Category: Legal news

ESG has become an unavoidable factor in investment that can nevertheless be “avoided”. This is the paradox for companies that are committed to social responsibility, but whose social “window-dressing” does not always reflect the reality of the commitments they have made.

Faced with this dilemma, what are the expectations of those who hold most of the decision-making power in terms of the impact of ESG? What do investors see as their role in participating in climate transition, and how will they convey their expectations of companies?

There are many questions to be answered, starting with the key issue of corporate governance.

The sustainability of the decisions taken by a company is a reflection of the governing bodies from which they emanate

The struggle against greenwashing is often first and foremost reflected in the presence of governing bodies set up to enable the deployment of strategy for economic performance. Such a strategy incorporates the constraints associated with the ecological and social transition, with the idea that the sustainable transformation of the company helps both to enhance it as well as to optimise its financial value.

The European legislator has always taken the view that the “E” for Environmental and the “S” for Social are necessarily correlated with the “G” for Governance, whose bodies must instil the reality of the commitments made in terms of environmental transition.

In France, the AFEP-MEDEF Code, conceived by the employers’ union, introduced the idea that the “quality” of any board of directors should be assessed on the balance of its membership. At the European level, the 12th cross-sectoral Technical Standard RS, G1 Business Conduct stipulates that companies must disclose information on the composition, diversity and expertise of their boards of directors: gender, age, nationality, qualifications, expertise, experience, independence of directors, representation of employees, shareholders, the role given to stakeholders and the setting up of specialised diversity committees.

In English-speaking countries, employees are generally not involved in corporate governance and therefore do not have access to the boards, supervisory or auditing bodies. The German and French models draw their inspiration from a participative approach, with representation on boards.

Dedicated governing bodies

In France, the AFEP-MEDEF Code recommends that the remit of audit committees should no longer be limited strictly to purely financial and accounting considerations, but should be extended to include extra-financial and therefore sustainability considerations. For example, the audit committee’s review of the financial statements should be accompanied by a presentation by management of an analysis of the company’s exposure to social and environmental risks.

The French Financial Markets Authority (AMF) considers that, in the absence of a CSR committee, it is up to the Board of Directors to explain how it intends, for example, to take account of the social and environmental issues facing the company. As of 2023, all CAC 40 companies have a CSR committee.

According to the AMF, the CSR committee’s task is to assess the risks and opportunities associated with taking CSR issues into account in the company’s economic performance. Similarly, the AMF considers that directors’ CSR skills are a key factor in the sustainable functioning of boards of directors, and that the appointment of a CSR lead director is a convincing indicator that the board has taken into account the issues associated with the environmental and social transition.

The need for Boards of Directors to take into account social and environmental issues in its policy decisions

The inclusion of stakeholders (customers, principals, NGOs, consumers, employees) in corporate governance bodies is a first guarantee of the company’s transparency with regard to its sustainability commitments.

However, article L.225-35 of the French Commercial Code now specifies that these decisions must be taken in the company’s social interest, taking into account social, environmental, cultural and sporting issues[1]. This means that companies must no longer limit themselves to serving the interests of individuals (or their shareholders).

Implementing a working methodology based on sustainability

Taking CSR issues into account when defining strategy involves identifying and analysing the demands of the market and stakeholders by :

– mapping the CSR risks associated with the company’s activities in order to determine the positive and negative consequences of its CSR activities, as well as the impact of the environment on the company’s activities;

– prioritising the issues at stake in order to justify certain decisions;

– drawing up a strategy for different time frames, taking into account a risk analysis grid, as well as the impacts and opportunities in each of the company’s sectors of activity;

– the introduction of CSR performance indicators.

In conclusion, there are many indicators that allow us to measure the degree of sustainable commitment from each governing body in an increasingly concrete way.

A pioneer with its “duty of vigilance” (devoir de vigilance) law, France has confirmed its determination to act in this field by creating a specialized chamber to handle litigation arising from the duty of vigilance.

In early 2024, the Paris Court of Appeal announced the creation of a new chamber specialized in emerging litigation[1] , which held its first hearing on March 5^th, 2024.  

This new chamber, located within the economic division, has jurisdiction over litigation relating to the duty of vigilance,[2]CSRD sustainability reporting,[3]environmental liability,[4] as well as appeals against interim relief and pre-trial orders in these matters.[5]

The inauguration of this chamber illustrates the Paris Court of Appeal’s intention to “better highlight the interactions between the Paris Court of Appeal and the economic sphere”, which had led to the creation of the Economic Justice Council (Conseil de justice économique) of the Paris Court of Appeal on November 30^th, 2023.[6] 

In a context where the legal issues surrounding corporate responsibility are increasingly significant, this initiative is particularly welcome.

Indeed, the specialization of a chamber with national jurisdiction should guarantee unified caselaw across its various fields of jurisdiction and contribute to better legal certainty for businesses.

The stakes are high since, for this first hearing, the new chamber was hearing three cases concerning the duty of vigilance of TotalEnergies, Suez and EDF.

As a reminder, the law of March 27^th, 2017, imposes in France a duty of vigilance on large companies concerning environmental, social, and governance matters. Companies with at least 5,000 employees in France or 10,000 worldwide must establish and implement a “vigilance plan” (plan de vigilance). Failure to comply with these obligations can result in liability for the companies.

In the three cases brought to the hearing on March 5^th, 2024, the companies involved are being accused by local authorities and NGOs of the non-conformity of their vigilance plans with environmental stakes.

TotalEnergies, Suez and EDF cases

The TotalEnergies case involves accusations of the company’s vigilance plan failing to align with the Paris Agreement’s objective of limiting global warming to below 1.5°C due to its pursuit of new hydrocarbon exploration projects.

Concerning Suez and EDF cases, the criticisms revolve around projects undertaken in Chile and Mexico, respectively. Suez is accused of repeated failures in one of its plants in Chile, affecting the drinking water network. EDF faces allegations of failing to consult indigenous populations regarding a wind farm project in Mexico.

