Article L442-6, I, 5° of the French Commercial Code renders manufacturers liable for losses arising from the abrupt termination of an established commercial relationship with a distributor, where the period of notice of termination is insufficient. Termination is considered to be abrupt where it is unforeseeable, sudden and violent. The sufficiency of the notice period is determined by reference to, among other things, the length of the existing relationship and commercial practice in the industry in question.

In 1999, HTC Sweden AB (HTC), a Swedish manufacturer of machine tools, entered into an exclusive distribution agreement with French distributor La Société Doga (Doga). Their contract contained a standard ICC arbitration clause. The parties' commercial relationship remained on foot for approximately nine years. In 2007, HTC sent a termination notice to Doga. The notice stated that termination would take effect six months later.

Doga brought a claim for damages for wrongful termination and failure to give sufficient advance notice before the Court of First Instance. Doga's claim was based on Article L442-6, I, 5° of the French Commercial Code. Two features of Article L442-6, I, 5º are noteworthy. First, claims brought under the Article are tortious, not contractual. Second, the Article is a mandatory rule of French law (loi de police) and parties cannot contract out of it. These characteristics are supported by well-established jurisprudence.

Before the Court of First Instance, HTC argued that the French courts did not have jurisdiction to hear Doga's claim as the parties' contract contained a binding reference to ICC arbitration. The Court upheld HTC's jurisdictional challenge and ordered Doga to submit its claim to arbitration.

The Supreme Court confirmed that the parties' arbitration agreement was not manifestly inapplicable as Doga's claim was sufficiently connected with the contract for the parties' reference to arbitration to be effective. It agreed with the lower court that the claim related to the termination of the contract and the consequences that resulted from it. The Supreme Court also confirmed that the parties' agreement to refer their dispute to arbitration stood even when a parties' claim was based on a mandatory rule of French law.

The Supreme Court, and the Versailles Court of Appeal before it, confirmed their pro-arbitration approach to the interpretation of arbitration agreements.

It should be borne in mind that the bar is set high for a French court to assume jurisdiction when faced with an arbitration agreement: the agreement must be manifestly inapplicable, null or void. French courts have thus long held that tortious claims related to the parties' contract fall within the ambit of a sufficiently broad reference to arbitration. Nonetheless, this case again confirms that the standard ICC clause will cover not only contractual claims but also tortious claims that are directly connected to the contract. The standard ICC clause broadly defines the range of disputes to be referred to arbitration, and the result should be no different where parties conclude an arbitration agreement based upon the similarly broad LCIA standard arbitration clause, or that of many other international arbitral institutions.

The Supreme Court confirmed another long-standing principle in holding that a claim governed by mandatory rules of French law remains subject to arbitral jurisdiction. The mere fact that a rule of French law is strongly linked to public policy considerations does not, without more, mean claims brought under the rule are non-arbitrable. Only in limited areas, where the claim concerns matters such as, for instance, family law, will a reference to arbitration be ineffective.

This decision demonstrates that both the Supreme Court and the Versailles Court of Appeal continue to take a robust approach to the interpretation of arbitration agreements, and will continue to ensure that in all but limited cases the parties' submission to arbitral jurisdiction is upheld and enforced.