Since 15 July 2013 GM and PSA are applying their newly harmonized general terms and conditions. This initiative is part of the implementation of their joint purchasing activities. The new T&Cs of PSA have largely been aligned with those of GM and the T&Cs of both companies impose significantly greater costs and risks on suppliers than the previous terms.

This note outlines a number of concerns regarding the legality and validity of some of the new terms (focussing on French and German law) and discusses how suppliers faced with the new T&Cs can best protect their interests.

It also highlights the competition law risks of discussions, agreements or alliances between competing suppliers regarding the new T&Cs.

The new general T&Cs for direct material, customer care and aftersales and tooling purchases of PSA are available on the company's website. >>> Please click here

Questionable validity of certain terms

The legality of a number of the new GM and PSA T&Cs is doubtful. Some of the terms may therefore be invalid and unenforceable.

Like before, the new T&Cs of GM and PSA are governed by the laws of the buyer's location. This is likely to be Germany and France for the vast majority of the European contracts. The laws of these countries take a stricter view on what may or may not be validly agreed in T&Cs and how such T&Cs should be interpreted than the laws of other jurisdictions.

Under French law a number of provisions in the T&Cs may not be enforceable for the following reasons:

  1. Certain provisions may be considered to violate Article 1174 of the French Civil Code because they create obligations for the supplier that depend on events under the exclusive control of GM/PSA. This may be the case in particular for:
     
    • Article 3, under which the supplier undertakes, in advance, to comply with PSA's/GM's future unilateral amendments to the delivery and logistics requirements;
    • Article 10, which obliges the supplier to perform any modifications to the scope of work issued by GM/PSA; and
    • The jurisdiction clause under Article 36: similar one-sided alternative jurisdiction clauses in favour of the buyer have in the past been declared void by the French Supreme Court (Cass. Civ. 1ère, September 26, 2012, n° 11-26.022).  
  2. Article L-442.6.I.2° of the French Commercial Code prohibits commercial parties from enforcing provisions that give rise to "significant imbalances" in the parties' rights and obligations. Even though the interpretation of this statutory provision is yet to be firmly established, it could be used by suppliers to challenge the validity of certain provision in the T&Cs that are particularly disadvantageous. This includes, for instance, the following provisions:
     
    • Article 9 affords GM/PSA a discretionary power to put in doubt the viability of the contract and demand assurance of performance from the supplier. This provision could even be considered to contravene the principle of good faith performance under Article 1134 of the French Civil Code.
    • Article 13 requires the supplier to warrant that parts supplied to GM/PSA will not at any time (including after expiration of the contract) pose an unreasonable risk to consumer or vehicle safety. This may be considered to constitute a product warranty that is unlimited in time without regard to the conditions of use of the vehicle, anticipated life of the vehicle, etc.
    • Article 24(d) provides for an automatic grant to GM/PSA of a license to all background IP rights of the suppliers for the lifetime of the part program and even after the termination of the contract, at no cost to GM/PSA.  
  3. Other provisions may be unenforceable to the extent they conflict with French public policy provisions:
  4. Article 21 empowers GM/PSA to terminate the contract in the event of the supplier's insolvency. This provision may contravene Article L. 622-13 of the French Commercial Code, which provides that termination of a contract cannot result from the mere fact of the opening of insolvency proceedings.
  5. Under Article 35 GM/PSA are entitled to terminate the agreement at any time without notice, while no such right is afforded to the supplier. In accordance with Article L.442-6-I.5 of the French Commercial Code, for indefinite term contracts, reasonable notice is mandatory prior to termination and such notice frequently must be up to one year or more.

German law considers any clause in general T&Cs to be invalid if it unreasonably disadvantages the other party in a manner that is contrary to the principles of good faith (cf. Section 307 German Civil Code).

This could, for instance, be the case for the following provisions in the T&Cs of GM/PSA:

  • Article 3, which requires the supplier to undertake, in advance, to comply with GM/PSA's future unilateral amendments to the delivery and logistics requirements.
  • The exclusion of incoming inspection of the goods by GM/PSA under Article 6.
  • The OEM’s right to demand damages because the supplier is in breach of warranties/guarantees under Article 13 if the supplier is not at fault.
  • Article 18, which provides too broad contractual rights of set-off to GM/PSA.
  • GM/PSA being able to recover all damages for recall campaigns and other corrective service actions under Article 26 even if the supplier's breach of warranties is not caused by the fault of the supplier.

