Source: http://www.cisg.law.pace.edu/cisg/wais/db/cases2/070220f1.html
Timestamp: 2019-04-26 04:30:56+00:00

Document:
The Court of Cassation dismissed the first part of the plea. In response to the first argument, the Court said that it would follow CISG, in view of the fact that the Appeal Court had stated that the parties had agreed to be subject to French law and that consequently CISG, which had been ratified by France, was applicable to the sales contracts between the French seller and the Venezuelan buyer, the parties not having agreed otherwise. The Court of Cassation upheld the Appeal Court's decision to consider the failures cited in the performance of the sales contracts in the light of provisions of CISG, which was applicable, even though such performance occurred in application of a framework contract of exclusive distribution that was not itself subject to the Convention.
With regard to the second argument, the Court of Cassation noted that the Appeal Court, while fully appreciating the elements of proof laid before it, had acknowledged that the seller had legitimate fears concerning the buyer's creditworthiness, in view of the fact that the buyer had habitually, since 1995, been behind with its payments. There could well be fears, therefore, of new difficulties with payment if the seller renewed deliveries without any guarantee, even though, on 8 March 2002, the buyer was, for the first time for a long time, up to date with its payments. Moreover, the buyer belonged to a group that was heavily indebted to the seller, which gave rise to serious doubts about its creditworthiness. Furthermore, the plaintiff had not cited in its appeal the fact that the seller had unilaterally set the deadline for payment, so the Appeal Court had not been required to look further into that matter.
The Court of Cassation did not consider the merits of the claim concerning the application of CISG article 71. It held that neither the pleading nor the ruling indicated that the buyer had argued before the court that fears concerning the buyer's creditworthiness could justify the suspension of deliveries in accordance with CISG article 71 only once the risk had become apparent after the conclusion of the sale. It was therefore a new argument, which included points of fact and law.
The Court of Cassation dismissed the argument relating to the dismissal of the application for damages pursuant to a mistake committed by the French company in terminating the distribution contract. Its response to this argument, which related to French domestic law, had no bearing on CISG.
The Appeal Court's ruling was, nonetheless, annulled, since the Court of Cassation accepted the merits of one argument that also related to French domestic law. The Appeal Court had dismissed the application for damages for harm caused by the licensee as a result of the non-performance of the licensor in ensuring the exclusiveness of the licence that it had granted the licensee after a dishonest distributor that had breached that exclusiveness had been identified. The Appeal Court had held that it was for the licensee to take such action as it deemed appropriate against the dishonest distributor. The Court of Cassation held that, in its ruling, the Appeal Court had erred in law in its interpretation of articles 1134 and 1135 of the Civil Code, since it was for the supplier to ensure the exclusiveness of the licence.
The case concerned a French company A, the seller, and a Venezuelan company B, the buyer. The former had granted the latter exclusive distribution of its products in Venezuelan territory under a contract dated 10 January 1991, which, originally valid for a period of two years and subject to implied renewal, provided that the parties could terminate it by giving notice of six months, subsequently reduced to three months under a codicil dated 5 June 1993. The seller alleged that the buyer was guilty of a number of breaches of its contractual obligations and, on 28 June 2002, notified it of the non-renewal of the contract as of 31 December 2002. The buyer, pleading the sudden and wrongful breach of commercial relations, sued the seller for damages.
The case was dismissed by the Versailles Court of Appeal on 19 February 2004 and application was made to the Court of Cassation for judicial review.
The plaintiff's application for judicial review was based on three arguments.
First, the buyer criticized the Appeal Court's ruling dismissing his claim of damages for harm caused by company A when it suspended supplies. In the first part of his argument, the plaintiff maintained that article 4 CISG did not apply to an obligation to supply under a framework distribution contract. In the plaintiff's view, the contract in question should be subject to the Convention on the Law Applicable to Contractual Obligations (Rome Convention), of 19 June 1980, which provides, in article 4, paragraphs 1 and 2, that the applicable law is that of the person owing the obligation to supply, namely, in this case, French law, since the licensor was based in France. French law, however, admits the defence of non-performance only if it is completed, under article 1184 of the Civil Code. On that basis, the Appeal Court ruling that the supplier was justified in refusing to supply the buyer after 8 March 2002, once it was established that the licensee had paid for all deliveries to date, was an error in law based on a mistaken interpretation of CISG article 71 and a failure to apply article 4, paragraphs 1 and 2, of the Rome Convention of 19 June 1980 or article 1184 of the Civil Code.
