On 24 May 2017, the Paris Court of Appeals ruled against FCA France (Fiat Chrysler Group), owner of the selective distribution network of the brands Jeep and Lancia, for breach of the general French contract law obligation to negotiate in good faith in the selection of its authorized distributors.
The claimant, a car dealership, had been distributing Chrysler, Jeep and Dodge since 2001. The distribution network was initially owned by Chrysler France, which experienced financial difficulties and sold its business to FCA France, effective as from May 2010, and terminated all of its distribution agreements entered into with car dealerships, effective as from May 2011.
In May 2010, FCA France invited the outgoing Chrysler, Jeep and Dodge distributors to apply to become dealers of the Lancia and Jeep brands, intended to replace the distribution of Chrysler, Jeep and Dodge brands. FCA France indicated that the selection would be made based on six criteria relating to each candidate's experience representing the relevant brands, and the plans regarding the distribution of the new brand Lancia.
The claimant applied to join this selective distribution network in July 2010 and was notified in January 2011 that its application was not successful and that another dealership based in the same area had been selected. The reasons given by FCA France for not authorizing the claimant as a distributor were that the dealership did not meet the requirements of the six aforementioned criteria, as well as a decrease in the dealer's past performance in distributing Chrysler, Jeep and Dodge, resulting in a "loss of confidence".
The car dealership sued FCA France for wrongful refusal before the Paris Commercial Court, which nonetheless ruled that the authorization refusal by FCA France was perfectly legitimate. The Paris Court of Appeals overturned this ruling on appeal. Although the Paris Court of Appeals agreed that refusing to select a given candidate as an authorized distributor in a selective network did not constitute a "hard-core" restriction on competition and was exempted under EU block exemption regulation no. 1400/2002 on motor vehicle distribution, which was in effect at the time, the Court considered that FCA France had breached its obligation to negotiate in good faith. According to the Court of Appeals, under such obligation, FCA France should have justified its refusal to authorize the car dealership as a distributor based on the criteria it had established itself, and by providing details and figures to support its decision.
Thus, FCA France was found not to have sufficiently justified its refusal, confirmed by the fact that the other dealership which was selected had not met the criteria either. The selection was found to be discriminatory, as the actual, undisclosed, reason for not selecting the dealership was a past litigation with Chrysler.
FCA France was held liable to pay over 250,000 euros in damages to the dealership for wrongful refusal to authorize it as a distributor and late notification of the refusal, which was notified six months after the dealership's application, a delay that the Court found was not justified as the dealership's application had clearly not been subject to a thorough analysis.
It is interesting to note that the Paris Court of Appeals based its decision on the French law obligation not only to perform agreements in good faith, a longstanding provision of the Civil Code (Article 1134), but also on the obligation to negotiate in good faith, which was introduced explicitly in the Civil Code only last October 2016.
Decision: Paris Court of Appeals, 24 May 2017, no. 15/12129