A foreign distributor who stops paying is sued before the court designated by the distribution agreement. Failing that, within the EU, the unpaid invoices belong to the sales, hence to the place of delivery, often France, while disputes about the relationship belong to the distribution agreement, hence to the distributor’s court. That trap of double characterisation decides the forum, and it is prepared in the contract.
A Grasse cosmetics manufacturer entrusted the exclusive distribution of its products in Spain and Portugal to a company in Valencia. The agreement, drafted by the distributor, designates Spanish law and says nothing about the court. After four years, the distributor accumulates 420,000 euros of unpaid invoices, complains of late deliveries and of online competition allegedly breaching its exclusivity, and announces that it “will set off” the damage it suffers. The manufacturer wants to sue for payment, and its first question is that of every exporter in this position: in Grasse or in Valencia. The answer is less simple than for an ordinary customer, because a distributor is not a mere buyer, and because he knows it.
The distribution agreement first, and what it does not say
The jurisdiction clause settles everything when it exists and is valid: the Brussels I bis Regulation gives it effect whatever the parties’ domicile, and makes it exclusive unless otherwise agreed (Regulation (EU) No 1215/2012, art. 25). A distribution agreement drafted by the French supplier designates the commercial court of its seat; one drafted by the distributor designates his own, or none at all, which is never an oversight. The scope of the clause must also be checked: does a clause covering “any dispute relating to this agreement” reach the sales invoices issued in performance of it, or only disputes about the framework agreement itself. The answer depends on its drafting, and a well-made clause says so expressly.
Where the supplier’s general terms of sale, printed on the back of the invoices or available on its portal, contain a jurisdiction clause that the distribution agreement lacks, the clause in the general terms binds the distributor only if he actually accepted it: a clause appearing only on invoices does not meet the formal requirements of article 25, as the Court of Justice held in the case of a concession contract (CJEU, 8 March 2018, Saey Home & Garden, C-64/17). Acceptance by reference in each order, or signature of the general terms when the account was opened, changes the picture. The Grasse manufacturer had neither.
Without a clause: sale or services, the trap of double characterisation
Absent a clause, a distributor established in the Union is sued at his domicile (Regulation (EU) No 1215/2012, art. 4), or, in matters relating to a contract, before the court of the place of performance of the obligation in question, that place being, for the sale of goods, where the goods were or should have been delivered, and for the provision of services, where the services were or should have been provided (Regulation (EU) No 1215/2012, art. 7(1)). Everything therefore turns on the characterisation of the relationship on which the claim is based, and a distribution agreement harbours two.
The framework distribution agreement is, for the Court of Justice, a contract for the provision of services: the distributor provides the supplier with a distribution service, selected and remunerated by the advantages of exclusivity, and disputes arising from it belong to the court of the place where that service is provided, that is, the concession territory (CJEU, 19 December 2013, Corman-Collins, C-9/12). The Court specified that, for an action based on the termination of a concession contract, that place is the place of the main provision of services, as it appears from the contract, failing that from its actual performance, and failing that the domicile of the provider (CJEU, 8 March 2018, Saey Home & Garden, C-64/17). A claim by the distributor for termination, breach of exclusivity or an end-of-contract indemnity is therefore pleaded at his place, in Valencia.
The sales concluded in performance of the framework agreement, for their part, remain sales of goods, and the claim for payment of their price belongs to the court of the place of delivery. That place is the one fixed by the contract and the Incoterm: a manufacturer who delivers EXW or FCA from Grasse delivers in France and may sue the distributor before the Grasse commercial court for the 420,000 euros; one who delivers DAP at the Valencia warehouse has located delivery in Spain. This is where the trap closes: the distributor sued in France for payment of the invoices files a counterclaim based on the framework agreement, breach of exclusivity and delays, and argues that it belongs to the Spanish court; or he moves first and sues in Valencia on the framework agreement, adding the invoices by way of set-off, to have everything decided at home. A supplier who left the agreement silent on the court ends up pleading related actions and lis pendens instead of pleading payment.
The lesson is drawn upstream: the distribution agreement must contain a jurisdiction clause expressly covering the framework agreement and each sale concluded in its performance, and an Incoterm locating delivery in France. Failing that, the action for payment must be launched fast, before the distributor seises his own court, because the court second seised stays its proceedings in case of lis pendens (Regulation (EU) No 1215/2012, art. 29). Our page on governing law and jurisdiction details the drafting of those clauses.
The applicable law follows the same dividing line
The applicable law splits in the same way. Absent a choice, the distribution contract is governed by the law of the country of the distributor’s habitual residence, and the sale contract by that of the seller’s (Regulation (EC) No 593/2008, Rome I, art. 4(1)(a) and (f)). In the Grasse file, the framework agreement designates Spanish law, but the sales themselves fall under the Vienna Convention, applicable as of right between a French seller and a Spanish buyer, a Spanish choice-of-law clause in the framework agreement not excluding it for the sales. That detail changes the regime of interest, avoidance and conformity, as our analysis of the Vienna Convention and its exclusion explains. Limitation, which the Convention does not govern, follows the law of the contract (Regulation (EC) No 593/2008, art. 12(1)(d)).
