France – Terms of payment in an international agreement

Under French law, terms of payment of contracts of sale or of services (food excluded) are strictly regulated (art. L441-10.I Commercial code) as follows:

• Unless otherwise agreed between the parties, the standard time limit for settling the sums due may not exceed 30 days.
• Parties can agree on a time of payment which cannot exceed 60 days after the date of the invoice.
• By way of derogation, a maximum period of 45 days from end of the month after the date of the invoice may be agreed between the parties, provided that this period is expressly stipulated by contract and that it does not constitute a blatant abuse with respect to the creditor (e.g. could be in fact up to 75 days after date of issuance).

The types of international contracts concluded with a French party can be:

(a) An international sales contract governed by French law (or to the national law of a country where CISG is in force), and which does not contractually exclude the Vienna Convention of 1980 on the International Sale of Goods (CISG)

In this case the parties may be freed from the domestic mandatory payment time limits, by virtue of the superiority of CISG over French domestic rules, as stated by public authorities,

(b) An international contract (sale, service or otherwise) concluded by a French party with a party established in the European Union and governed by the law of this other European State,

In this case the parties could be freed from the French domestic mandatory payment time limits, by invoking the rules of this member state law, in accordance with the EU directive 2011/7;

(c) Other international contracts not belonging to (a) or (b),

In these cases the parties might be subject to the French domestic mandatory payment maximum ceilings, if one considers that this rule is an OMR (but not that clearly stated).

Can a foreign party (a purchaser) agree with a French party on time limit of payment exceeding the French mandatory maximum ceilings (for instance 90 days)?

This provision is a public policy rule in domestic contracts. Failing to comply with the payment periods provided for in this article L. 441-10, any trader is liable to an administrative fine, up to a maximum amount of € 75,000 for a natural person and € 2,000,000 for a company. In the event of reiteration the maximum of the fine is raised to € 150,000 for a natural person and € 4,000,000 for a legal person.

There is no express legal special derogatory rule for international contracts (except one very limited to specific intra UE import / export trading). This being said, the French administration (that is to say the Government, the French General Competition and Consumer protection authority, “DGCCRF” or the Commission of examination of the commercial practices, “CEPC”) shows a certain embarrassment for the application of this rule in an international context because obviously it is not suitable for international trade (and is even counterproductive for French exporters).

International sales contract can set aside the maximum payment ceilings of article L441-10.I

Indeed, the Government and the CEPC have identified a legal basis authorizing French exporters to get rid of the maximum time limit imposed by the French commercial code: this is the UN Convention on the international sale of goods of 1980 (aka “CISG”) applying to contracts of supply of (standard or tailor-made) goods (but not services). They invoked the fact that CISG is an international treaty which is a higher standard than the internal standards of the Civil Code and the Commercial Code: it is therefore necessary to apply the CISG instead of article L441-10 of the Commercial Code.

• In the 2013 ministerial response, (supplemented by another one in 2014) the Ministry of Finance was very clear: “the default application of the CISG rules […] therefore already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
• In its Statement of 2016 (n°16.12), the CEPC went a little further in the reasoning by specifying that CISG poses as a rule that payment occurs at the time of the delivery of the goods, except otherwise agreed by the parties (art. 58 & 59), but does not give a maximum ceiling. According to this Statement, it would therefore be possible to justify that the maximum limit of the Commercial Code be set aside.

The approach adopted by the Ministry of Finance and by the CEPC (which is a kind of emanation of this Ministry) seems to be a considerable breach in which French exporters and their foreign clients can plunge into. This breach is all the easier to use since CISG applies by default as soon as a sales contract is subject to French law (either by the express choice of the parties, or by application of the conflict of law rules by the judge subsequently seized). In other words, even if controls were to be carried out by the French administration on contracts which do not expressly target the CISG, it would be possible to invoke this “CISG open door”.

This ground seems also to be usable as soon as the international sale contract is governed by the national law of a foreign country … which has also ratified CISG (94 countries). But conversely, if the contract expressly excludes the application of CISG, the solution proposed by the administration will close.

For other international contracts not governed by CISG, is this article L441-10.I an overriding mandatory rule in the international context?

The answer is ambiguous. The issue at stake is: if art. L441-10 is an overriding mandatory rule (“OMR”), as such it would still be applied by a French Judge even if the contract is subject to foreign law.

Again the Government and the CEPC took a stance on this issue, but not that clear.

• In its 2013 ministerial response, the Ministry of Finance statement was against the OMR qualification when he referred to «foreign internal laws less restrictive than French law [that] already allows French traders to grant their foreign customers payment terms similar to those offered by their international competitors”.
• The CEPC made another Statement in 2016 (n°1) to know whether or not these ceilings are OMRs in international contracts. A distinction should be made as regards the localization of the foreign party:

– For intra-EU transactions, the CEPC put into perspective these maximum payment terms with the 2011/7 EU directive on the harmonization of payment terms which authorizes other European countries to have terms of payment exceeding 60 days (art 3 §5). Therefore article L441-10.I could not be seen as OMR because it would conflict with other provisions in force in other European countries, also respecting the EU directive which is a higher standard than the French Commercial Code.

– For non intra EU transactions, CEPC seems to consider article L441-10.I as an OMR but the reasoning was not really strong to say straightforwardly that it is per se an OMR.

To conclude on the here above, (except for contracts – sales excluded –  concluded with a non-EU party, where the solution is not yet clear), foreign companies may negotiate terms of payment with their French suppliers which are longer than the maximum ceilings set by article L441 – 10, provided that it is not qualified as an abuse of negotiation (to be anticipated in specific circumstances or terms in the contract to show for instance counterparts, on a case by case basis) and having in mind that, with this respect, French case law is still under construction by French courts.