, which must be made within 30 days[7]).

On the other hand, it is not sufficient for a special text to contain a measure that protects one of the parties in order to exclude the application of articles L. 442-1 and seq. of the French Commercial Code.

In fact, there is nothing to prevent their cumulative application, provided that this does not result in an incompatibility between them.

The Cour de cassation adopted this argument, pointing that the former article L. 442-6, I of the Commercial Code, the solution obviously applying to its current wording, did not lay down any rule incompatible with the provisions of the French Building and Housing Code, so that it should apply to relations between a builder of a detached house and his subcontractors.

The Cour de cassation’s reasoning provides a criterion for delimiting its scope. Rather than resorting to the adage specialia generalibus derogant, the Cour de cassation uses the absence of incompatibility between rules that are intended to apply cumulatively. In this case, the requirement for a written contract obviously does not prevent the application of a rule prohibiting one party from obtaining from the other an advantage that is unrequited or manifestly disproportionate.

II. The unveiled shortcut and the application of article L. 442-1, I, 1° of the French Commercial Code by the Cour de cassation

In restrictive competition practices, price has usually been controlled on the fondation of article L. 442-1, I, 2° of the French commercial Code[8] on the grounds of significant imbalance. As mentioned earlier, the Court of Appeal of Paris dissmissed the Minister of the Economy and Finances argument found on the application of the 1° of the same article.

The Court of Appeal reached the conclusion that judicial control of the price remains exceptional in matters of restrictive competition practices, given the principle of free negotiation of the price and the refusal to review the price’s damages under ordinary law.

Referring to the decision of the Constitutional Council[9], it was deduced that a review could only be conducted in the absence of free negotiation. Meaning that the provision apprehending an advantage without consideration or that is manifestly disproportionate cannot be applied in such a case, and only the rule relating to significant imbalance can be used[10].
            The attempt to limit judicial control of the price also fails because of the clear wording of article L. 442-6, I, 1° of the French Commercial Code.

As the decision of the French Supreme Court rightly points out on the grounds of breach of the law, this provision “requires only that it be established that an advantage of some kind has been obtained or that an attempt has been made to obtain such an advantage that does not correspond to any commercial service actually rendered or that is manifestly disproportionate to the value of the service rendered”[11].

Contrary to what the Court of Appeal had ruled, this rule, which refers specifically to “any advantage whatsoever”, is undeniably applicable “whatever the nature of that advantage”, as stated by the Commercial Chamber, it may therefore concern the price.

As a result, it is now accepted that French law on restrictive practices has established not one, but two cases in which lesion is admitted in relations between undertakings[12].

The principle solution, which was initially based on the provision of services, has become increasingly important, especially since the Disposition of April 14th of 2019, which extended its scope to include contracts and now corresponding to the rule on significant imbalance.

However, it differs from the latter in that, unlike the rule based on two constituent elements, the violation of the first rule is based on the result obtained or sought, which may be an undue advantage or an advantage manifestly disproportionate to the value of the consideration.

Therefore, a person who intends to take legal action against a pricing imbalance might be inclined to invoke, preferably or at the same time, the benefit of a provision that does not require proof that the imbalance is caused by non-negotiable pricing behavior.

It is yet to be determined how to address the pricing imbalance based on these two competing provisions. This is a difficult question that the Cour de cassation has not yet answered.

Nevertheless, it is debatable whether a higher standard of proof should be required for the demonstration of an advantage that is manifestly disproportionate to the value of the consideration than for the demonstration of a significant imbalance between the rights and obligations.

If the answer is in the affirmative, this would prevent the rule on a manifestly disproportionate advantage from gaining ground in litigation and potentially overshadowing the rule on a significant imbalance.

Louison CAMBOS de GAULEJAC

[1] Obs. under decision G. CHANTEPIE, “La complémentarité de l’avantage sans contrepartie et du déséquilibre significatif”, La Semaine Juridique Entreprise et Affaires n° 07, February 16 of 2023, 1049
[2] CA Paris, ch. 5-4, 4 nov. 2020, RG n°19/09129
[3]Obs. under decision G. CHANTEPIE, “La complémentarité de l’avantage sans contrepartie et du déséquilibre significatif”, La Semaine Juridique Entreprise et Affaires n° 07, February 16 of 2023, 1049
[4] Cass. com., January 15, 2020, no. 18-10.512
[5] Cass. com., May 11, 2017, no. 14-29.717
[6] Cass. com., January 26, 2022, no. 20-16.782
[7] Code de la construction et de l’habitation, article L. 231-13
[8]Cass. com., January 25, 2017, no. 15-23.547
[9]Decision no. 2018-749 QPC of the Constitutional Council, November 30, 2018
[10] Obs. under decision N. ERESEO, “Déséquilibre significatif : Le Conseil constitutionnel valide le contrôle des prix (Interdis, Carrefour hypermarchés, Carrefour administratif France, CSF et Carrefour Proximité France)”, November 30 of 2018, Concurrences Revue N° 1-2019, Art. N° 89119
[11] Cass. Com., January 11, 2023, no. 21-11.163
[12]Obs. under decision M. CHAGNY, “Droit applicable : La Cour de cassation confirme l’application du droit des pratiques restrictives de concurrence aux contrats de sous-traitance et précise les modalités de l’application de l’article L. 442-6, I, 1° du code de commerce sanctionnant l’avantage sans contrepartie à la réduction de prix obtenue d’un partenaire commercial (OC résidences)”, January 11 of 2023, Concurrences Revue, N° 2-2023, Art. N° 110970.