The set-off invoked by the distributor is governed by the law of the claim against which it is raised and requires, under French law, claims that are certain, liquidated and due (Civil Code, art. 1347-1). An alleged loss for breach of exclusivity, neither quantified nor adjudged, is neither certain nor liquidated: it does not extinguish the price debt. A distributor who withholds 420,000 euros of invoices on the strength of a loss he assesses himself is in breach, and his supplier may, under the Vienna Convention, suspend his own deliveries where it becomes apparent that the other party will not perform a substantial part of his obligations (CISG, art. 71), then avoid the unpaid sales (CISG, art. 64) and, if the framework agreement allows it, the distribution agreement itself.
Securing before judgment: retention of title and bank accounts
A distributor who stops paying is often a distributor in difficulty, and a judgment obtained in eighteen months will be worth nothing if the Valencia company has been wound up in the meantime. Two instruments change the balance of power in the first weeks.
A retention of title clause, where the terms of sale stipulate it and the distributor accepted it, allows the unpaid products still in his stock to be reclaimed, and most EU legal systems recognise it, Spain included, with their own formal and publicity conditions that must have been checked before the first delivery. The Vienna Convention does not govern the effect of the sale on title (CISG, art. 4); retention of title falls under the law of the place where the goods are situated. In a distribution file, where the stock is identifiable and represents part of the arrears, reclaiming it is the first step to consider.
The European Account Preservation Order, next, allows the creditor to obtain from the French court, without the debtor being informed, the freezing of the accounts the distributor holds in another Member State, on showing a claim well founded in principle and a real risk that recovery will be jeopardised (Regulation (EU) No 655/2014). An account frozen in Valencia leads to the negotiating table more surely than a writ. In France, the conservatory attachment of article L. 511-1 of the Code of Civil Enforcement Procedures plays the same role on assets the distributor may hold there, receivables from French customers for instance. Our page on enforcing a foreign judgment in France sets out those mechanisms.
Outside the Union: sue where the judgment will be worth something
Where the distributor is established outside the Union, in Turkey, Morocco, the Emirates or China, the French court may have jurisdiction on the basis of a clause, of the place of delivery or of the privilege of article 14 of the Civil Code, but the judgment will be worth, at the distributor’s place, only what local law grants it. Morocco and Algeria recognise French judgments under the conditions of old bilateral conventions; the Emirates and China require a full procedure, whose prospects our exequatur pages describe in the reverse direction. For those countries, an arbitration clause is almost always preferable to a jurisdiction clause: the award circulates under the 1958 New York Convention, while a French judgment may not cross the border. And, in every case, proceedings are launched only after the assets have been located, as our page on the foreign customer who does not pay explains.
What is owed, and within what time
The principal is increased by interest, due as of right on any sum in arrears (CISG, art. 78), at the rate fixed by the law applicable in the alternative, and, where French law governs the sales, by late-payment penalties and the fixed recovery indemnity of forty euros per invoice (Commercial Code, art. L. 441-10). The time for bringing proceedings is five years between traders before the French courts (Commercial Code, art. L. 110-4), but the foreign law of the framework agreement may provide otherwise for claims based on it, and it is the writ, not the formal demand, that interrupts it.
In the Grasse file, the action for payment was launched in Grasse on the FCA sales, a fortnight after the formal demand, and a European Account Preservation Order froze 190,000 euros on the distributor’s accounts in Valencia. The distributor’s counterclaim on the framework agreement was brought before the Spanish court; it was abandoned in the settlement, signed four months later, which organised staged payment of the principal and the end of the distribution.
A foreign distributor or dealer stops paying and invokes the agreement to withhold the price? The characterisation of the claim and the speed of the writ decide the forum. A first conversation settles the court, the protective measure and the exit strategy from the agreement.
Frequently asked questions
Can I sue my European distributor in France for unpaid invoices [[Q]]
Yes if the agreement provides for it or, failing that, if the sales are delivered in France under the Incoterm: the claim for payment of the price belongs to the court of the place of delivery of the goods (Brussels I bis Regulation, art. 7(1)). A DAP sale at the distributor’s premises locates delivery abroad.
Why does the distribution agreement belong to the distributor’s court [[Q]]
Because the Court of Justice characterises it as a contract for the provision of services, whose place of performance is the territory where the distributor provides his services (CJEU, 19 December 2013, Corman-Collins, C-9/12; CJEU, 8 March 2018, Saey Home & Garden, C-64/17). Disputes about the relationship itself are therefore pleaded at his place, unless otherwise agreed.
Can the distributor set off the invoices against the loss he alleges [[Q]]
Not as long as that loss is not certain, liquidated and due (Civil Code, art. 1347-1). An unadjudicated allegation of breach of exclusivity does not extinguish the price debt; withholding the price is a breach that allows the supplier to suspend deliveries (CISG, art. 71).
Can I recover the unpaid products still in the distributor’s stock [[Q]]
Yes if a retention of title clause was stipulated and accepted, and if it meets the conditions of the law of the country where the goods are, the Vienna Convention not governing the transfer of title (CISG, art. 4). Reclaiming the stock is often the first step in the file.
How do I freeze the distributor’s accounts in his country [[Q]]
Through the European Account Preservation Order (Regulation (EU) No 655/2014), obtained from the French court without the debtor being informed, for a distributor established in another Member State. Outside the Union, through the local protective measure, with counsel on the spot.
Which clause would have avoided the problem [[Q]]
A jurisdiction clause expressly covering the distribution agreement and each sale concluded in its performance, an Incoterm locating delivery in France, a retention of title clause adapted to the distributor’s country and, for non-EU countries, an arbitration clause.
Written by Hervé Guyader, avocat at the Paris Bar, doctor of law. This content is general information and does not replace legal advice.