Last but not least, Articles 23 and 24(g) of the T&Cs limit the supplier's ability to sell the parts to third parties, including independent repairers when the parts are produced with GM/PSA's tools, equipment, software etc. or on the basis of GM/PSA's drawings, designs and/or specifications. These provisions may violate EU competition law (Article 5(b) of the Motor Vehicle Block Exemption Regulation) (i) if GM/PSA obliges the supplier to transfer ownership of the relevant tools, IPR or know-how to GM/PSA, (ii) if GM/PSA does not provide necessary tools, IPR or know-how to the supplier or (iii) if GM/PSA bears only an insignificant part of the product development costs. Suppliers should therefore check these conditions for each contract.

Ways to protect the suppliers' interests

Suppliers that are confronted with the new T&Cs need to consider how they can best protect their interests in view of the additional costs and risks that the new T&Cs seek to impose on them. Strategies that are being adopted by various suppliers include:

  1. Letter by the supplier’s top management to GM/PSA stating that the supplier requires more time to review and form a view on the new T&Cs and will revert to GM/PSA in due course. (During that period the supplier can continue to refer to the prior T&Cs in connection with on-going RfQs or contract negotiations.)
  2. Letter by the supplier’s top management to GM/PSA raising serious concerns and objecting to the most problematic terms.
  3. For each project where GM/PSA seeks to apply its new T&C, drafting a side letter (or other type of document) that sets out the supplier's objections and concerns – which may vary depending on the applicable law – and submitting this document to GM/PSA.
  4. Avoiding implicit acceptance of the new T&Cs in tenders and negotiations on individual projects by specifically rejecting the application of the new T&Cs of GM/PSA. Under the laws of most countries, such a qualified acceptance will be considered as a rejection of the OEM’s initial offer coupled with a (modified) counter offer by the supplier which may then be (expressly or impliedly) accepted by the OEM. Even if the OEM accepts this counter offer only subject to the application of its own T&Cs, the issue of their applicability may be kept open for a considerable time and possibly even for the entire project.
  5. Sending GM/PSA a full mark-up of the new T&Cs. This is likely to be worth the effort only if there is a reasonable prospect that the OEM will be prepared to enter into detailed discussions on the T&C. This may be the case where the supplier has significant market power or supplies particularly innovative products.

These options can be pursued individually or in combination. In any event, it appears useful to send GM/PSA a letter by the supplier's top management setting out the supplier's objections and concerns. This allows the supplier at least to argue on a consistent basis that it never accepted the new purchasing terms.

Alternatively, rather than attempting to negotiate clauses, a supplier may always choose to rely on the invalidity of certain clauses in a dispute at a later stage. (A conscious strategy to challenge the validity of the T&Cs only in case of a subsequent dispute is often referred to in Germany as "setting the general terms and conditions trap".)

Competition law risks of discussions with competing suppliers

Suppliers must avoid discussing the new T&Cs of GM and PSA and forming joint positions on certain topics with competitors since this may be illegal under competition law.

By forming a joint purchasing organisation, PSA and GM are trying to extract better prices and conditions from their suppliers: the new T&Cs are a clear example of this. To many suppliers it thus seems logical to respond by also joining forces to resist these changes. However, to the extent the participating suppliers are competitors any such joint action can give rise to significant competition law risks.

Competition law strictly prohibits agreements or "concerted practices" between competitors that "directly or indirectly fix purchase or selling prices or any other trading conditions". Agreements between competitors on whether or not to accept certain terms that, directly or indirectly, affect the supplier's prices thus are per se illegal. Moreover, even agreements on terms that do not affect prices or simple discussions between competitors that involve sharing concerns about specific terms alone may amount to a violation of competition law.

In view of the large number of on-going cartel investigations in the automotive supply industry, any contacts between competitors may come to the attention of the competition authorities and will be treated with suspicion. In order to avoid competition law risks, it is important that suppliers:

  • Do not participate in discussions with competitors on GM's and PSA's new T&Cs, including as part of initiatives by industry associations where competing suppliers are members; and
  • Clearly distance themselves from any attempts of competitors to draw them into such discussions (e.g. via unsolicited emails or in the context of discussions on other topics).