Before ruling on the merits of these matters, the Paris Judiciary Tribunal (Tribunal judiciaire) had dismissed several requests in these cases, considering that the plaintiffs – local authorities and NGOs – were not admissible to take legal action.[7] In one of these cases, for instance, the Tribunal ruled that the obligation to issue a formal notice had not been fulfilled by the plaintiffs because their formal notice did not target the same vigilance plan as their lawsuit. In another case, the Tribunal ruled that certain local authorities, including the cities of Paris and New York, lacked standing, as their territories were deemed not directly affected.

These much-discussed rulings provided some initial insights into the law on the duty of vigilance.

Stakes surrounding the upcoming decisions

The Court of Appeal will have to rule on the admissibility of the actions brought by the local authorities and NGOs, who argue in particular that the Judiciary Tribunal did not correctly assess the facts of the case and applied a “conciliation phase” requirement not provided for by the law[8].

This is an essential question! The solution will determine the engagement of litigation likely to develop.

Alerion Climate Litigation Observatory is closely monitoring the development of these cases.

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[1] Paris Court of Appeal, Création d’une chambre des contentieux émergents – devoir de vigilance et responsabilité écologique à la CA de Paris, January 18^th, 2024, https://www.cours-appel.justice.fr/paris/creation-dune-chambre-des-contentieux-emergents-devoir-de-vigilance-et-responsabilite.

[2] Suits relating to the duty of vigilance of parent companies and contractors based on Articles L. 225-102-4 and L. 225-102-5 of the French Commercial Code.

[3] Corporate sustainability reporting, Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022.

[4] Suits based on Article L. 211-20 of the French Code of Judicial Organization in cases that are or appear to be of significant complexity, notably due to the large number of parties, the technical nature of the dispute, its originality, or the geographical extent of ecological loss.

[5] Paris Court of Appeal, PÔLE 5 – Economique et commercial, February 5^th, 2024, https://www.cours-appel.justice.fr/paris/pole-5-economique-et-commercial#5-12.

[6] Paris Court of Appeal, Conseil de justice économique, December 5^th, 2023, https://www.cours-appel.justice.fr/paris/conseil-de-justice-economique.

[7] Paris Judiciary Tribunal, July 6^th, 2023, no. 22/03403, TotalEnergies SE (Total – Climat); Paris Judiciary Tribunal, June 1^st, 2023, no. 22/07100, SUEZ SA; Paris Judiciary Tribunal, November 30^th, 2021, no. 20/10246, EDF.

[8] Sherpa, Crucial hearing in the climate litigation against TotalEnergies, March 4^th, 2024, https://www.asso-sherpa.org/proces-climatique-contre-totalenergies-audience-decisive-devant-la-cour-dappel.

We are reasonably well aware that on the other side of the Atlantic, Diversity, Equity and Inclusion (DEI) are major societal issues, probably for sociological and historical reasons, with high stakes and legal ramifications.

Exchanges with some of our American colleagues a few months ago in NYC finally convinced us that these issues were not only at the heart of Employment law, but, more surprisingly for us Europeans, also a recurring theme in business law in its entirety. Thus, in corporate law, contract law etc., “DEI” questions are systematically integrated into the services that business law firms offer.

This is not to say that issues of inclusion and non-discrimination are not debated in France, nor that national and European legislation in this area offers employees less protection than in the US.

“DEI” is leading the debate in French Companies ; not systematically a legal issue

However, it must be acknowledged that the intensity of the risk associated with the criminal offence of discrimination is lower in France than in the United States, where American legislation and courts can have devastating financial and reputational effects on companies.

While these issues are obviously present in French courts, they simply occur less frequently; but their media impact is feared by companies, particularly those that have become accustomed to criticizing practices and, as such, are becoming the target of Trade Unions.

In this context, it is very interesting to note an evolution in our case law which, apparently, tends to draw inspiration from North American judicial practices (Canadian National vs action Travail des femmes CN 1987 40 DLR 4e, 193) ; thus, a decision handed down on December 14, 2022 by our “Supreme Court” resorted to the concept of “systemic discrimination”.

This term might lead one to believe that the company wishes to “institutionalize” discriminatory processes among its employees.

A methodology based on general statistics

In reality, it is no more than a methodology developed by the judge based on general statistics intended to reveal or not reveal discrimination against an employee by the sheer force of numbers; it is specified that the evidence derived from these statistics can be replicated for the benefit of other people.

While these figures are not intended to provide proof per se, they do open the way to sufficient suspicion, and thus to the employer’s obligation to justify the difference in treatment observed between several employees… which could be nearly impossible in some situations, as the challenged practices may not be conscious at all, but ultimately resulting in a discrimination.

Indeed, while on a criminal law standpoint, a discrimination shall be intentional to characterize an offence, there is no such requirement on a civil standpoint, which is especially interesting in the case of “systemic discrimination”, is the intention being usually non-existent, since it exists as a result of the combination of recruitment, internal promotion, mobility and sociability processes, the sum of which reveals a situation prohibited by law.

Regardless of the employer’s lack of intention or will, the figures are intended to arouse suspicion, and the onus is on the employer to explain the differences in treatment, failing which discrimination will be established.

Above all, combat bias

While it is undoubtedly premature to conclude that there has been a paradigm shift in terms of the recognition of discrimination, the Court’s decision is nonetheless evidence of a real trend whose primary aim is to combat bias such as agism; and there is no doubt that its purpose is to increase the pressure on companies to redouble their vigilance on this issue.

Jacques PEROTTO

According to a press release from the Council of the EU dated 15 December 2023, a provisional agreement on the EMFA[1] has been reached between the Parliament and the Council, incorporating the 295 amendments voted by the Parliament on 3 October. There is still a long way to go before this provisional agreement is adopted: it still has to be approved by the Committee on Culture and Education (January 2024), by the full Parliament (March 2024), and by the Council[2] (estimated date unknown).

This provisional agreement is nonetheless an opportunity to look at the above-mentioned amendments adopted in October 2023 and thus measure the progress made by the trialogue in relation to the Council’s proposal. Some of these amendments appear to be relevant in the light of the Digital Services Act (DSA), which will come fully into force on 17 February 2024.

Firstly, the EMFA establishes a principle of transparency for the operation of media service providers. A greater transparency obligation would thus be imposed on media owned by a Member State (amendment 128 relating to Article 6(1)). Similarly, transparency would also be required with regard to the contact details of the editorial director (amendment 129) and with regard to any capital links with other press or other companies (amendment 130). This last point could finally help to rebalance the current trend towards media concentration. Generally speaking, several amendments focused on the absence of ambiguity regarding the links maintained by a media outlet or press group with state authorities or commercial or political interests.

