Business litigation

Commercial litigation: an overview of the challenges facing businesses

No business is immune to litigation. Whether facing a defaulting business partner, a partner whose interests have diverged, or a co-contractor contesting the performance of an agreement, the business leader is confronted with a reality that is often underestimated: commercial litigation is a technical field, with considerable financial and strategic stakes, which calls for a structured and pragmatic approach.

In France, the commercial courts handle several hundred thousand new cases each year. Behind this volume lie a wide variety of situations: unpaid debts, breakdowns in commercial relationships, disputes between partners, and breach of contract. For an SME or a mid-sized company, a dispute that is poorly anticipated or managed can place a lasting strain on cash flow, tie up valuable managerial resources and damage the company’s reputation.

This article provides an overview of the main types of litigation to which companies are exposed — commercial litigation, corporate law litigation, and contractual litigation — as well as practical guidelines for dealing with them effectively.

The courts with jurisdiction over commercial disputes

The Commercial Court (or Economic Activities Court): the court of first instance

The Commercial Court is the natural jurisdiction for business litigation in France. Composed of elected judges drawn from the business world, it has jurisdiction over disputes between traders, disputes relating to commercial acts and collective proceedings (sauvegarde, redressement judiciaire, liquidation judiciaire). Commercial judges bring practical knowledge of commercial practices to the court, which can be an asset in complex cases.

Where one of the parties is not a trader — an association, a self-employed professional or a private individual, for example — jurisdiction passes to the Civil Court, which has specialised divisions within the larger courts.

Note: From 1 January 2025 to 31 December 2028, 12 commercial courts become Economic Activities Courts (TAE): Avignon, Auxerre, Le Havre, Le Mans, Limoges, Lyon, Marseille, Nancy, Nanterre, Paris, Saint-Brieuc and Versailles. These 12 TAEs have the same jurisdiction as commercial courts and take over certain functions from the Civil Courts.

Arbitration and mediation: alternatives not to be overlooked

Arbitration is frequently used in commercial contracts, particularly where several countries are involved. The arbitration clause, inserted into the contract prior to any dispute, sets out the procedures for appointing arbitrators, the seat of arbitration and the applicable law. Arbitral awards rendered in France by institutions such as the Paris Mediation and Arbitration Centre (CMAP) or the International Chamber of Commerce (ICC) become enforceable once exequatur has been granted by a state court.

Mediation, meanwhile, has developed as an alternative dispute resolution (ADR) method recognised under French law. Mediation, whether mandated by contract or by law, is increasingly a prerequisite for bringing a case before a court. In more complex disputes, mediation retains strategic relevance, allowing the commercial relationship to be preserved whilst securing a binding agreement.

Commercial litigation: unpaid debts, unfair competition and wrongful termination

Unpaid debts and payment orders

The recovery of commercial debts is one of the most common sources of disputes between businesses. Where the debt is for a specific amount and arises from a contractual or statutory basis, the creditor may resort to the order for payment procedure provided for in Articles 1405 et seq. of the Code of Civil Procedure. This non-adversarial, swift and inexpensive procedure results in the issuance of an order which, in the absence of opposition from the debtor within one month, becomes enforceable.

In the event of a serious dispute or a recalcitrant debtor, the traditional judicial route remains the most appropriate. Here, the director must be mindful of the five-year limitation period applicable to personal and movable property claims (Article 2224 of the Civil Code), which generally runs from the day on which the holder of the right became aware, or ought to have become aware, of the facts enabling them to take action.

For further information:

• Commercial debt recovery
• Recovery of commercial debts: procedures, time limits and strategy

The abrupt termination of established commercial relationships

Article L. 442-1, II of the Commercial Code — formerly L. 442-6, I, 5° — protects businesses against the abrupt termination of established commercial relationships. To be deemed unfair, the termination must occur without sufficient notice in light of the duration of the relationship and industry practice. Case law has gradually clarified the assessment criteria: length of the relationship, the partner’s economic dependence, and exclusivity or quasi-exclusivity.

The compensable loss corresponds to the loss of gross margin that the aggrieved party could have expected to realise during the notice period to which it should have been entitled. The reasonable notice periods assessed by the courts may vary from a few months to over a year (capped at 18 months).

For further information:

• Abrupt termination of commercial relations
• Abrupt termination of commercial relations compensation calculator

Unfair competition and economic parasitism

Litigation concerning unfair competition is based on the general law of civil liability (Article 1240 of the Civil Code). It requires proof of fault, damage and a causal link. The practices in question can take various forms: denigration of products or services, wrongful imitation, disruption of a competitor’s business through the mass poaching of employees or the poaching of customers.

Economic parasitism, distinct from unfair competition in the strict sense, penalises the act of riding on a competitor’s coattails to benefit at no cost from their investments or reputation. The Court of Cassation has gradually refined the scope of this concept, irrespective of any situation of direct competition between the parties.

For further information: Unfair competition and parasitism

Corporate law litigation: shareholder disputes and governance

Abuse of majority and abuse of minority

Disputes between shareholders constitute one of the most sensitive areas of company law. Abuse of majority power occurs when a decision taken by the majority shareholders is contrary to the company’s interests and adopted with the sole aim of favouring the majority shareholders to the detriment of the minority. Such abuse may be identified, in particular, in decisions regarding the distribution or wrongful withholding of dividends, excessive remuneration of the majority director, or the disposal of assets on abnormal terms.

