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The French Supreme Court has ruled in favour of the car supplier refusing the re-appointment of his former network member

Publications | Barbara Terriere

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Over the last twenty years, several European courts have judged on the question whether a selective distribution system implies that a supplier is obliged (or not) to appoint a candidate meeting all selection criteria.

On February 16th 2022, the French Supreme Court has rendered a milestone decision in three cases with respect to a selective distribution network in the automotive industry.

In each of the cases, the supplier (Hyundai Motor France and Mercedes-Benz) had refused to re-appoint a former network member as an authorized repairer, upon termination of their notice period. The supplier had rejected the re-appointment request without even verifying compliance with the selection criteria. The former network members claimed that such refusal was non-compliant to European (and national) competition law, notably the Block Exemption Regulation on Vertical Agreements n° 330/2010 (“BER”).

The Court stated that the principle of “freedom of contract” and the prohibition of eternal commitments preclude a “right of approval” of a former member of a distribution network. In addition, the Court acknowledged that the obligation of “good faith” does not oblige the supplier to (i) determine and implement a process for selecting distributors on the basis of defined and objectively determined criteria or (ii) to apply these criteria in a non-discriminatory manner. Only a discriminatory application of the selection criteria, having as purpose or effect the distortion of competition, can be prohibited. Regrettably, the Court has not given any further guidance on that particular point. Moreover, the Court has not taken position on whether the supplier’s refusal constitutes a “unilateral conduct” or “an agreement”.

With regard to the Hyundai-cases, the Court noted that both the market share of the supplier and of the former network member was less than 30% in the relevant market and that the Hyundai distribution agreement didn’t contain any hard-core restrictions. The Court held that -under those conditions- the supplier’s refusal to re-appoint a former network member without verifying compliance with the selection criteria, didn’t result in the distribution agreement losing the benefit of the exemption conferred by the BER.

As regards to national law, the Court stated that, since the supplier had never engaged to examine a request for re-appointment, he had not committed a “fault” by not concluding a new contract. Moreover, in the Mercedes-case, the Court rejected the allegation of an “abuse of rights”, based on the fact that the supplier had referred to an existing litigation with the former network member and the consecutive breach of reciprocal confidence, in order to justify the refusal.

By this decision, the Supreme Court has confirmed the prior decisions of the court of appeal of Paris of 2019 (Mercedes-case) and 2020 (in the Hyundai-cases).

We can conclude that in France, the rejected candidate wishing to force its re-appointment will bear a heavy “burden of proof”, as he will have to demonstrate the anticompetitive object or effect of the supplier’s refusal to re-appoint him as a repairer.