Secondly, the provisional agreement finally seems to reject the national security exception, which could have allowed Member States to misuse the protection afforded to journalists (amendments 113 to 116). The system adopted provides for the necessary protection of journalists’ sources, a ban on gag orders and the impossibility of using spyware.The provisional agreement also settles the question of relations between providers of very large online platforms, probably within the meaning of the DSA, and media service providers. It is envisaged that particular care will be taken with content provided by the media. With this in mind, amendment 208 on article 17§1 stipulates that these platform providers “shall ensure that decisions regarding content moderation and any other action they take do not have a negative impact on the freedom and pluralism of the media”. Importantly, the provisional agreement also incorporates amendment 220 to article 17(2), which allows a media provider to react within 24 hours if one of its content items is removed by the provider of a very large platform. The latter will then be able to refer the matter to the national authority if it considers that the content is still in breach of its general terms and conditions (amendment 221).

Lastly, the provisional agreement takes a stand on the European Committee for Media Services, providing for a broader remit for the Committee, which will be able to issue opinions on its own initiative, but also establishing its independence in principle and providing for its own allocated budget as well as the creation of an Advisory Expert Group. In particular, the Committee should be able to enter into dialogue with the providers of very large online platforms or search engines (amendments 229 to 233 to Article 18) on issues such as access to the media and the control of disinformation or manipulation of information. It would also have the opportunity to give its opinion on measures adopted by the national authorities that have a direct impact on a media provider, at its request (amendment 242 on Article 20(5)). Lastly, it would be able to assess market concentration and its consequences for media pluralism (amendments 258 to 261 on Article 22), given the current trend for European competition law to influence a large proportion of sectoral regulations on online services.

However, this encouraging observation must be qualified by the concern raised by the possible introduction in the provisional agreement of a restriction on the scope of action of publication directors (amendment 30). While the latter remain criminally liable in France due to the mechanism of cascading liability provided for by the law on freedom of the press of 29 July 1881, they would no longer be able to intervene in published content, once the editorial line has been established between the editor-in-chief and the publication director. If necessary, the publication manager would still be able to argue that the content did not comply with the agreed editorial line.

In conclusion, while there are still several stages to go before the final adoption of this text, the EMFA deserves particular attention in that it lays down obligations that can already be anticipated by the entities concerned, particularly in the context of compliance with the DSA.

The teams in ALERION’s Intellectual Property and Digital Technology Law departments are available to assist you with any questions you may have on these subjects.

Corinne THIERACHE, Partner, Caroline LEROY-BLANVILLAIN, Associate and Romane CUSSINET, Student-Lawyer, from ALERION’s Intellectual Property and Digital Technology Law departments.

[1] Council and Parliament reach agreement on new rules to safeguard media freedom, pluralism and editorial independence in the European Union – Consilium (europa.eu)

[2] Agreement on European legislation on media freedom | News | European Parliament (europa.eu)

⚖️🔍 The craze for perfume and the quest for legal protection through intellectual property are nothing new, as demonstrated by the legal saga surrounding Jean-Paul Gaultier’s perfume “Le Mâle” at the beginning of the 21st century. At a time when the holders of the rights to this perfume, despite its renown, were dismissed by the Lyon Court of Appeal on 16 March 2023 on the grounds of copyright, designs, trademarks and tort claims, it is important to remember certain rules.

A member of the Paris Bar since 1994, Corinne Thiérache is a partner at Alerion and is responsible for the Technology and Digital Law/Intellectual Property departments.

👉 To read the full article: https://lnkd.in/efp5vMFx

As the world gathers in Dubai for COP28, climate change is more than ever humanity’s main challenge. Courts everywhere are echoing the mobilization of citizens, making climate litigation the most significant development in the legal world. Discover the main trends in this global phenomenon with Alerion Climate Litigation Observatory.

3 significant developments:

Massive increase in cases: surging from 884 in 2017 to 2180 in 2022.

Broader scope: all sectors of the economy concerned.

Personalization of claims: claims are no longer focused on states and companies, but now target executives.

Law no. 2017-399 of March 27, 2017, introduced, in France, a “duty of vigilance” (devoir de vigilance) imposed on the largest companies in environmental, social and corporate governance matters.

The legal framework, codified in Articles L. 225-102-4 and 5 of the French Commercial Code, requires companies with at least 5,000 employees in France – parent company and subsidiaries combined – or 10,000 employees worldwide, in particular, to draw up and implement a “vigilance plan” (plan de vigilance). Failure to comply with these obligations may result in liability for the companies concerned.

The European Union has drawn inspiration from this law in the development of a European directive on the duty of vigilance of companies with regard to sustainable development.[1]  This directive is currently being negotiated between member states following the European Parliament’s adoption of the draft directive on June 1^er 2023.[2] This duty of vigilance may provide support for climate actions, as the rise of climate litigation in France and around the world mobilizes civil society.

Alerion Climate Litigation Observatory analyzes the first decisions of the French jurisdiction on the duty of vigilance, which at this stage concern procedural and preliminary issues.

1. Exclusive jurisdiction of the Paris Judiciary Tribunal

Until the adoption of Law no. 2021-1729 on December 22, 2021, which gave exclusive jurisdiction to the Paris Judiciary Tribunal (Tribunal judiciaire) for all actions relating to the duty of vigilance set under the new articles of the French Commercial Code, the jurisdiction of the judiciary tribunals conflicted with the jurisdiction of commercial tribunals, natural forum of business affairs.

In the TotalEnergies SE case, the Nanterre Judiciary Tribunal rightly ruled itself incompetent in favor of the Commercial Tribunal, on the grounds that establishing and implementing a vigilance plan is an integral part of the company’s management.[3] The Versailles Court of Appeal approved the approach adopted by the first judges and rejected the notion of a mixed act,[4] which would have allowed an option between civil and commercial jurisdictions. The Commercial Chamber of the French Court of Cassation (Cour de cassation) overturned this ruling, stating that “the non-commercial plaintiff who intends to act as such has, however, in this case, the choice of bringing the matter before the civil court or the commercial tribunal”. However, the Court confirmed the position of Nanterre judges, considering that “the establishment and implementation of such a plan have a direct link with the management of this company”.

