All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

The interference of the parent company in the affairs of its subsidiary seriously challenges the principle of legal autonomy of companies when it creates a misleading appearance likely to mislead third parties about the identity of their contracting party . Indeed, a holding company must be liable for the debt of its subsidiary if it interferes in its relations with a creditor to the extent of creating an appearance that leads the latter to believe that it is substituting itself for the subsidiary in the execution of a contract . For the parent company to be held jointly liable for the judgments pronounced against its subsidiary for damages suffered by a third company, it must be established that it interfered so much in their relations that the third party could legitimately believe it was their contracting party . The assessment is made on a case-by-case basis. The misleading appearance may arise from the active intervention of the parent company in attempts to resolve the payment difficulties of its subsidiary within the framework of a lease contract  or from a set of documents sent to the subsidiary's contracting party, mixing the emblem and corporate name of the parent company with those of its subsidiary .

The courts, however, consider that a communication agency that has worked for several companies within the same group cannot claim the existence of a single relationship, in the absence of behavior likely to create the legitimate belief that each of these companies represents the others or that the services benefit the entire group . Such an appearance does not necessarily arise from the fact that the companies have a similar name, a registered office address, and identical directors . Indeed, the partial payment by a parent company of a debt that its subsidiary has been formally requested to pay does not alone characterize an interference by the parent company in the execution of the contract . The interference of a company in the operation of its sister companies cannot be established merely by the fact that the termination letter addressed to one of the partners of these companies bears the group's name in the letterhead, as long as it is signed by their legal representative in that capacity , or by elements such as the conduct of a close group policy, the confusion maintained in capital links or registered offices, or the participation of division directors in a meeting . It cannot be retained either as long as, despite a strategy of vertical integration and instructions given to its subsidiaries, the latter have not been deprived of their decision-making autonomy .

Some courts extend to the parent company the liability for an act that in principle falls to the subsidiary, in cases of interference that do not create any misleading appearance. It has indeed been accepted that two companies within the same group must be held jointly liable in the event of a sudden termination notified to a distributor when one of them has interfered in the commercial relations maintained by the other with the latter and has acted in concert with it throughout their ongoing and end-of-contract exchanges . Similarly, the termination may be attributed to the parent company when it has been the sole decision-maker for its subsidiaries both during the establishment of the commercial relationship and its cessation  or when it has always coordinated the performance of the service and responded itself to the formal notice to take a position on the continuation of the relations .

Paris, 6 June 2017, LawLex202200008255JBJ, considering that the involvement of a parent company in the discussion process that led to the liquidation of the company created by its subsidiary is not likely to mislead the other party to the shareholders' agreement about the identity of its contracting party, since, being associated with the project from the outset, it was fully aware of the respective roles of the parent company and its subsidiary.

Cass. com., 3 February 2015, LawLex202200008252JBJ; 26 February 2008, LawLex202200007725JBJ, ruling that a company that interferes in the activities and management of the company it controls by directly taking over its activities and taking actions to ensure the performance of its obligations, is held in solidum with it for the consequences of the poor performance of the maintenance contract it has concluded.

Cass. com., 20 May 2014, LawLex201400000700JBJ; CA Paris, 6 November 2019, LawLex201900001341JBJ, considering that the role of the parent company as the leader of a group of companies is not sufficient to make it jointly liable for the termination pronounced by its subsidiary, as long as the excluded service provider does not demonstrate having dealt with decision-makers from this company.

Paris, 19 September 2018, LawLex201800001367JBJ; 13 September 2017, LawLex201700001423JBJ, considering that the liability of a parent company in the termination of an established commercial relationship can be upheld when it is established that it interfered in the management of its subsidiaries and, in particular, in the decision to terminate.

Paris, 28 November 2019, LawLex201900001488JBJ; 13 November 2013, LawLex201300001608JBJ, holding that the termination of an established commercial relationship is attributable to the parent company that instructed its subsidiaries to cease sourcing from a specific wholesaler, and not to the subsidiaries themselves, despite their own legal personality; Cass. com., 5 July 2016, LawLex201600001291JBJ; 22 June 2022, LawLex202200003355JBJ, adding that the fact that franchise establishments have a legal personality distinct from that of the network head does not preclude the latter from being liable for a termination of commercial relations it effectively imposed on them. - Cf. Paris, 15 October 2015, LawLex201500001276JBJ, ruling that a service provider working for several companies within the same group cannot claim a single relationship even if the contracts were negotiated and terminated by the parent company, as long as it responded individually to each company's orders, invoiced them, and received payments separately, without the parent company's intervention.

CA Paris, 23 June 2016, LawLex201600001234JBJ.

Cass. com., 12 June 2012, LawLex201200000910JBJ; 9 November 2022, LawLex202200009702JBJ, specifying that a parent company is only liable for the debt of a subsidiary if its involvement in the contractual relations of that subsidiary was such as to create, for the latter's co-contractor, a misleading appearance allowing them to legitimately believe that they were also contracting with the parent company; Cass. 3e civ., 13 December 2006, LawLex202200008122JBJ, considering that a landlord cannot sue, on the basis of appearance, the majority shareholder company of the tenant for rental repairs, in the absence of circumstances other than its active involvement in the establishment and arrangement of the premises, which could have legitimately allowed them to believe that the latter lacked management autonomy; Cass. ass. plén., 9 October 2006, LawLex202200008124JBJ.

Cass. 3e civ., 12 December 2019, LawLex202200008253JBJ; Cass. com., 5 February 1991, LawLex202200007744JBJ, holding that a parent company that leads others to believe it is closely involved in the activities of its subsidiary, despite transferring its business branch to the latter through a spin-off and granting it no autonomy, may be held liable for defects attributable to the transferred activity. - Cf. Cass. com., 6 May 1991, LawLex202200007735JBJ, specifying that a service provider cannot be mistaken about the identity of its actual contracting party even if the contract was negotiated by another company in the group, as long as an explanatory note regarding the roles of the different entities involved has been provided.

Cass. com., 2 June 1992, LawLex202200007216JBJ.

CA Paris, 20 March 2014, LawLex201400001745JBJ.

Paris, 3 March 2021, LawLex202100001486JBJ; Cass. 3e civ., 25 February 2004, LawLex202200007753JBJ, considering that the participation of a parent company in the capital of its subsidiary, the use of the same logo by both companies, the presence of the chairman of the parent company's management board at the board meetings of the various companies, statements made by him to the press about the practices of his group, the decision made by the parent company to cease the activity of its subsidiary and the consequent release of the premises leased by the latter, do not justify the creation of a misleading appearance.

Cass. com., 9 November 2022, LawLex202200009702JBJ.

Paris, 17 March 2021, LawLex202100000808JBJ. - Similarly, Cass. com., 11 September 2012, LawLex201200002024JBJ, Contrats Conc. Consom. 2012, No 257, obs. MATHEY; Concurrences 4/2012, 98, obs. FOURGOUX; D. 2013, 735, obs. FERRIER, holding that the parent company of a distribution group cannot, solely by virtue of this status, be designated as jointly responsible for the abrupt termination of an established commercial relationship notified by its subsidiary to one of its suppliers, if it did not personally intervene in this decision.

CA Paris, 3 February 2021, LawLex202100000297JBJ.

279. Interference of the parent company in the affairs of the subsidiary