On February 16, 2022, the Cour de cassation confirmed that lack of mutual trust is a valid reason for a supplier to refuse to reappoint a former member of its selective distribution network, upholding an important decision of the Paris Court of Appeals in the automotive industry.
Under EU and French law, a supplier can put in place a selective distribution network if three criteria are met. First, a selective network is required to preserve the quality and ensure the proper use of the products being distributed. Second, the supplier must define selection criteria for distributors that are objective and qualitative in nature, and that they are applied in a non-discriminatory manner. Third, the selection criteria must not go beyond that which is necessary for the distribution of the product.
In the case at hand, in 2003, Mercedes-Benz terminated a selective distribution agreement it had entered into with a French car repairer, Garage de Bretagne in 1970. Mercedes-Benz thereafter refused to let Garage de Bretagne rejoin its network. Garage de Bretagne complained before French courts but lost.
In 2014, Mercedes-Benz decided to terminate a separate car repair selective distribution agreement it had concluded with Garage de Bretagne in 2002, effective as of 2016. In 2017, Garage de Bretagne applied to rejoin this network. Mercedes-Benz refused, pointing to the lack of trust between the parties, resulting from the 2003 legal dispute relating to the first distribution agreement between the parties.
Garage de Bretagne challenged Mercedes-Benz’ refusal before the Paris Commercial Court, arguing that it met the selection criteria of the carmaker. The Commercial Court and, subsequently, the Paris Court of Appeals rejected those claims. Both courts found that the lack of mutual trust resulting from the 2003 legal dispute between Garage de Bretagne and Mercedes-Benz was sufficient to justify the carmaker’s termination of the contract and refusal to examine the car dealer’s renewed membership application.
The Cour de cassation ruling
Garage de Bretagne appealed. It argued that (i) Mercedes-Benz abused its right not to contract under French tort law by refusing to consider Garage de Bretagne’s renewed membership application and (ii) under competition law, the head of a selective distribution network cannot refuse candidates who meet the network’s selection criteria. The Cour de cassation dismissed both claims.
First, the Cour de cassation confirmed that Mercedes-Benz had not abused the right not to contract with the car dealer. Mercedes-Benz had acted in good faith, without intention to harm the car dealer and, importantly, Mercedes-Benz could validly refuse to consider the car dealer’s application in light of the previous dispute between the parties and the lack of trust that ensued.
Second, the Cour de cassation found that EU and French competition law do not prohibit a supplier from refusing to appoint a dealer that meets the selective distribution network’s criteria. It is only when (i) the supplier enforces the criteria in a discriminatory manner with the object or effect to distort competition or (ii) the supplier’s refusal to enter into an agreement has such object or effect that the conduct is deemed anticompetitive under Article 101 TFEU.
The Cour de cassation’s judgment clarifies that suppliers can terminate a distribution contract with a distributor and subsequently refuse to consider the distributor’s application to rejoin the network if such termination and refusal are nondiscriminatory in nature, but based on an objective reason. The lack of mutual trust induced by a previous legal dispute qualifies as such an objective reason.
Editor: Anita Magraner Oliver
 Cour de cassation, Commercial division, February 16, 2022, No.20-11.754.
 See in particular ECJ Case 26/76 Metro I, October 25, 1977; ECJ Case C-439/09 Pierre Fabre Dermo-Cosmetics, October 13, 2011; and ECJ Case C-230/16 Coty Germany, December 6, 2017.
 French Commercial Court, ruling of February 21, 2018 and Paris Court of Appeals, ruling of November 27, 2019, No.18/06901.