The legislator has definitively settled the question of jurisdiction by granting exclusive jurisdiction to the Paris Judiciary Tribunal.^[5] 

• 2. The limits of summary proceedings

Article L. 225-102-4 of the French Commercial Code allows the plaintiff to bring either a summary action or an action on the merits to ensure that the company which fails to fulfill its obligations is ordered to comply with them.

In the Total-Uganda case, the summary judge of the Paris Judiciary Tribunal considered whether the summary action was suitable for controlling compliance of the obligation to establish a vigilance plan in the areas of human rights and fundamental freedoms, personal health and safety and the environment.[6]

After ruling that the plaintiffs were inadmissible for failure to issue a prior formal notice, the judge, in a welcomed obiter dictum, expressed reservations about the possibility for the summary jurisdiction to control the establishment of a vigilance plan. The judge specified that “the grievances and breaches of duty of vigilance alleged against TotalEnergies SE in the present case must be the subject of an in-depth examination of the facts of the case, which goes beyond the powers of the summary judge”.

This solution clarifies the procedural framework in which actions based on the duty of vigilance can be brought. It also reveals the difficulties that plaintiffs will face when bringing an action before the summary judge, when the subject of the dispute is the compliance of the vigilance plan, and not simply its publication by the given company. A commentator suggests that plaintiffs could, at the same time, bring a claim on the merits relating to the compliance of a company’s vigilance plan and an application for interim relief seeking to suspend the measures taken by the company.[7]  

• 3. Requirement for formal notice

Article L. 225-102-4, II of the French Commercial Code provides that, before a case is referred to the courts, the company in question must be given formal notice to fulfill its vigilance obligations.

“II – Where a company served with formal notice to comply with the obligations set out in I fails to do so within three months of the formal notice being served, the competent court may, at the request of any person with an interest in the matter, order the company to comply, subject to a fine if necessary.”

In the absence of a decree specifying certain aspects of litigation relating to the duty of vigilance, the Paris Judiciary Tribunal has established requirements, set out below, on this formal notice in the Total-Uganda[8], Total-Climat[9], Suez[10] and EDF[11] cases.

• Mandatory prerequisite

Firstly, the formal notice is considered a mandatory prerequisite to any referral to the courts. In the absence of prior formal notice, the plaintiff’s request is inadmissible.

In the EDF case, the Preliminary Issues Judge (Juge de la mise en état) of the Paris Judiciary Tribunal specified that the purpose of this condition was to establish a dialogue between the plaintiffs and the target company, so that the latter could take account of the comments made on its vigilance plan and modify it accordingly.[12] 

• Identical scope of the formal notice and the writ of summons

Secondly, the formal notice and the writ of summons must have the same subject matter. Thus, the writ of summons must address the same issues raised by the formal notice, and in particular target the same vigilance plan.

For example, in the Total-Uganda case[13] , the plaintiffs had referred in their writ of summons the most recent version of the vigilance plan of the year 2021, whereas the formal notices referred to an earlier version of the year 2019. This led the Preliminary Issues Judge to conclude that the defendant had not been put on formal notice with regard to the vigilance plans that were the subject-matter of the case.

• The completeness of the formal notice

Thirdly, the formal notice must be sufficiently specific as to the subject of the grievances raised against the company in question.

In the Total-Climat case[14] , the Preliminary Issues Judge considered that the formal notice sent by the plaintiffs was imprecise in that it required TotalEnergies to implement a list of measures “without prejudice to other measures that may be identified”. Thus, to comply, formal notices must be sufficiently precise as to the grievances in question to serve as a basis for discussion between the parties involved prior to referral to the tribunal.

• 4. The relationship between Article 1252 of the French Civil Code and Article L. 225-102-4 of the French Commercial Code

Article 1252 of the French Civil Code provides the possibility of requesting French jurisdictions to prescribe measures to prevent or stop damages to the environment. This gave rise to a question about the relationship between this text and Article L. 225-102-4 of the French Commercial Code, which enables a judge to order a company to comply with its obligations under the duty of vigilance.

In the Total-Climat case,[15] two claims were brought before the Judiciary Tribunal, one based on Article L. 225-102-4 of the French Commercial Code, seeking an injunction to require TotalEnergies to publish its vigilance plan, and the other based on Article 1252 of the French Civil Code, seeking to “publish and implement” actions to reduce greenhouse gas emissions.

TotalEnergies raised an incident regarding the admissibility of the claim based on Article 1252 of the French Civil Code. Taking up the defendant’s arguments, the Preliminary Issues Judge declared the claim inadmissible, considering that the two claims had the same object, and that by relying on Article 1252 of the Civil Code, the plaintiffs were attempting to bypass the formal notice requirement set out in Article L. 225-102-4 of the French Commercial Code. Categorizing the provisions of the Commercial Code as “special”, the judge noted that they deviate from the general provisions of the Civil Code.

This solution has been challenged by certain authors, who question the exclusive application of Article L. 225-102-4 of the French Commercial Code to the issue of duty of vigilance, particularly in view of the reference in Article L.225-102-5 of the same code to articles 1240 and 1241 of the French Civil Code concerning ecological loss.[16]

In any case, following the decision of the Preliminary Issues Judge in the TotalEnergies case, it is not possible to rely on article 1252 of the Civil Code to ensure compliance with the duty of vigilance.

• 5. Defendants’ standing

According to Article L. 225-102-4 of the French Commercial Code, the duty to establish the vigilance plan lies with the group’s parent company, while controlled subsidiaries as defined in Article L. 233-3 of the French Commercial Code are exempt from this obligation. Therefore, the obligation relies upon the parent company, even though subsidiaries may voluntarily establish a vigilance plan. As a result, only the parent company or a company having established a given vigilance plan can be sued.

In the Suez case,[17] the defendant, a subsidiary of the Suez group, alleged that it had not established the relevant vigilance plan and that it had been established by its sole shareholder. Having noted that the vigilance plan did not mention precisely which Suez group company had established it, the Preliminary Issues Judge ruled that “the [subsidiary’s] standing to defend (…) has not been established”.