Abuse of minority rights, which is symmetrical but rarer, penalises the behaviour of a minority shareholder who, by exercising their voting rights contrary to the company’s interests, blocks a transaction necessary for the company’s survival or development, solely to gain a personal advantage.

For further information: Shareholder disputes and post-acquisition litigation

The director’s liability

A director may be held personally liable on several distinct grounds. In relation to the company, this arises from a breach of statutory or articles of association provisions, or from a management fault within the meaning of Article L. 223-22 of the Commercial Code for limited liability companies (SARLs) (and its equivalents for public limited companies (SA) and simplified joint-stock companies (SAS)). A limitation period of three years from the date of the harmful event or its discovery applies to such claims.

Liability may also be incurred directly by third parties who have suffered loss, provided they can demonstrate a fault detachable from the performance of duties. This requirement, established by the Court of Cassation, presupposes that the fault is of a particularly serious nature, incompatible with the normal performance of corporate duties.

For further information: Civil liability of company directors

Action for compulsory transfer and dissolution due to disagreement

In the event of serious disagreement between shareholders paralysing the company’s operations, an application for judicial dissolution may be brought before the court on the basis of Article 1844-7(5) of the Civil Code. This radical and irreversible measure is granted only as a last resort. The courts generally prefer to appoint a provisional director or designate an ad hoc representative tasked, for example, with convening a meeting to resolve the deadlock.

The compulsory transfer of shareholdings, provided for in certain shareholders’ agreements or articles of association, constitutes an alternative to dissolution. Its implementation, however, requires rigorous contractual drafting beforehand, particularly regarding the procedures for excluding a shareholder and assessing the transfer price.

Contractual disputes: non-performance, nullity and liability

Non-performance and its remedies

Since the reform of the law of obligations brought about by Order No. 2016-131 of 10 February 2016, the Civil Code offers the creditor of an unperformed obligation a very wide range of remedies. In the event of non-performance, the creditor may, subject to certain conditions, unilaterally reduce the price, terminate the contract by notice following a formal demand that has gone unheeded, or seek specific performance.

The defence of non-performance, traditionally recognised by case law, has been enshrined in the reform: each party may suspend the performance of its own obligations where the other party fails to perform its own, provided that the breaches are sufficiently serious. One new feature arising from the reform deserves the attention of practitioners: the defence of anticipated non-performance, which allows a party to suspend performance even before the due date where it is clear that the other party will not perform.

Penalty clauses, contractual penalties and their judicial adjustment

The penalty clause sets a fixed amount of damages payable in the event of non-performance or delay. It is a common feature in commercial contracts. However, Article 1231-5 of the Civil Code grants the court a power of adjustment: it may reduce a penalty that is manifestly excessive or increase it if it is derisory. This power of adjustment is a matter of public policy and cannot be excluded by contract.

The nullity of the contract and its consequences

A contract may be set aside on the grounds of a defect in consent (mistake, fraud, duress), lack of capacity, or unlawful content. Relative nullity, which protects a specific interest, must be invoked within five years from the date on which the nullity may be invoked. Absolute nullity, which penalises a breach of public policy, is available to any interested party for the same period.

The practical consequences of nullity deserve particular attention: in principle, it entails the retroactive annulment of the contract and the restitution of the performances exchanged (restitutions). In contracts involving successive performance — distribution contracts, long-term service contracts — restitutions can prove complex and may themselves give rise to separate litigation.

For further information: Non-performance of commercial contracts

Anticipating and managing litigation: the manager’s strategic approach

Strategic assessment of the dispute

When faced with an emerging dispute, the manager’s first decision is often the most decisive. The strategic assessment must cover several areas: the legal strength of the positions involved, the foreseeable cost of the proceedings (fees, costs, contingency provisions), the realistic timeframe for ordinary legal proceedings — often 1 to 2 years at first instance — and the potential impact on business operations or commercial relationships.

This assessment also involves identifying the competent court, the applicable law, and the alternative dispute resolution methods available. In many situations, a well-conducted settlement negotiation leads to a more economically favourable and quicker outcome than legal proceedings.

Contractual safeguards as a preventive measure

The quality of the contract drafting directly determines the company’s exposure to the risk of litigation. Several clauses warrant particular attention: the jurisdiction clause or arbitration clause (choice of dispute resolution method), the applicable law clause, clauses defining the parties’ obligations, liability limitation clauses, and early termination clauses.

In relations between partners, the quality of the shareholders' agreement — and even the articles of association — is crucial to preventing governance deadlocks and ensuring exits take place under satisfactory conditions. An agreement drafted calmly, before any crisis arises, provides a far more workable framework for resolution than one negotiated under pressure.

Conclusion

Commercial litigation is not inevitable, but a reality for which every active business must prepare. Mastering limitation periods, understanding the available remedies and the ability to assess a dispute as soon as it arises are all factors that distinguish reactive management from proactive management.

Conversely, a lack of foresight — both in drafting contracts and when reacting to the first signs of a dispute — systematically amplifies legal and financial risks. In a challenging economic environment, commercial litigation must, above all, be managed as a business risk.