publication
Coronavirus and international commercial contracts: French law perspective (III)
Post title
June 9, 2020
In the two previous articles, we considered whether force majeure or l ‘imprévision could be a legitimate justification to suspend or terminate contractual obligation due to the coronavirus pandemic.
In the third and last part of the series “Coronavirus and international commercial contracts: French law perspective” we define a basic action plan, i.e. a set of practical guidelines for companies encountering problems in the performance of contractual obligations as a consequence of the current Covid-19 crisis.
Our experience shows that in this difficult for everyone period, negotiations, mediation and compromise are the key to reaching amical agreements that protect trade relations from possible court proceedings.
For this reason, we believe that the right strategic approach could minimize the potential negative effects of the epidemic on trade agreements, such as reduced productivity or costs, liability for damages or premature contractual termination.
Review of the binding agreement and risk assessment
As indicated in previous publications, the first step before any reaction is to carefully revise the terms : the rights and obligations, of the binding agreement. Needless to say, this applies to contracts concluded between the parties before the advent of Covid-19: for France before February 28, 2020 (the day the French Ministry of Economy and Finance qualified the coronavirus as a force majeure event in the context of public procurement).
First of all, it is strongly recommended to check force majeure and hardship clauses. In addition, it is also necessary to examine the provisions regarding anticipatory breach, or other exceptional situations where non-performance or improper performance may be justified by special circumstances, as well as revise criminal clauses, forfeiture clauses or exclusion clauses. What is more, the contracting party should review the mechanisms related to the possible delay in obligation performance (an option period, use of the GAP, etc.), the use of termination clauses and default clauses.
Finally, it is necessary to reread the contractual provisions concerning mediation, as well as those relating to dispute resolution, including the applicable law clause and the jurisdiction clause.
Verification of the content of the contract, and its exact wording, is crucial as in many cases, it contains information provisions and details on the notice requirements related to various legal mechanisms that we could potentially use. Respecting such obligations, even though they relate mainly to the form (e.g. notice period – usually delivered “quickly”, a mean of communication used or elements of content to include in the notice) is as important as the choice and proper justification of the legal provision on which we base our action.
The consequences of any contract termination or contract breach should also be evaluated.
Search for alternatives and flexibility
Experience has already shown that the Covid-19 pandemic impacts the businesses both in a short and in a long term. Therefore, in the event of experiencing difficulties in fulfilling an obligation, and before considering terminating it, it is recommended to examine all possible alternatives to meet our contractual engagement. The purpose and importance of this verification lies in maintaining a supply chain continuity. It is also important to remember that the epidemic is not just having consequences on one individual activity; on the contrary, it is a global phenomenon. Thus, the activity of your clients may also be paralyzed, as a result of which your failure to deliver will possibly have an insignificant impact on their business and will not cause them harm.
Communication and consideration of national regulatory frameworks
Communication is a key element in well-functioning business relationships, especially in critical situations such as the one we are currently experiencing. It should be recalled that in international trade, cultural differences should also be taken into account.
In addition, it should be remembered that even within the European Union, each country has its own activities and limitations associated with the coronavirus crisis. Therefore, the measures taken in France do not necessarily relate to, for example, the activities of Polish companies. A coherent approach and understanding of local regulations related to restrictions and emergency measures are very important when developing a strategic plan in times of the current crisis.
The legal framework adapts to the pandemic situation of each country, which is constantly changing. That is why it remains crucial to regularly review legal updates and consult them with the national directives related to their application, in order to understand the legal nuances of each jurisdiction.
In France, art. 11 of the Act adopted on March 23, 2020 allows the government to adopt by June 24, in the form of ordinances, certain measures that previously had to be reviewed and voted by the legislative body[1]. A number of actions have already been taken, including a regulation regarding the non-payment of rents for commercial premises, water and electricity bills by companies experiencing difficulties due to the epidemic. Article 4 of the Regulation provides that companies that have not paid leases for commercial premises and other charges resulting therefrom will not be fined or charged with the late payment interest. The provision applies to payments that were due between March 12 and two months after the announcement of the state health threat by the French government[2]. However, it should be noted that overdue payments are not canceled, but only postponed. Also, these rules only apply to very small companies (less than 10 employees), significantly affected by the crisis, and meeting strictly determined criteria.