As a result, there must be an identity between the company issuing the vigilance plan and the company being summoned.

• 6. Plaintiffs’ standing

The inadmissibility of claims on the grounds that the plaintiff associations and local authorities lack standing to bring the action has been raised on several occasions. While in some cases the judge did not rule to this ground, in the Total-Climat case,[18] the Preliminary Issues Judge of the Paris Judiciary Tribunal specified – again in an obiter dictum – that certain plaintiffs did not justify a standing.

The Parisian judge referred to article 1248 of the French Civil Code – specific to compensation for ecological loss – to interpret the terms “any person with a standing” provided in article L. 225-102-4 of the French Commercial Code.

Article 1248 of the French Civil Code sets out the categories of persons who may bring an action for compensation for ecological loss, namely: “the State, the French Biodiversity Office, local authorities and local communities whose territory is concerned, as well as public establishments and associations accredited or having been established for at least five years from the date the proceedings are brought, whose purpose is the protection of nature and the defense of the environment”.

The Preliminary Issues Judge thus declared inadmissible the claims of certain associations that had not been accredited or established for over five years. Similarly, he ruled inadmissible the claims of certain local authorities – including the cities of Paris and New York – on the grounds that they can only act “when their territory is affected by the ecological loss”.

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These initial rulings on jurisdiction, requirement of prior formal notice, and parties’ standing, have provided welcome clarification of the conditions for bringing an action. These debates on formal issues highlight the complexity of the substantive questions that the judge will have to resolve.

MAIN CASES INVOLVING THE DUTY OF VIGILANCE

Judiciary decisions

Nanterre Judiciary Tribunal, order, January 30, 2020, no. 19/02833, TotalEnergies SE

Versailles, December 10, 2020, no. 20/01692, TotalEnergies SE

Cass. com., December 15, 2021, no. 21/11.882, TotalEnergies SE

Paris Judiciary Tribunal, November 30, 2021, no. 20/10246, EDF

Court of Appeals of Paris, March 17, 2023, n° 22/00749, EDF

Paris Judiciary Tribunal, 1er June 2023, no. 22/07100, SUEZ SA

Paris Judiciary Tribunal, February 28, 2023, no. 22/53942 and no. 22/53943, TotalEnergies SE (Total-Uganda)

Paris Judiciary Tribunal, July 6, 2023, no. 22/03403, TotalEnergies SE (Total-Climat)

Cases pending before the Paris Judiciary Tribunal

Paris Judiciary Tribunal, writ of summons dated March 23, 2022, YVES ROCHER

Paris Judiciary Tribunal, writ of summons dated December 22, 2021, GROUPE LA POSTE

Paris Judiciary Tribunal, writ of summons dated March 3, 2021, CASINO

Paris Judiciary Tribunal, writ of summons dated July 29, 2022, IDEMIA

Formal notices

TELEPERFORMANCE was served with a formal notice on July 18, 2019

XPO LOGISTICS was served with a formal notice on October 1, 2019

TOTALENERGIE was served with a formal notice on March 14, 2022

MCDONALD’S was served with formal notice on March 30, 2022

DANONE, AUCHAN, CARREFOUR, CASINO, LACTALIS, LES MOUSQUETAIRES, PICARD SURGELÉS, NESTLÉ FRANCE AND MCDONALD’S FRANCE were served with a formal notice on September 28, 2022

BNP PARIBAS was served with a formal notice on October 17, 2022

BNP PARIBAS was served with a formal notice on October 26, 2022

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^[1]            Proposal for a Directive of the European Parliament and of the Council on corporate sustainability due diligence and amending Directive (EU) 2019/1937, February 23, 2022

[2]        Amendments(1) of the European Parliament, adopted on 1 June 2023, to the proposal for a directive of the European Parliament and of the Council on corporate sustainability due diligence and amending Directive (EU) 2019/1937

[3]        Nanterre Judiciary Tribunal, January 30, 2020, no. 19/02833, TotalEnergies SE

[4]        R. Dumont, “Devoir de vigilance des sociétés mères et compétence des tribunaux: la Cour de cassation et le législateur rend rendent concomitamment deux solutions différentes”, Recueil Dalloz, Dalloz, 2022, p. 826

[5]        Article L. 211-21 of the French Judicial Organization Code (Code de l’organisation judiciaire) stipulates that “the Paris Judiciary Tribunal hears actions relating to the duty of vigilance based on articles L. 225-102-4 and L. 225-102-5 of the French Commercial Code“

[6]        Paris Judiciary Tribunal, February 28, 2023, no. 22/53942 and no. 22/53943, TotalEnergies SE (Total-Uganda)

[7]        A. Lecourt, “Nouvelles précisions sur l’action en responsabilité découlant du manquement à la vigilance climatique”, RTD com, Dalloz, 2023, p. 369

[8]        Paris Judiciary Tribunal, February 28, 2023, no. 22/53942 and no. 22/53943, TotalEnergies SE (Total-Uganda)

[9]        Paris Judiciary Tribunal, July 6, 2023, no. 22/03403, TotalEnergies SE (Total-Climat).

[10]       Paris Judiciary Tribunal, June 1^er 2023, no. 22/07100, SUEZ SA

[11]       Paris Judiciary Tribunal, November 30, 2021, no. 20/10246, EDF

[12]       Paris Judiciary Tribunal, November 30, 2021, no. 20/10246, EDF

[13]       Paris Judiciary Tribunal, February 28, 2023, no. 22/53942 and no. 22/53943, TotalEnergies SE (Total-Uganda)

[14]       Paris Judiciary Tribunal, July 6, 2023, no. 22/03403, TotalEnergies SE (Total-Climat)

[15]       Paris Judiciary Tribunal, July 6, 2023, no. 22/03403, TotalEnergies SE (Total-Climat)

[16]       J.-B. Barbièri, “Devoir de vigilance, la porte se referme”, Dalloz actualité, Dalloz, July 13, 20233

[17]       Paris Judiciary Tribunal, June 1^er 2023, no. 22/07100, SUEZ SA

[18]       Paris Judiciary Tribunal, July 6, 2023, no. 22/03403, TotalEnergies SE (Total-Climat)

Cass. 1^re civ., 7 June 2023, no. 22-12.757

In its ruling of 7 June 2023, the First Civil Chamber of the French Supreme Court held that the decision declaring inadmissible the action to set aside the award did not entail its exequatur. Consequently, a person intending to enforce an award cannot rely on Article 1498, paragraph 2 of the French Code of Civil Procedure in case of inadmissibility and is not exempt from applying for the exequatur of the award rendered in his favour.

