Compliance with legal and regulatory obligations imposed on companies!
On September 27, the French Supreme Court ruled that failure to comply with legal or regulatory obligations necessarily confers an undue competitive advantage on the defaulting company, which avoids the costs of compliance.
Failure to comply may constitute unfair competition, opening the door to compensation claims by competing operators.
In this case, a prepaid card distributor considered itself the victim of unfair competition due to a competitor’s failure to comply with anti-money laundering and counter-terrorist financing (“AML/CFT”) regulations.
Elle a demandé, dans le cadre d’une procédure en référé, la communication de documents comptables qu’elle estimait nécessaire au chiffrage de son préjudice pour une future action en réparation d’actes de concurrence déloyale.
The question at the heart of the dispute was: can failure to comply with a regulation constitute a fault likely to engage the civil liability of its author?
The Court of Appeal answered this question in the affirmative, a point confirmed by the French Supreme Court:
“Compliance by a company with the obligations imposed by Articles L.561-1 et seq. of the French Monetary and Financial Code to combat money laundering and the financing of terrorism necessarily entails additional costs.
As a result, a competitor’s failure to comply confers an undue advantage, which may constitute unfair competition.
In other words, failure to comply with a regulation necessarily confers an undue advantage. This advantage can be analyzed as an act of unfair competition against another company, but is not necessarily so. It is up to the judge to assess, on a case-by-case basis, whether or not there is unfair competition.
This solution was not always obvious.
Indeed, LCB-FT rules protect the public interest and the integrity of the banking and financial system. Their primary aim is to prevent the occurrence of collective harm (objective harm). Indeed, it is this collective dimension that justifies the competence of administrative authorities, as representatives of the general interest, to impose sanctions and/or issue mandatory rules.
The Cour de cassation tells us here that failure to comply with legal or regulatory obligations also and necessarily creates an undue competitive advantage for the defaulting economic operator, in that it can save the costs of compliance. This competitive advantage can cause personal harm to competitors (subjective harm) in addition to harm to the community. Cela brouille la dichotomie traditionnelle entre préjudice objectif et subjectif : le préjudice causé à l’intérêt collectif n’exclut pas l’existence d’un préjudice individuel subi par les concurrents.
This important decision continues a line of jurisprudence initiated by a 2010 ruling in which the Cour de cassation began by admitting that it was possible for failure to comply with a regulation (on bicycle safety) to place a company in an abnormally favorable situation compared with its competitors, and thus justify civil liability¹. Since this first ruling, the French Supreme Court has had occasion to recognize that failure to comply with a regulation in the exercise of a commercial activity necessarily confers an undue competitive advantage constituting an act of unfair competition².
The Cour de cassation’s solution in its September 27 ruling is therefore not limited to LCB-FT rules. Any failure to comply with mandatory compliance obligations is likely to constitute an act of unfair competition.
The Cour de cassation and the Cour d’appel de Paris have also had occasion to adopt the same solution with regard to insolvency proceedings³ or personal data protection regulations⁴.
As a reminder (ACTU by NMCG, April 2023), the Grenoble Court of Appeal ruled that failure to comply with personal data protection regulations could be grounds for cancelling a contract between an IT service provider and its customer5.
A company that fails to comply not only exposes itself to administrative sanctions, but also to private actions by competitors on the grounds of unfair competition, or by commercial partners on the grounds of contractual nullity.
The Cour de cassation’s solution is all the more important given the general legislative context of increasing compliance rules imposed on companies. We’re obviously thinking of personal data protection, but environmental and ecological transition obligations are also attracting a lot of attention.
Finally, we would like to point out that the September 27 decision was taken in the context of a summary procedure. In other words, measures of instruction (such as the communication of documents, for example) can be ordered and justified by the mere finding of a breach of regulatory texts, even before the trial judge has decided whether the behavior complained of should actually be qualified as unfair competition.
1Cass., com., September 28, 2010, n°09-69.272
2Cass., com., February 12, 2020, n°17-31.614
3Cass., com., March 17, 2021, n°19-10.414
4CA Paris, November 9, 2022, n°21-00180
5CA Grenoble, January 12, 2023, n°21/03701 commented in L’ACTU by NMCG, n°91, April 2023.