The second part of the plea criticized the Appeal Court for having applied CISG article 71, although the fears regarding the buyer's creditworthiness could not, under the article, be invoked until they had become apparent after the conclusion of the sale, whereas in fact they had already existed before the orders were suspended, in other words at the time that the sales contract was concluded.
The Commercial, Financial and Economic Chamber of the French Supreme Court made the following judgment concerning the appeal filed by Company Mim. CA (Compañia Anónima) [Buyer], whose place of business is in [Venezuela], against the judgment of the Court of Appeal of Versailles (12th Civil Chamber, 1st Section) dated 19 February 2004, in the lawsuit against Company YSLP [Seller], whose place of business is in [France], [acting as] Defendant in the appeal proceedings.
According to the appealed judgment, under a contract of 10 January 1991, [Seller] entrusted [Buyer] with distribution of its products in Venezuela. The contract, which was concluded for an initial period of two years and thereafter tacitly renewed, provided that the parties could terminate the contract with six months notice, which was later reduced to three months with an amendment of 25 June 1993.
On 28 June 2002, [Seller], accusing [Buyer] of breaching several contractual obligations, notified [Buyer] of its intention not to renew the contract as of 31 December 2002. [Buyer] alleged a wrongful and vexing violation of the commercial relations, and sued [Seller] for damages.
1. The Vienna Convention of 11 April 1980 on Contracts for the International Sale of Goods is not applicable to the supply obligation arising out of the distribution contract. This contract is subject to the Rome Convention of 19 June 1980, and Articles 4(1) and 4(2) of that Convention determine the applicable law as the law of the place of business of the party performing the supply. Therefore, French law, which allows a breach claim if the breach is completed, is solely applicable to the supply obligation arising out of a distribution contract concluded by the grantor whose place of business is in France. Consequently, after having found that on 8 March 2002 [Buyer] had paid for all previous deliveries, the Court of Appeal erred in finding that [Seller] was entitled to refuse subsequent deliveries under Art. 71 of the Vienna Convention of 11 April 1980 which includes an exception for anticipatory non-performance without violation of the Rome Convention, by incorrect application [of the latter], and in refusing to apply Art. 4(1) and 4(2) of the Rome Convention of 19 June 1980 and Art. 1184 of the French Civil Code.
2. Concerning the supply obligation arising out of the distribution contract, providing for a 60-day payment period for goods transported by air and 90 days for goods transported by sea, the Court of Appeal, which ruled that the distribution contract was irrelevant and that the Court could not establish that the payments by [Buyer] before 8 March 2002 were late without examining whether the due date of the invoices sent by [Seller] to [Buyer] was unilaterally fixed by [Seller] without complying with the terms of the framework contract. Without such examination, the decision of the Court of Appeal lacked legal basis regarding Art. 1134 of the [French] Civil Code.
3. Even if there was no framework agreement, Art. 71 of the Vienna Convention allows a party to suspend the performance of its obligations, if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of his obligations. Fearing a risk of the buyer's insolvency may also justify suspension of delivery when this risk appears before the conclusion of the contract. After having attested that the risk of the buyer's insolvency existed before the performance is suspended, i.e., before conclusion of the sales contract, results in the inapplicability of Art. 71 of the Vienna Convention of 11 April 1980, and therefore, by coming to the contrary conclusion, the Court of Appeal violated [the Vienna Convention] due to incorrect application thereof.
On the one hand, the Court reiterates, first, that the parties agreed to apply French law, and, second, the Vienna Convention of 11 April 1980 on Contracts for the International Sale of Goods, ratified by France, applies to the sale of goods between the French seller and the Venezuelan buyer, and the parties did not exclude application of this Convention. Therefore, the Court of Appeal was justified in examining the defaults referred to concerning performance of the sale in accordance with the provisions of the Vienna Convention of 11 April 1980, without considering that the transactions took place under an exclusive distribution contract that is not covered by the said Convention.