Although the first commentators on this judgment seemed to favour this position and noted the consistency of such a decision, this was not self-evident insofar as Article 1498, paragraph 2 of the French Code of Civil Procedure makes no distinction as to the reasons that would lead the judge to dismiss the action for annulment.

In its ruling, the French Supreme Court introduced a difference in the enforcement regime depending on the grounds for dismissal, in order to prevent the award from escaping the judge’s control. However, certain inadmissibilities (in particular those based on Article 1466 of the French Code of Civil Procedure) require the judge to examine the award in greater detail. It is therefore not certain that such a solution is justified in all cases.

The background

On 15 November 2013, a sole arbitrator was appointed to rule as an amiable compositeur on a dispute between the shareholders of two companies belonging to the same group.

An action for annulment has been brought against this award.

In a ruling of 17 March 2016, the Douai Court of Appeal declared the action to set aside the award admissible, notwithstanding the failure to submit the notice of referral to the Court electronically, as the e-Barreau platform did not include a reference to “an action to set aside an arbitration award”.

The Douai Court of Appeal in a decision of 18 January 2018, – after qualifying the arbitration as domestic – then set aside the arbitral award on the grounds that the arbitral tribunal had ruled without fulfilling its functions.

On 26 September 2019, the French Supreme Court quashed and set aside the Court of Appeal’s decision handed down on 17 March 2016 declaring admissible the action for annulment which had not been made by electronic means, as required by Article 930-1 of the French Code of Civil Procedure. This led to the annulment of the judgment of 18 January 2018 setting aside the award.

Following this judgment of 26 September 2019, the case was referred to the European Court of Human Rights (ECHR). In a judgment of 9 June 2022 (ECHR, sect., 9 June 2022, no. 15567/20), it ruled that “(…) the Cour de cassation had displayed a formalism which the guarantee of legal certainty and the proper administration of justice did not require and which must therefore be regarded as excessive“.

However, as this decision had no effect on the case under review, the beneficiary of the award, who regained his title following the reversal and annulment of the judgment setting it aside, sought to continue its enforcement. To do so, he did not apply to the relevant jurisdiction for an exequatur, believing that he could rely on Article 1498, paragraph 2, which provides that: “The dismissal of the appeal or of the action for annulment confers exequatur on the arbitral award or on those of its provisions that are not affected by the court’s censure“.

To contest the enforcement of the award, its opponent argued that the reversal without referral of the decisions of the Douai Court of Appeal on 26 September 2019 was insufficient to grant the exequatur on the award and that the judgment of the French Supreme Court, insofar as it declared inadmissible the action to set aside the award, did not constitute a dismissal decision within the meaning of Article 1498, paragraph 2 of the French Code of Civil Procedure.

In its judgment of 3 February 2022, the Douai Court of Appeal was not convinced by this argument and held that the French Supreme Court’s dismissal of the action for annulment on the grounds of inadmissibility did confer exequatur on the award, with the result that the beneficiary of the award did in fact have a writ of execution enabling him to implement the enforcement measure at issue.

However, in a ruling dated 7 June 2023, the French Supreme Court overturned this decision on the grounds that, as the action for annulment had been declared inadmissible, this had not had the effect of conferring exequatur on the award.

The desire to ensure a prima facie review of the award

This position taken by the French Supreme Court is understandable given its concern to ensure that an arbitration award is subject to judicial review before it is incorporated into the French legal system.

When reviewing the award, the Court checks that the award exists and is not contrary to French public policy.

The logic here would be that when the court dismisses the action for setting aside the award as inadmissible, it would not examine the objections raised on the merits and would therefore not have the opportunity to rule, either at the request of the parties or of its own motion, on whether the award complied with public policy.

This line of reasoning calls for at least three comments.

Firstly, the French Supreme Court makes a distinction based on the reason for dismissal, that Article 1498 of the Code of Civil Procedure does not. While the reason for dismissal in the case of inadmissibility does not relate to the merits, it is still a dismissal.

Secondly, certain inadmissibilities require the judge to examine in detail the objections raised. This is the case in particular with the inadmissibilities under Article 1466 of the French Code of Civil Procedure, according to which a party that has refrained from invoking an irregularity before the arbitral tribunal is deemed to have waived its right to invoke it. The parties may not, however, waive irregularities that are a matter of public order of direction. In such a case, the judge hearing the appeal is therefore required to examine all the claims raised to ensure that none have been waived and that those that have been waived do not affect public order of direction. In such a case, there is therefore an adversarial debate on all the claims raised.

Lastly, in the case at hand, the Douai Court of Appeal reviewed the award after initially declaring the action for annulment admissible and found no breach of public policy. Admittedly, its ruling was subsequently set aside, but it seems reasonable to think that if the award was manifestly violating public policy, the appeal judge would have noted this of its own motion.

The implications of the distinction in the enforcement regime according to the grounds for dismissal of the action for annulment

The position taken by the French Supreme Court implies to hurry up to request the exequatur of the award to the judicial tribunal or, where applicable, to the first president or the competent Conseiller de la mise en état (in domestic arbitration, where the award is subject to provisional enforcement).

In this case, if an action to set aside the award in question is brought and that the action is upheld, the enforcement order will lapse at the same time as the award.

If the challenge of the award is dismissed and the beneficiary of the award has obtained an enforcement order beforehand, a distinction must be made depending on the reason for the dismissal. Indeed:

• Either the dismissal is on the merits, in which case the rejection decision constitutes the writ of execution;
• Or the dismissal is due to the inadmissibility of the appeal, in which case it is likely that only the enforcement order issued by the competent judicial tribunal or the Conseiller de la mise en état, which is supposed to be only a provisional step, would survive and constitute the writ of execution enabling the enforcement of the award to continue.

In the absence of any enforcement order, rejection of the recourse against the arbitration award on the grounds of inadmissibility will oblige the beneficiary to refer the matter to the relevant judicial tribunal in order to enforce the award.

