Arbitration Clause: When a Commercial Agreement Escapes the Civil Courts

Imagine: you sign a promise to sell shares including a business, in Joué-lès-Tours. A dispute arises — a delay in payment, a clause not respected. You bring the matter before the commercial court, confident. But the other party raises an arbitration clause (a clause requiring recourse to arbitration rather than the courts). Suddenly, the judge declares himself without jurisdiction. What can you do? This decision of the Court of Cassation of 22 October 2014 sheds light on the boundary between state justice and arbitration, a crucial question for any professional or individual signing a commercial contract.

Every year, thousands of property disputes end up before the courts. But when an arbitration clause is involved, the party who signed it must often turn to a private arbitrator. The Court of Cassation, in this judgment, ruled: as soon as the agreement is commercial and the clause is not manifestly void, the state court must declare itself without jurisdiction. A decision that may surprise, but which rests on solid legal logic.

This article explains the facts, the reasoning of the judges, and above all what this changes concretely for you, whether you are a landlord, tenant or developer in Saint-Pierre-des-Corps or elsewhere. We will also see how to avoid the pitfalls of the arbitration clause and how to react if you are confronted with it.

The facts: a story like many everyday happenings

The case begins as a classic promise to sell shares. In March 2011, Marino and Augusta signed an agreement with purchasers to transfer a business located in Saint-Pierre-des-Corps. The agreement includes an arbitration clause: in the event of a dispute, the parties undertake to resort to an arbitrator, not to the court. Everything seems normal until a disagreement arises — probably over the price or the terms of the transfer.

Marino and Augusta decide to sue the purchasers before the Tribunal de Grande Instance (TGI) of Tours, considering that the clause is void because the sale had already been signed. For them, the initial agreement no longer has any object. But the purchasers retort: 'You signed an arbitration clause, you must go before an arbitrator.' The TGI declares itself competent, but the Orléans Court of Appeal reverses this decision, holding that the dispute falls within arbitration.

Marino and Augusta appeal to the Court of Cassation. They argue that the arbitration clause is manifestly void because the agreement was a promise to sell, not a pure commercial contract. The Court of Cassation, in its judgment of 22 October 2014, dismisses their appeal. It confirms that the agreement, concerning the transfer of shares and a business, is commercial in nature. And above all, the arbitration clause is not manifestly void: even if the sale took place, the clause can still apply to the dispute arising after the signature. The judges therefore refer the case back to a differently composed Court of Appeal, but the message is clear: state courts cannot interfere if arbitration is provided for.

The reasoning of the court — dissected

The heart of the reasoning rests on Article L. 721-3, 3° of the Commercial Code (which lists commercial disputes subject to arbitration) and Article 2061 of the Civil Code (which validates arbitration clauses in commercial contracts concluded between professionals). The Court of Appeal had held that the agreement was commercial because it concerned the transfer of a business, an inherently commercial activity. Consequently, the arbitration clause was valid, and the state court was without jurisdiction.

The Court of Cassation approves this reasoning. It specifies that to set aside the arbitration clause, it would have to be manifestly void — that is, clearly contrary to public policy or a mandatory rule. However, the mere subsequent signing of the sale does not render the clause void. The dispute concerned the performance of the agreement, and the clause was still in force.

This is neither a reversal nor a major evolution: the Court of Cassation confirms a consistent line of case law. But it reminds us of an essential principle: arbitration is a method of dispute resolution freely chosen by the parties. If you sign an arbitration clause in a commercial contract, you are bound, unless it is manifestly void. Judges cannot substitute themselves for the arbitrator simply because the clause seems inconvenient.

In practice, this means that if you are a trader or professional, you must be extremely cautious before accepting an arbitration clause. Once signed, you will no longer be able to bring the matter before the commercial court or the TGI, unless you can demonstrate that the clause is void — which is very difficult.