On the other hand, the judgment provides that it is clear from the documents submitted that, contrary to what [Buyer] states, it is established that [Buyer] was usually late with payment at least from 1995. The judgment states that, if as of 8 March 2002, [Buyer] was, after a long time, up to date with its payment, [Seller] still had justified concerns of possible further payment defaults if the deliveries are performed without a guarantee, especially considering that [Buyer] belongs to a corporate group that is highly indebted to [Buyer] itself, and the latter all raised serious doubts as to the solvency of [Buyer]. After separate evaluation of the evidence, the Court of Appeal made its judgment as stated above, without examination of issues that were not raised.
Finally, it is not derived from the proceedings or in the judgment that [Buyer] would have argued that concerns relating to the solvency of the buyer cannot justify suspension of performance under Art. 71 of the Vienna Convention of 1980, unless the risk is apparent after conclusion of the contract. This ground for appeal is new and mixes issues of fact and law.
Therefore, as the plea is inadmissible concerning its third part, the rest of the pleading is also unfounded.
1. Abiding by the notice [not to renew the contract] by the party disrupting the established commercial relationship implies that this party must still perform its contractual obligations during the notice period: having found that the deliveries were suspended for the duration of the notice, the Court of Appeal could not have found that the party that disrupted the commercial relationship performed its duty to comply with the notice without violating Art. L.442-6.I.5. of the French Commercial Code.
2. In any event, in determining whether the notice was appropriate, the duration of previous commercial relations, as well as exclusivity and economic dependence must be considered. Considering that the six months period was sufficient, without addressing the priority of the economic relations and the exclusive relations, and without examining whether [Buyer] was dependant on [Seller], the decision of the Court of Appeal lacks legal basis regarding Art. L.-442-6.I.5. of the French Commercial Code.
After noting that, by a ground unsuccessfully criticized on first instance, [Seller] did not commit any default in suspending the deliveries objected to [Buyer], the judgment states that the grave default committed by the latter would have justified termination of the contract without a notice. The Court of Appeal did not perform any unnecessary examination concerning the second complaint, and made its ruling by a legally justified decision. The rest of the appeal is unfounded in all respects.
The Court considered Articles 1134 and 1135 of the French Civil Code.
In order to reject the claim for damages requested by [Buyer] for the default committed by [Seller] for not having acted towards the distributors who disregarded its exclusive status, the judgment states that the non-complying distributor was identified, and [Buyer] should have been the one to take any action deemed necessary, instead of holding [Seller] responsible for its inaction.
The Court rules that since it is for the grantor to enforce the exclusivity granted, the Court of Appeal violated the laws referred to.
The Court reverses and annuls the judgment made by the Court of Appeal of Versailles on 19 February 2004, to the extent that it rejects the claim by [Buyer] for compensation for the damage caused by violation of the exclusivity granted to it.
Therefore, regarding this matter, the Court reverts the issues and places the parties back in the situation and position prior to this judgment, and orders a new trial by the Court of Appeal of Versailles, before a differently composed panel.
The Court orders [Seller] to pay the costs.
Concerning Art. 700 of the New Code of Civil Procedure, the Court rejects the claim.
The Court declares that, following the actions of the "procureur general" at the Supreme Court, the present judgment is forwarded to be transcribed on the margins or after the judgment partially annulled.
This is the judgment of the Chamber of Commerce, Finance and Economy of the Supreme Court, announced by the President in a public hearing on 20 February two-thousand-seven.
* All translations should be cross-checked against the original text. For purposes of this translation, Plaintiff-Appellant of Venezuela is referred to as [Buyer] and Defendant-Appellee of France is referred to as [Seller].
*** Pablo Santos, currently is an attorney at Rubio Villegas y Asociados, S.C. (Mexico City). He received his Law Degree from Universidad Panamericana in Mexico City, Masters Degree from the University of Nottingham (UK); and PhD from Universidad Complutense de Madrid.

References: Art. 71
 Art. 4
 Art. 1184
 Art. 1134
 Art. 71
 Art. 71
 Art. 71
 Art. 700