Conclusion

The position taken by the French Supreme Court imposes a procedural burden that does not appear to be justified in any event. And probably none of this would have happened if the electronic configuration system for appeals against arbitration awards had been correctly configured…

A normative frenzy?

In the framework of the “green deal” to achieve climate neutrality in Europe in 2050, the EU Commission and Parliament have issued many new rules in environment and ESG matters. At which point some of the member states leaders (France, Belgium…) have called for a “break” in the normative activity, to allow some time to assimilate the new provisions.

What is true is that the number and scope of the new and upcoming rules might seem somewhat overwhelming to companies: the SFDR (reporting on sustainable financial products), taxonomy (definition of sustainable activities), the CSRD (corporate sustainability reporting), the CSDD (sustainability due diligence), the ETS (revision of quota trade), the CBAM (carbon tax for importations), the SCF (social climate fund) … quite a list!

However, this succession of texts is no random pile, and the EU seeks consistency and complementarity between the rules. In the preamble of the CSDD recently voted by the EU Parliament (and not formally adopted yet), the complementarity with CSRD is “to increase effectiveness of both measures [CSRD and CSDD] and drive corporate behavioral change for those companies.”

What is CSDD about?

The CSDD introduces in an EU directive a “duty of vigilance” for companies falling into its scope, to perform a due diligence of their impact on environment, sustainability, social and human rights, not only in their own activities (already addressed in the CSRD), but also throughout the value chain (i.e. all upstream and downstream business relationships for the production of goods and services).

Once this due diligence has been conducted, companies will have to do their best to eliminate or at least mitigate the risks, which will depend on their capacity to influence their business partners.

The duty of vigilance shall be included in the corporate governance policies, controlled internally and give lieu to public communication.

Member states shall include sanctions for any transgressions by companies   in their transposition of the CSDD, as well as civil liability mechanisms and public control. In France, where a similar obligation has existed with a more restrictive scope since 2017, some trials, mostly initiated by NGOs, are ongoing against major companies (TotalEnergies, BNP Paribas, La Poste…) based on insufficient endeavors.

The companies will bear the costs of the due diligences and the resulting changes in their organization. In this regard, the European legislator has included companies from third countries operating in the EU within the scope of the Directive, which should reduce the competition distortion for EU companies, and could trigger changes of corporate habits outside EU borders too.

How CSDD will directly impact foreign companies?

Some foreign groups will fall directly within the scope because of their subsidiaries or activities in the EU, when fulfilling conditions of turnover.

The scope thresholds are not yet final, as the Directive has entered through its final stage of discussions between the EU Council, Commission and Parliament.

The first two had agreed on thresholds, depending on sectors, with “high-impact” sectors (textiles, agriculture and extraction-related) being more easily subject to the duty of vigilance.

The Parliament has adopted a wider position, with overall reduced thresholds, for a more ambitious text.

According to EU estimations (based on the Commission / Council thresholds), around 4,000 non-EU companies would be directly impacted.

Once formally adopted, after the ongoing discussions between the member States (probably sometime in 2024), the duty of obligation will apply between 2 and 5 years to companies, depending on their size. This schedule would be consistent with the one regarding the reporting on sustainability (CSRD), which also impacts some foreign companies.

Who ?	Commission and Council	Parliament
EU companies	·         more than 500 employees and ·         net worldwide turnover of MEUR 150 Application 2 years after publication ·         more than 250 employees and ·         net worldwide turnover of MEUR 40 if more than 50% of that turnover is generated in high-impact sectors Application 4 years after publication	·         more than 250 employees and ·         over MEUR 40 in net worldwide turnover   Application between 3 and 5 years after publication
Non-EU companies	·         net EU turnover of MEUR 150 Application 2 years after publication ·         net EU turnover of MEUR 40 if more than 50% of that ·         turnover is generated in high-impact sectors Application 4 years after publication	·         net worldwide turnover of MEUR 150 if at least MEUR 40 was generated in the EU   Application between 3 and 4 years after publication
EU parent companies of a group		·         More than 500 employees and  ·   over MEUR 150 in net worldwide turnover
Non-EU parent companies of a group		·         More than 500 employees and  ·         over MEUR 150 in net worldwide turnover if at least MEUR 40 was generated in the EU   Application between 3 and 4 years after publication

How CSDD may indirectly impact foreign companies?

The indirect impact must not be neglected either: many companies not falling within the scope of the CSDD have intricate business links with companies subject to the duty of vigilance obligation.

The latter will apply their due diligence and risk-mitigating obligations, which will inevitably have an impact on their business partners.

The appreciation of the “best endeavors”, and therefore the impact on foreign companies, will depend on the capacity of the debtor of the obligation to get what it requests:

• A company performing its due diligence towards a business partner for which it represents a limited volume of activity, best endeavors could be achieved by requiring information and sending a few reminders, depending on the willingness of the foreign company to comply.
• On the contrary, economically dependents partners in the value chain will to some extent be forced to provide detailed information when instructed, and being summoned to modify some of their ways, if not compatible.

When to prepare?

There is time before the duty of vigilance enters into force, but it is recommended to use this time to prepare, especially for companies within the scope of the CSDD, as the adaptation requires a certain volume of work, and has impact on corporate governance. For example, it could be considered to start favoring partners applying ESG principles compatible with the EU provisions to eliminate the risks ahead.

For companies only indirectly impacted, it is advisable to start a reflection on how they will respond to due diligences requests and react to change of habits. And, as usual, power lies behind the money: powerful EU companies will most likely shift their risks on to their co-contractors, demanding as a new standard for the appropriate documents to be transmitted and for the appropriate behaviors to be enforced. Failing to comply will result in a breach of contract and liability.

As obligations, and therefore risks, regarding ESG and sustainability matters will arise in the next years, our next newsletter will be about the different types of risks.

Jacques Perotto, Partner and Maxime Hermes, Counsel

In a recent ruling rendered on 6 June 2023, the Paris Court of Appeal denied enforcement (exequatur) in France to an arbitration award upholding jurisdiction over a multi-billion dollar claim brought against Malaysia by heirs of the last Sultan of Sulu of the Island of Borneo.