What this changes for you — concretely

For non-trading landlord owners: if you sign a commercial lease or a promise to sell a business, you are considered a professional. If the contract contains an arbitration clause, you will have to go through arbitration. Example: in Joué-lès-Tours, a landlord rents a commercial premises to a baker. The lease contains an arbitration clause. In the event of a dispute over the rent, the landlord cannot bring the matter before the judicial court of Tours, but must appoint an arbitrator. Average cost of arbitration: €3,000 to €10,000, compared to €1,500 for a trial. The time may be shorter (6 months against 18 months), but the absence of a possible appeal (except for serious defect) can be risky.

For tenant traders: if you are in conflict with your landlord over a lease renewal or an unfair clause, first check whether the contract contains an arbitration clause. In Saint-Pierre-des-Corps, a convenience store manager had to abandon his court action because his lease signed in 2012 contained such a clause. He lost 6 months and €2,000 in legal fees before turning to an arbitrator.

For purchasers of shares: this judgment directly concerns you. If you buy shares in a SCI or a commercial company, the contract is commercial. The arbitration clause obliges you to arbitration. Before signing, have the clause reviewed by a lawyer. If it is too vague or unbalanced, you can ask for its removal or modification.

In summary, this decision reinforces the binding force of arbitration clauses in commercial contracts. If you are a professional, you cannot ignore them. And if you are an individual, beware: sometimes a seemingly civil contract can be reclassified as commercial (transfer of shares, sale of a business), and the clause applies.

Four tips to avoid this type of dispute

• Check the arbitration clause before signing: Locate it in the contract. If it is in small print or refers to arbitration rules you do not know, ask for explanations. In Joué-lès-Tours, a client signed a franchise agreement without reading the arbitration clause: he had to pay €15,000 in arbitrator's fees.
• Negotiate the clause if possible: You can ask to remove the clause or modify it to provide for arbitration under the auspices of a recognised institution (ICC, CMAP) with a fee cap. If the other party refuses, weigh the risk.
• Keep all written exchanges: If a dispute arises, the arbitrator will examine the evidence. An email can constitute a contract. In Saint-Pierre-des-Corps, a property dealer lost his arbitration for failing to keep emails modifying the price.
• Consult a lawyer before acting: Do not bring the matter before the court without checking the clause. If you do, the other party may raise lack of jurisdiction, and you will lose time and money. A 30-minute consultation with a specialist lawyer can save you months of proceedings.

Further reading: related case law and developments

This decision is part of a consistent line. Already in 2012, the Court of Cassation had held (n° 11-10.921) that an arbitration clause in a franchise agreement was valid, even if the franchisor was a legal entity. In 2016, it specified that the clause must be stipulated in writing, but not necessarily signed (n° 14-28.424).

The trend is clear: judges favour arbitration as a method of resolving commercial disputes. The Law on the Modernisation of Justice of 18 November 2016 further strengthened the validity of arbitration clauses in contracts between professionals. Be careful, however: if the clause is unfair (for example, it designates a single arbitrator chosen by the other party), it may be annulled. But that is the exception.

For the future, we can expect arbitration clauses to become more common in commercial property contracts. Professionals must therefore train themselves in arbitration or surround themselves with advisors. For individuals, the legislator has protected consumers: an arbitration clause in a contract with a non-professional is void (Article L. 211-1 of the Consumer Code). But beware of the boundary: if you are the owner of a commercial premises, you are often considered a professional.

Checklist before acting

• Have I checked whether my contract contains an arbitration clause? Yes / No. If yes, where is it? Is it clear or does it refer to an external text?
• Am I a professional or a consumer? If I am an individual (non-trader), the clause is probably void. If I am a professional, it applies.
• Is the dispute certain? If yes, can I still bring the matter before the court? No, I must go to arbitration. Unless the clause is manifestly void.
• What is the cost and time of arbitration? Find out about arbitration costs (often €5,000 to €20,000) and duration (6 to 12 months). Compare with the court.
• Should I consult a lawyer? Yes, before any action. A lawyer can help you challenge the clause if it is unfair, or prepare for arbitration.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →