FRANCE: An Introduction to Litigation: Elite

The increasing internationalisation of French litigation

The French litigation landscape over the last couple of years has been marked with an increasing internationalisation of cases, trends, actors and regulations. Amongst many possible illustrations of this phenomenon, four are particularly noticeable.

The success of the Paris courts’ international chambers specialised in international business cases

Back in 2018, two international commercial chambers – one for first instance and one for appeal proceedings – were created in Paris, alongside the adoption of special procedural rules aimed at resolving international commercial disputes more efficiently. The two chambers adjudicate disputes that are governed by foreign (and in some cases European) law and rule over international arbitration-related disputes (requests to set aside, exequatur, etc).

After five years of implementation, and hundreds of cases involving litigants from more than 70 countries being ruled upon, the initiative is considered a success as the two international chambers have bolstered the attractiveness of Paris as a forum for cross-border disputes.

Parties highly regard the opportunity to submit documents in English without requiring translation, to organise cross-examination of witnesses or experts, to present written and oral submissions in English or to conduct video hearings with simultaneous translation booths similar to those found at the Court of Justice of the European Union – all of which being impossible under standard French civil procedural rules.

Both French and foreign parties also appreciate that the judgments and orders of the International Chambers, which are drafted in French together with a sworn translation in English, benefit from the automatic recognition and enforcement rules within the European Union, offering a comparative advantage over decisions made by jurisdictions external to the EU such as the United Kingdom.

In a nutshell, Parisian courts now offer French and foreign companies a rather efficient double two-tier system which facilitates the resolution of international disputes in France.

Growing ESG litigation in a fast-changing regulatory framework at the global level

Over recent years, environmental, social and governance (ESG)-related matters have been at the forefront of economic and legal trends, with a growing public concern within French society for environmental protection and climate change.

The pressure is particularly high on companies within and outside the EU, which are required to comply with an ever-changing ESG regulatory framework covering an extensive range of issues, going from the integration of ESG considerations into their day-to-day operations as a result of the French Corporate Duty of Vigilance Law, for instance, to the provision of comprehensive non-financial reporting including ESG criteria as a result of the EU Corporate Sustainability Reporting Directive (CSRD).

This increasing regulatory pressure has already led to multiple ESG claims against companies, essentially brought by NGOs before French Courts. These claims mainly rely on (i) the French Corporate Duty of Vigilance Law of 27 March 2017 requiring some companies to establish a vigilance plan in order to identify and prevent severe violations of human rights, safety, health and environmental damages resulting from the operation of the company, its subsidiaries or its supply chain; and (ii) French law provisions tackling greenwashing, ie, misleading environmental claims. With the implementation of the CSRD, one should also expect fast-growing ESG litigation or enforcement in relation to ESG disclosures made by companies.

As an acknowledgement of the rise of ESG litigation, a new chamber dedicated to disputes on ecological responsibility and the duty of vigilance has been established within the Paris Court of Appeal earlier this year (2024). The creation of this specific chamber to hear ESG litigation cases, with professional judges rendering consistent case law on these issues, should enable France to become a go-to forum for ESG litigation at an international level.

Possible new opportunities for shareholder activists

While the influence of shareholder activism used to be historically fairly limited in France, a number of activists (mostly from the US and the UK, such as Elliott, Amber Capital, CIAM, TCI Fund Management, G. Wyser-Pratte, Muddy Waters) have made inroads into the French market since 2016.

Despite a number of cases highly publicised in the media, such as the Amber/Lagardère or the Muddy Waters/Casino ferocious court battles, French shareholder activism has, however, remained relatively timid in comparison with the number and intensity of court cases brought by activists in the US in particular.

This overall low level of intensity of shareholder activism in France is usually explained by two main factors. First, shareholder dialogue: a number of French companies have managed to deal efficiently with shareholder activism by involving their shareholders more closely in the company’s strategy and governance, thereby preventing destabilising campaigns from further escalating. Secondly, the unwelcoming legal environment: both restrictions in the law (in particular with regards to group actions) and practical restrictions of the French court system make it more difficult for shareholders to succeed in court.

This landscape may be at the eve of a new evolution, nurtured by a twofold dynamic. On the one hand, a possible reform of the French class action system: the draft bill which was adopted in early March 2023 extends the scope of French class actions to all matters including claims against an issuer and/or its management. On the other hand, the availability of more litigation funding, with US/UK-based funders becoming more at ease with the French legal constraints and seeking more opportunities on this active market.

Paradigm shift in the forces at play in restructuring processes in France

The Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132, which introduces mechanisms aimed at harmonising substantive law in EU member states, represents a major advancement in European insolvency law, which has long been considered resistant to such harmonisation efforts.

France transposed Directive (EU) 2019/1023 by Ordinance No 2021-1193 of 15 September 2021. It came into force on 1 October 2021.

The introduction of classes of affected parties and the cross-class cramdown mechanism – concepts which were so far unknown in France – have brought a paradigm shift in the forces at play in the conduct of French insolvency proceedings, which is exemplified by recent restructurings.

While the new regime was supposed to shift the balance of power in favour of creditors and harmonise the way restructurings are conducted in EU member states, recent cases nonetheless show that, in France, the debtor often remains in a position to impose a plan on its creditors, and waivers of claims can be imposed on creditors if they are “out of the money” in a way that was impossible before the Directive was transposed.

Also, to ensure that foreign creditors, and in particular US creditors, will not disregard the stay of proceedings which is imposed on creditors once French insolvency proceedings are commenced, or the provisions of the restructuring plan approved by the French insolvency court, French debtors often seek to apply for recognition under Chapter 15 of the US bankruptcy code. If the requirements of Chapter 15 are met, the US court will “recognise” the foreign proceeding and terms of the restructuring, including the discharge of debt, giving it effect in the US under applicable federal and state law.