This award on jurisdiction was issued by sole arbitrator Dr. Gonzalo Stampa in 2020 and was followed on the merits by a noteworthy award in 2022 by which Malaysia was ordered to pay USD 14.92 billion to the heirs of the Sultan of Sulu.

However, the Court of Appeal found that Dr. Stampa lacked jurisdiction to hear the case since his designation was based on an agreement which dated back to the 19^th century and referred the dispute to the holder of a position (dating back to the British Empire, Consul-General in Brunei) that no longer existed when the dispute arose. The Paris Court of Appeal deemed the arbitration agreement inapplicable and denied enforcement to the award on jurisdiction.

Background of the Dispute

The case revolves around the performance of an 1878 agreement signed by the Sultan of Sulu regarding the exploitation of natural resources of the North coast of the island of Borneo, and the subsequent payment of annual interest to the Sultan and his heirs or successors.

European explorers were granted exploitation rights in exchange for annual payments. When Malaysia gained independence from the British Empire in 1963, these rights were transferred to the Malaysian state, which continued to make annual payments to the heirs of the Sulan of Sulu until 2013.

Following failed negotiations over the contract price, in 2017 the heirs initiated arbitration proceedings under the confirmatory deed of the agreement signed in 1903 which provided that “[s]hould there be any dispute, or reviving of all grievances of any kind (…), then the matter will be brought for consideration or judgment of Their Majesties’ Consul-General in Brunei.”[1] It should be noted that the translation of this clause originally written in Jawi, a writing system used for Malay, and its interpretation, were subject to much debate between the parties.

Spanish and French Courts’ proceedings

The position of Consul-General in Brunei referred to by the confirmatory deed did not exist anymore in 2017 and the British Foreign Secretary refused to assume the role of arbitrator in the dispute. Malaysia also refused to proceed to the joint appointment of an arbitrator. The heirs thus filed an application before the Superior Court of Justice of Madrid for the appointment of an arbitrator, citing the 1878 agreement’s connections to Spain which had sovereignty over the territory when it was signed.

In 2019, the Civil and Criminal Chamber of the Superior Court of Justice of Madrid appointed Dr. Stampa as sole arbitrator. Dr. Stampa upheld his jurisdiction in an award dated 25 May 2020 (the “Award on Jurisdiction”).

Malaysia challenged the appointment of Dr. Stampa before the Superior Court of Justice of Madrid which, on 29 June 2021, annulled Dr. Stampa’s appointment.

The Sultan’s heirs obtained from the President of the Judiciary Tribunal of Paris an ex parte enforcement order of the Award on Jurisdiction and Dr. Stampa then relocated the seat of arbitration from Madrid to Paris on 29 October 2021.

On 28 February 2022, after four years of proceedings, the sole arbitrator delivered a final award in favor of the heirs of the Sultan, allocating them USD 14.92 billion in damages for Malaysia’s breach of the agreement (the “Final Award”).

Malaysia (i) lodged an appeal against the order granting enforcement to the Award on Jurisdiction, and (ii) initiated setting aside proceedings against the Final Award before the Paris Court of Appeal.

On 6 June 2023, the Court of Appeal denied enforcement to the Award on Jurisdiction, considering Dr. Stampa lacked jurisdiction under the relevant agreement.

In parallel, Malaysia initiated criminal proceedings against Dr. Stampa before the Criminal Court of Madrid.

The Paris Court of Appeal ruling on the Award on Jurisdiction

Malaysia contended inter alia that the sole arbitrator lacked jurisdiction over the dispute and that therefore, the award had to be set aside under article 1520-1° of the French Code of Civil Procedure. This decision has also been commented regarding its take on the challenge against the admissibility of the request for enforcement of the award, but we will focus on Malaysia’s challenges of the arbitrator’s jurisdiction.

The Court was tasked with determining the nature of the dispute resolution clause at stake, specifically whether it constituted a valid arbitration agreement, and if so, whether it had been correctly applied.

The Court commenced its analysis by examining the substantive content of the clause since the arbitration agreement was based on a clause written in Jawi. Multiple translations of the clause and expert reports were submitted by the parties, each differing in their respective wording. Applying the principles of “good faith” and “effectiveness” (effet utile), the Court scrutinized the various translations. On this basis, the Court qualified the clause as an arbitration agreement.

However, regarding the applicability of the clause, the Court emphasized the active role played by the former British Consul-General, Sir William Treacher, during the negotiations and his personal encouragement to the Sultan of Sulu to submit disputes to the British Consul-General. Consequently, the Court deemed the designation of the British Consul-General as the arbitrator inseparable from the parties’ consent to arbitration. Given that the position of British Consul-General of Brunei no longer existed when the dispute arose, the Court declared the arbitration agreement inapplicable.

Future Steps

The Paris Court of Appeal refusal to grant enforcement to the Award on Jurisdiction jeopardizes the validity and the enforceability of the Final Award, against which setting aside proceedings are pending before the same court. This ruling may also have consequences on the heirs’ ongoing attempts to enforce the Final Award in the Netherlands and Luxembourg, where they have already successfully seized assets belonging to the Malaysian state oil company Petronas.

According to reports, the heirs of the Sultan of Sulu are contemplating challenging the decision of the Paris Court of Appeal before the French Supreme Civil Court (Cour de cassation).

Comments

This historical and multijurisdictional case highlights the advantages of arbitration as a means of resolving disputes, such as flexibility and efficiency. However, it also illustrates the need for parties to carefully consider and review their arbitration clauses to address potential uncertainties that may arise. Unforeseen complications can emerge and render the arbitration agreement arguably not applicable anymore. In particular, while one of the advantages of arbitration is to choose the arbitrator, imposing excessively specific requirements in the clause for the designation of the arbitrator(s) can be interpreted as consenting to arbitrate on an intuitu personae basis, which may later hinder the applicability of the clause. Parties should strive for clarity, precision but also for adaptability in their arbitration agreements. By doing so, they can maximize the benefits of arbitration while minimizing the risks and uncertainties that may arise throughout the process.

For more information on this case please refer to Alerion’s newsletter on the multi-billion Final Award and its enforcement in France and Luxembourg.

Jacques Bouyssou, Partner, Marie-Hélène Bartoli Vallet, Counsel and Juan Diego Niño-Vargas, Associate

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[1] Translation retained in the Award on Jurisdiction of 25 May 2020