Expedia v. hotels – Significant imbalance and public order law: Paris Appeals Court (Pole 5 – Chamber 4, 21 June 2017, RG No 15/18784) partially reverses the judgment of the Paris Commercial Court

Following French Economy Minister’s claim against Expedia on the merit of the significant imbalance created by the best price alignment clauses, the Court of Appeal partly reverses the judgment of the Paris Commercial Court of May 7, 2015.

The contracts all included, from 2008 to 2011, tariff and conditions parity clauses and a last available room clause.

The first clause made it possible to obtain automatically the best pricing conditions and the best promotional offers. The second clause made it compulsory for the hotel to keep all rooms unreserved available for Expedia.

Some proceedings remain pending before the French Competition Authority seized in 2013 by hotel unions against certain clauses of contracts between online booking agencies, including the Expedia group, and hotels concerning Expedia in particular. 

First topic: jurisdiction of French courts

Expedia argued that the French courts had no jurisdiction over this matter since none of the signatories to the contracts was located in France and since, under Article 2.1 of the Brussels I Regulation, signatories to contracts must be sued before Courts of the place of their domicile.

The Court replies that Article L. 442-6 of the Commercial Code provides that the Minister of the Economy may refer cases to the competent courts designated by Article D. 442-3 of the Commercial Code (including Paris) and recalls that the claim is possible by the Minister as a guardian of economic public order in order to protect the market operations and competition and is an autonomous action. Since the Minister does not act as a party to the contract or on the basis thereof, the rules of jurisdiction of the Brussels I Regulation should not apply.

The solution would be fortunately different for another party based on the Court of Justice of the European Union which considers action under contractual liability (EUCJ, July 14, 2016, C-196/15 GRANAROLO).

Second topic: applicable law

The claim of the Minister is not meant to ask for damages further to a breach of contractual obligations, but a public action based on the wrongful conduct of one of the parties to the commercial relationship violating a legal provision (leading to cancellation of clauses). Moreover, the behavior of the defendants cannot be regarded as a breach of contractual obligations but a breach of public order.

The subject-matter of the proceedings does not therefore fall within the scope of contractual liability, but rather of torts.

For the Appeals Court, the parties chose the English law but the Minister, a third party to the contract cannot be considered having consented to this clause. The provision of the contracts designating the English law is thus manifestly unenforceable. Article 4 (1) of the Regulation provides that except as otherwise provided in this Regulation, the law applicable to a non-contractual obligation resulting from a harmful event shall be that of the country where the damage occurs, irrespective of the country in which the operative event of the damage occurs and in whichever country or countries in which indirect consequences arise « . This is French territory. The applicable law is therefore French law. « 

A major point consists in the court describing Article L442-6 I 5 ° of the Commercial Code as a law of police, which we already knew for abuses in terms of payment periods: « Article L. 442-6, I, 2 ° And Article L. 442-6, II (d) of the Commercial Code contains mandatory provisions whose respect is considered crucial for the preservation of a certain equality of weapons and loyalty among economic partners and is therefore indispensable for Economic and social organization. These are loi de police binding on the judge, even if applicable law is foreign law.

Third and last lesson on practices.

Article L. 442-6 of the Commercial Code is not only applicable to the retail sector: this was already known.

A parity clause which requires the hotel to automatically grant Expedia conditions (tariffs, non-tariffs and promotional terms) that are at least as favorable as those granted via other distribution networks (competing platforms, other forms of distribution by third parties Competitors, sales by the hotelier himself on his own site or in the context of the direct sale of his nights), is contrary to Article L. 442-6, II, d).

The contractual clause also guarantees Expedia rates that are at least 25% lower than the best available rates, contrary to Article L. 442-6, II, d) of the Commercial Code, but only as this is aimed at aligning with the best conditions granted to third-party competitors but not, for the hotel’s own distribution channels (on-line sales or direct sales).

The last available occupation clause under which the hotel must reserve to Expedia the last room available on its site is « an alignment guarantee from Expedia on the best terms in terms of availability of rooms ». « This clause in its various versions is therefore contrary to Article L. 442-6, II, d), but under the same reservations of interpretation as the parity clause. »

These clauses are then null and void.

The Court adds that « the clauses are examined in their context, with regard to the global balance of the contract and in concreto. The burden of proof is on the defendant, who should prove that global balance of the contract gives advantages to the defendant’s contractor, correcting the significant imbalance.

 

Frédéric Fournier
Partner