Evidence collection and insurance cover
We recommend our clients to obtain and keep all relevant evidence regarding events that have affected the performance of commercial contracts during this period. The causal event may also be important to determine the possible legal justification for the breach of contract, as described in our previous articles about force majeure and hardship. For more information please read our previous publications.
We remind you that every detail of evidence is valuable, as the burden of proof lies on the party who fails to fulfill their obligation.
In addition to reviewing the binding agreement, Verne Legal reminds the importance of the evaluation of available insurance coverage. The effectiveness of a claim often depends on its reactivity. However, reporting dates differ for each insurance policy. The scope of insurance may also vary; some may provide protection in the event of business interruption, while others may cover force majeure events or political risk.
It should be noted that most policies require direct physical loss of ownership, customers or suppliers. However, specific provisions are set out in the general terms of use and insurance notice, which should be carefully considered. By an interim order issued on May 22, 2020, a Commercial Court in Paris ordered an insurance provider to compensate a restaurant owner for operating losses resulting from the sanitary crisis related to the coronavirus.
In relation to the above, it should be recalled that in order to assess each contractual situation, a detailed factual analysis is necessary. Verne Legal Team is there to assist all companies on their contractual situation as well as other obligatory measures that apply to businesses having their businesses activity in France. For daily updates, follow us on LinkedIn.
Iga Kurowska Ewa Kaluzinska
Verne Legal, Partner Verne Legal, Partner
Verne Legal provides a customized legal and tax advisory service to both French and foreign companies. It advises clients in running their business in France, offering strategic assistance enriched by multicultural sensitivity. For more information on business and tax law in France, we invite you to download “Doing business in France ” e-book and to contact our team at info@vernelegal.com.
[1] Art.11 of Act No. 2020-290 of March 23, 2020 a state of emergency aimed at tackling the Covid-19 epidemic (published in the Journal of Laws on March 24)
[2] Art. 4 of Regulation 2020-316 of 25 March 2020 “relating to the payment of rents, water, gas and electricity bills related to the professional premises of companies whose activities are affected by the spread of the COVID-19 epidemic”
How do we apply LegalTech solutions? Ewa Kaluzinska’s interview for LegalTech Lab Podcast
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June 3, 2020
It is with a great pleasure that we announce that the partner of our law firm, Ewa Kaluzinska, was a guest at LegalTech Lab Podcast, the first podcast in Poland about the digitalization of legal services.
She spoke about the implementation of IT tools in a daily work of the lawfirm, the ways it facilitates the collaboration with a client, especially an international one. She shared her views on benefits and drawbacks of certain technologies and went through an onboarding process of a new LegalTech software.
Verne Legal believes in innovation as a way to improve clients’ experience with a lawfirm. We use solutions enabling our clients to have digitalized board meetings of their companies, revise contracts, have virtual meetings. We opt for digitalization, having at the same time cybersecurity and confidentiality as our priorities. Therefore, we use certified and secured tools created for lawyers, and participate in their improvement or even creation.
You can listen to the episode [PL] in here and follow LegalTech Lab for more content on the topic of digitalization of the legal practice.
Coronavirus and international commercial contracts: French law perspective (II)
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March 30, 2020
In the previous article we have analyzed whether force majeure can be a legitime justification used to suspend or terminate the performance of the contractual obligations due to the coronavirus outbreak. As demonstrated, the answer to that question depends on numerous factors, therefore, we will dedicate the second part of our article series to another mechanism introduced by 2016 reform [1] under the French law – l’imprévision.
Indeed, l’imprévision, known as hardship, could be used as a justification for contract non-performance in case of epidemic situations such as Covid-19.
To start with, we will explain the concept under the French law (I) that is supposedly governing the international commercial contract (II). Next, we will apply it in today’s context of coronavirus outbreak (III).
1. What is hardship (l’imprévision)?
French Civil code defines l’imprévision in its article 1195. Under the French law, a party to a contract entered into on or after October 1, 2016 may ask its co-contractor to renegotiate the terms of the contract if a change of circumstances, unforeseeable at the time of the conclusion of the contract (1), renders its performance excessively onerous (2) and if that party did not agree to bear the risks of such a change of circumstances (3). The above three conditions are thus necessary for hardship to produce its effects.
As opposed to force majeure, in case of hardship the contract performance does not become impossible for one of the parties, but the cost of such performance becomes excessively expensive.
It shall be noted, however, that contractual parties may also have specifically adapted the statutory hardship provision to their particular situation or may have agreed to set aside (have waived) statutory hardship provisions which would result in bearing the risks of an excessive cost of performance due to an unforeseeable change of circumstances.
Furthermore, as opposed to the force majeure which allows for suspension or termination of the contract, in case of hardship provision there are numerous possible outcomes, If the other party refuses the negotiation or if the discussion fails, then the parties may either terminate the contract at a date and under conditions that they agree on, or they can agree to request a judge to adapt the contract to the new circumstances. Moreover, if the parties do not reach an agreement within a reasonable period of time, then either party may request a judge to revise the terms of the contract or to terminate it, at a date and under conditions to be determined by the judge. However, it is essential that during the negotiation, the parties continue to perform the contract obligations.
2. Hardship in the context of international commercial contracts
Although the hardship provision has been introduced in French civil code just recently, it has already been used for some time in international commercial contracts. Article 6.2.2. of UNIDROIT principles [2] defines hardship as a situation where the occurrence of events fundamentally alters the equilibrium of the contract, provided that those events meet given requirements:
(a) the events occur or become known to the disadvantaged party after the conclusion of the contract;
(b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract;
(c) the events are beyond the control of the disadvantaged party; and
(d) the risk of the events was not assumed by the disadvantaged party.
The same definition is provided by the Principles of European Contract Law in its art 6.111.
As it was mentioned for force majeure, when French law is governing the contractual relationship and such concerns cross-border sale of goods, we shall refer to United Nations Convention on Contracts for the International Sale of Goods (CISG), always when its application was not explicitly excluded by the contracting parties. It appears, however, that the hardship provision is not covered by the scope of the CISG.
Although the French courts have not had a change to judge over CISG application in the context of international sales of goods yet, we can imagine their decision would be similar to the one of our Belgian neighbors. In Scafom Internatinoal case [3] from 2009, Belgian Supreme Court have applied article 79 [4] of CISG stating that: “Changed circumstances that were not reasonably foreseeable at the time of the conclusion of the contract and that are unequivocally of a nature to increase the burden of performance of the contract in a disproportionate manner, can, under circumstances, form an impediment in the sense of this provision of the treaty.”
Thus, it can be concluded that it is most probable that the French court would also include hardship in the scope of the article 79 of CISG, in order to follow the art. 7(a) of CISG and fill the gaps in a uniform manner with the general principles which govern the law of international trade.[5]
In any case, the probability of admitting hardship is strengthened by the fact that the only possible alternative to applying article 79 in international contracts of sale of goods would be justified by article 7(b) of CISG which calls for application of law applicable by virtue of the rules of private international law, or the one agreed on in the contract provision. Thus, in case of French law being applicable, we are back to beforementioned article 1195 of French Civil Code.
3. Hardship and coronavirus outbreak
In cases where the COVID-19 pandemic and subsequent measures do not meet the conditions to qualify as force majeureevents, but still make it more onerous for a party to perform its obligations under a contract, we believe that the party may be able to claim the benefit of the statutory hardship provision.
However, as little interpretation of the article 1195 of the French Civil code has been given, we lack clear guidance on the application of this provision. Thus, the wording of the contract is critical here: if the contract is silent on this point, then the judges will be free to interpret the terms of the art. 1195 of French Civil Code. Certain questions may concern the “unforseeability” – whether the COVID-19 pandemic and related preventive measures were “unforeseeable” to the parties to contracts entered into at a time when it was public knowledge that COVID-19 had started spreading, or whether the price is “excessively excessive”.
Giving the above, for companies that are considering issuing hardship notices as well as the companies that are receiving them, it is important to review the relevant agreement together with other contracts binding between the contracting parties. It is also reminded that in order to assess any contractual situation, a fact-specific analysis is required.
More practical aspects of reviewing an international contractual agreement in this critical situation of Coronavirus epidemic will be found in the third part of this article series. Meanwhile, Verne Legal Team is there to assist all companies on their contractual situation as well as other obligatory measures that apply to businesses having their businesses activity in France.
Verne Legal Team is there to assist all companies on their contractual situation as well as other obligatory measures that apply to businesses having their businesses activity in France.
Please be informed that Verne Legal is there to assist all companies having their commercial activity in France. Our team doubles its efforts in order to serve their clients in dealing with the current situation and its consequences.
To guarantee the health and security of our Team, we are available exclusively through phone/email/videoconference:
tel: + 33 (0) 4 30 05 09 04
email: info@vernelegal.com
Iga Kurowska Nicolas Renault
Verne Legal, Partner Verne Legal, Lawyer
Verne Legal provides a customized legal and tax advisory service to both French and foreign companies. It advises clients in running their business in France, offering strategic assistance enriched by multicultural sensitivity. For more information on the tax law in France, we invite you to download “Doing business in France” e-book and to contact our team at info@vernelegal.com.
[1] On October 1, 2016, Order n°2016-131 of February 10, 2016, modifying the French Civil Code provisions on contract law and the general regime and proof of obligations, entered into force.
[2] UNIDROIT Principles of International Commercial Contracts (UPICC)
[3] Belgium 19 June 2009 Court of Cassation [Supreme Court] (Scaform International BV v. Lorraine Tubes S.A.S.) [http://cisgw3.law.pace.edu/cases/090619b1.html].
[4] Under Article 79(1) [CISG], a party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences. The same provision covers force majeure.
[5] Article 7(1) and 7(2) of CISG, such as commented by Harry M. Flechtner, in “The Exemption Provisions of the Sales Convention, Including Comments on “Hardship” Doctrine and the 19 June 2009 Decision of the Belgian Cassation Court” Belgrade Law Review, Year LIX (2011) available online at <http://cisgw3.law.pace.edu/cisg/biblio/flechtner10.html>
Coronavirus and international commercial contracts: French law perspective (I)
Post title
March 19, 2020
Due to the worldwide-spreading epidemic of Covid-19, numerous companies having their business activity in France have been experiencing difficulties with commercial contracts. They either find themselves unable to execute their own obligations or suffer the consequences of such non-performance by supply chain actors. Or most commonly, both.
In this article, Verne Legal demonstrates a brief analysis of a potentially applicable legal principle – force majeure – to the current Covid-19 outbreak.
In that respect, we analyze whether coronavirus outbreak can be admitted as a case of force majeure if the French law is governing the contractual relationship.
Firstly, we will explain what the force majeure exactly means under the French law (I). Secondly, we will present the relevant French case law and its suitability to the current situation (II).
1. What is a force majeure?
Force majeure is an event which is beyond the control of either contractual party, such as a natural disaster, major political event or a serious health crisis. Consequently, a force majeure clause allows a party to suspend or terminate the performance of its obligations under a contract. Being justified by the the occurrence of a force majeure event, it is not liable for a breach of the contract because of such non-performance.
To be qualified as a force majeure the event must meet the below criteria, cumulatively:
1. the relevant event is beyond the applicable party’s control, and as commonly researched by the French courts, is exterior to its actions;
2. the relevant event could not have been reasonably foreseen at the time the contract was entered into; and
3. the effects of such event could be avoided by appropriate measures.
The interesting point is that the same criteria apply to international sale of goods contracts falling under Vienna Convention [1]. Numerous international commercial contracts are concerned given that the Convention is applicable as long as it was not clearly excluded by the parties. The force majeure, qualified as “impediment”, is covered in the article 79.
Does coronavirus qualify as a force majeure under the French law? How have other epidemic situations been treated by the French courts?
2. Past epidemic situations reviewed by the French courts
In a vast majority of cases, French judges have refused to recognize pandemics as events of the force majeure. Such was the case for bacillus plague [2], Dengue virus (DENV) [3] or chikungunya virus (CHIKV)[4].
Regarding the H1N1, an influenza associated with the Spanish flu od 2009, the French courts have decided that the spread of the virus have been largely announced and foreseen, even before any sanitary measures had been adopted [5]. By analogy, it could be considered that the initial date of public information should go back to December 2019, the time when the coronavirus Covid-19 was broadly spreading in China.
We could also question the irresistibility of the current epidemic. In 2009, concerning the beforementioned H1N1, the Court of Appeal of Nancy has judged that “the spreading virus shall not be qualified as irresistible, as only 5% of the population has been concerned and it could have been avoided by the suggested prevention measures” [6]. It shall be reminded that as for March 15, 2020, only 3% of the population have been concerned by the Covid-19 virus. However, it is also worth pointing out that the situation will be appreciated after the fact, and in its global sphere.
Therefore, to assess the irresistible character of the current outbreak, measures such as the ones announced on March 14, 2020 by the French Prime Minister Édouard Philippe, concerning the shutdown of “non-essential” to the existence of the public spaces, would be of significance.
For companies that are considering issuing force majeure notices as well as the companies that are receiving them, it is important to review the wording of the clauses included in the relevant agreement, as well as other contracts binding between the contracting parties.
However, it should be reminded that in order to assess any contractual situation, a fact-specific analysis is required.
More practical aspects of reviewing an international contractual agreement in this critical situation of Coronavirus epidemic will be found in the third part of this article series. The second part will be devoted to another potential legal justification of contract nonperformance: hardship (l’imprévision).
Verne Legal Team is there to assist all companies on their contractual situation as well as other obligatory measures that apply to businesses having their businesses activity in France.
Please be informed that Verne Legal is there to assist all companies having their commercial activity in France. Our team doubles its efforts in order to serve their clients in dealing with the current situation and its consequences.
To guarantee the health and security of our Team, we are available exclusively through phone/email/videoconference:
tel: + 33 (0) 4 30 05 09 04
email: info@vernelegal.com
Ewa Kaluzinska Nicolas Renault Iga Kurowska
Verne Legal, Partner Verne Legal, Lawyer Verne Legal, Partner
Verne Legal provides a customized legal and tax advisory service to both French and foreign companies. It advises clients in running their business in France, offering strategic assistance enriched by multicultural sensitivity. For more information on the tax law in France, we invite you to download “Doing business in France” e-book and to contact our team at info@vernelegal.com.
[1] United Nations Convention on Contracts for the International Sale of Goods (CISG)
[2] CA Paris, 25 septembre 1998
[3] CA Nancy, 22 novembre 2010 – n°09/00003
[4] CA Basse-Terre,17 décembre 2018– n° 17/00739
[5] CA Besançon, 8 janvier 2014 – n°12/02291
[6] CA Nancy, 22 Novembre 2010 – n° 09/00003 « car seulement 5 % de la population a été touchée et que l’on peut s’en prémunir par des mesures de prévention »
Aids for companies in France due to the epidemic of Coronavirus Covid-19
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March 15, 2020
Due to the Covid-19 Coronavirus pandemic, an economic continuity unit was activated by the French government to enhance the management of the impacts it produces on the economy through daily decision-making.
So far, the French government has undertaken the following measures:
- Delays in tax and/or social security payments (URSSAF, taxes):
- If you are a company, you can ask your Corporate Tax Department (service des impôts) to postpone without penalty the payment of your next direct tax payments (down payment ‘corporate tax, payroll tax).
If you have already paid your March dues, you may still have the possibility to oppose the ‘SEPA direct debit’ with your online bank. Otherwise, you can also request a refund from the Corporate Tax Department, after the money transfer is accomplished. - If you are self-employed, we remind you that you can adjust your rate and your advance withholding tax instalments at any time. You can also defer the payment of your withholding taxes on your professional income from one month to another up to three times if your instalments are monthly, or from one quarter to the next one if your instalments are quarterly. All these procedures are accessible via your special space on impots.gouv.fr, section “Gérer mon prélèvement à la source”: any intervention before the 22nd of the month will be taken into account for the following month.
- If you have a monthly payment contract for the payment of your CFE or your property tax, you can suspend it on impots.gouv.fr , or by contacting your Service Direct Debit Center (Centre prélèvement service): the remaining amount will be taken from your balance, without any penalties.
- In the most difficult situations, direct tax discounts can be decided within the framework of an individualized examination upon the request.
- Reinforced support system by the French State and the Banque de France (credit mediation) to negotiate with banks credit rescheduling agreements.
- The mobilization of Bpifrance to guarantee sufficient lines of credit that companies may need because of the epidemic.
- Maintaining employment in companies through the simplified and reinforced partial unemployment system.
- Support of Business mediator in handling conflicts with customers or suppliers.
- Recognition by the State and local authorities of Coronavirus as a case of force majeure for their public markets. Consequently, for all State and local government contracts, the delay penalties will not be applied.
Please be informed that Verne Legal is there to assist all companies having their commercial activity in France. Our team doubles its efforts in order to serve their clients in dealing with the current situation and its consequences.
To guarantee the health and security of our Team, we are available exclusively through phone/email/videoconference:
tel: + 33 (0) 4 30 05 09 04
email: info@vernelegal.com
Iga Kurowska
Verne Legal, Partner
Verne Legal provides a customized legal and tax advisory service to both French and foreign companies. It advises clients in running their business in France, offering strategic assistance enriched by multicultural sensitivity. For more information on the business law in France, we invite you to download “Doing business in France ” e-book and to contact our team at info@vernelegal.com.
Blockchain and the simplification of legal industry companies in France (III)
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March 3, 2020
In previous articles we have discussed how France progresses in the process of digitalization of the business world with a special focus on adoption of blockchain technology.
With this publication, we continue to shed light on how blockchain really participates in the legal corporate services in France.
After having presented in the first article The dematarialized registers of companies (I), and in second – The protection of Intellectual Property (II), we will analyze in this third publication the framework of the dematerialized data room and the use of blockchain in the auditing practice of a business pre-acquisition. The series will be ended with an article about the use of blockchain as a judicial proof, and more exactly about the probative force of information anchored in blockchain (IV).
Two words: security and immediacy
In the first and the second part of Blockchain serie, we briefly recalled the definition of blockchain, presented very schematically its functioning and its exceptional qualities.
One of the definitions we referred to says: “The blockchain is a technology for storing and transmitting information, transparent, secure, and operating without a central control body” [1]
It is therefore a database with encrypted events or elements that are grouped by “blocks” and whose history is frozen and can be traced in a chronological order.
On one hand, all elements are inked in an immutable manner. On the other hand, it is said that they are shared between its different users, without any intermediaries. But the elements remain invisible and therefore confidential because the transmission does not relate to the elements themselves but to a part of code that represents them. They are therefore both mobile and immutable.
This inalterability and confidentiality is very interesting for the field of business law and has started to be exploited for example in the context of audits of mergers and acquisitions.
II. Blockchain and due diligence : the dematerialized and secure data room
The use of blockchain has changed audit practices and influenced the agreements in the context of negotiations prior to merger and acquisition transactions.
The confidentiality of the information shared in the context of negotiations with partners, employees or consultants is a main concern in the context of M&A. Yet A another constraint is linked to complex management of a very large number of documents in a precise and limited period of time.
Today, blockchain technology offers the possibility of securing and simplifying the process, which will strengthen the protection of the interests of the target company.
Following the first contact between the parties, negotiations begin with a letter of intent (LOI) from the potential buyer. The LOI contains, in addition to an initial offer, financial and legal elements which the investor wishes to take note of in order to adjust his proposal.
It is very frequent that at this stage a clause or an autonomous confidentiality agreement, commonly called an NDA (. Eng.Non disclosure agreement) is put in to place insofar as the general law principles of good faith and confidentiality odo not offer sufficient protection because of their great generality.
The effectiveness of an NDA will then consist in its precision. Besides elements such as the recipients of confidential information, or the duration of confidentiality, it will be essential to rigorously identify information which will be considered confidential.
In particular, it will be possible to stipulate a clause providing for anchoring in the Blockchain all documents containing confidential information to ensure proof of their existence.
Indeed, access to target information is given to a certain number of people in the context of a data room. In the past a physical space, nowadays, most commonly it is an online platform regrouping documents covering legal, accounting, financial, tax or social information of the target company.
Beyond a doubt, a virtual data room (VDR) placed on a blockchain offers invaluable advantages in this type of operations. In particular the security and confidentiality of the documents made available, as such are shared without “dispossession”, thus without a risk of modification or destruction. Also, a strict control of access to information only by people who are authorized such access and are clearly identified. Needless to say that the dematerialization represents an obvious facility, especially in cross _border operations with a geographical distance, contributing to cost and time reduction of an audit, .
The efficiency of dematerialized data rooms makes audits accessible even for medium-sized companies or even for small entities. Strengthening the confidentiality and traceability of document consultations considerably limits the insecurity of data rooms. These advances, enabled largely through the use of blockchain, will contribute to the increase in pre-acquisition audits and the securing of these operations.
The use of blockchain will also allow the parties to obtain the necessary evidence in the event of a dispute, the subject that will be addressed in a fourth part of our series on the application of blockchain in the field of business law.
Ewa Kaluzinska Nicolas Renault Iga Kurowska
Verne Legal, Partner Verne Legal, Lawyer Verne Legal, Partner
Verne Legal provides a customized legal and tax advisory service to both French and foreign companies. It advises clients in running their business in France, offering strategic assistance enriched by multicultural sensitivity. For more information on the tax law in France, we invite you to download “Doing business in France” e-book and to contact our team at info@vernelegal.com.
[1] https://blockchainfrance.net/discover-the-blockchain/c-is-what-the-blockchain/
Blockchain and the simplification of legal services for companies in France (II)
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February 3, 2020
The progressive spread of blockchain technology in France greatly contributes to digital transformation of business. In this second article, Verne Legal continues to shed light on the question of what are its real implications on business law services.
After having discussed in the first article the creation of dematerialized company registers, we evoke below the second application of blockchain technology in business law: the protection of intellectual property (II). Please follow us for consequent articles concerning the dematerialized data room (III) and blockchain as a mean of judicial evidence (IV).
Blockchain in two words: security and immediacy
As we saw in the first article, blockchain is a technology of storage and transmission of information aggreged in “blocks”; that is transparent, secure, and operating without any intermediaries. It enables tracing and time stamping the history of the transactions concerned.
It is in fact an asset database of recorded transactions grouped by “blocks”, with new “blocks” being added subsequently to the chain. It is secure and accurate; its history can be easily retraced. The ledger is composed of blocks registered in a chronological order, that is shared across a network of multiple sites but of which each participant has his own copy.
However, why is blockchain so interesting in terms of security?
The system of sharing allows everyone to verify and authenticate each operation. Thus, the modification is impossible and the chain, and therefore the database, becomes immutable.
Undoubtedly, blockchain’s inalterability is very interesting for the legal sector and in particular for the protection of intellectual and industrial property.
Blockchain and intellectual property (IP) protection
The use of blockchain to protect IP rights such as patents, copyright and trademarks in a simple and efficient way has been gaining in popularity.
Indeed, the race for technology transformation gives rise to a very large number of innovation projects that are subject to the requirement of almost instantaneous recording of their development progress.
However, to obtain the copyright, the inventor must be able to demonstrate, firstly, their quality of real creator of the claimed invention, and secondly, their precedence compared to other inventions.
Registration at National Institute of Industrial Property (INPI) of an innovative solution is not possible for all inventions and can turn out to be expensive, especially that usually at this stage the concept has not yet proven its value. Intermediate means used such as the “Soleau” envelope, filing with a bailiff or a notary are either ineffective or equally costly, or both at the same time.
Therefore, as for the IP, the use of blockchain could revolutionize the means of proof of the authorship of the invention and the date of its creation.
Indeed, the blockchain makes it possible to instantly obtain the date and the time of registration of a creation by anchoring it in the database. Thus, if we attach a “hash” to the text describing the invention or creation, we will then have a certain date that can be opposed to the title of prior personal possession.
It can contribute to automathizing the process of invention’s registration, obtaining secure traceability, and auditing the evolution of an invention since every operation concerning it (stages of creation, transfer, license) have been recorded.
Anchoring in blockchain allows obtaining a proof of valid invention design (such as the originality or the name of the country where the object produced from the design was firstly marketed), its status and its evolution. For example, with blockchain, it becomes possible to reproduce the traces of the exploitation of digital works, which is impossible today, and, if necessary, to oppose to certain content usages.
A different use of blockchain technology has found its application in the field of patents. Indeed, each copy produced is recorded in a transaction ledger by means of a unique identification allowing the control of product circulation. This procedure offers among others a possibility of distinguishing authentic products from counterfeit products or even establishing the number of authentic copies in circulation. It will also contribute to fighting the counterfeiting or combatting any other IP rights infringements.
This secure, simplified and inexpensive protection process would also strengthen the position of authors and inventors who today are often helpless in front of the “pillage” of ideas and techniques. Thanks to a platforms offering the anchoring in the blockchain of various elements, a creation born from an idea becomes truly protectable.
This progress in the blockchain application in the IP, which some people do not hesitate to describe as revolutionary, would also upset the current balance of economic forces. As a matter of fact, intangible assets, that are the only real value of new technology companies, and therefore the only guarantee that start-ups can offer to investors.
The way that the elements are stored on blockchain reinforces even more the importance of the intangible assets, as the proof thus established will be valid both in the country of origin and everywhere in the world, as will be explained more in detail in the fourth article of Blockchain serie dedicated to blockchain as a mean of judicial evidence (IV).
In our next article, we will present the third blockchain application in the field of business law: the dematerialization of data rooms (III).
Ewa Kaluzinska Nicolas Renault Iga Kurowska
Verne Legal, Partner Verne Legal, Lawyer Verne Legal, Partner
Verne Legal provides a customized legal and tax advisory service to both French and foreign companies. It advises clients in running their business in France, offering strategic assistance enriched by multicultural sensitivity. For more information on the tax law in France, we invite you to download “Doing business in France” e-book and to contact our team at info@vernelegal.com.
Blockchain and the simplification of legal services for companies in France (I)
France is progressing in the process of
digitalization of the business world with the
adoption of, among others, blockchain technology.
Post title
France is progressing in the process of digitalization of the business world with the adoption of, among others, blockchain technology. What are its real implications on the legal corporate services?
In the series of consequently published articles, Verne Legal is going to present four examples of its real application: the dematerialisation of the company registers (I), the protection of intellectual property rights (II), the dematerialization of data rooms (III) and blockchain as a mean of legal evidence (IV).
Blockchain in two words: security and immediacy
Lately it has been very common to hear about blockchain and its benefits. However, what exactly is this emerging technology and why is it so revolutionary in terms of security ?
According to Blockchain France, “Blockchain is a technology for storing and transmitting information, transparent, secure, and operating without a central review body ” [1].
In other words, it is a database which records transactions by grouping them into “blocks”, which traces their history and that is resistant to any modifications. These events, classified in the chronological order, are shared by different users without being copied each time and without the need of any intermediaries. This sharing mechanism allows everyone to verify and authenticate each operation that is added block by block to the chain. Thus, no modification is possible and the chain, and therefore the database, becomes immutable. And all of this, almost instantly in the fractions of a second.
Undoubtedly, blockchain’s inalterability is very interesting for the legal field.
But in practice, how could one apply the blockchain technology to enhance the legal services for SMEs, mid-caps companies or international groups?
In this article we present the first example of possible use of blockchain in the business law industry: dematerialised company registers.
Blockchain and dematerialised company registers
Since 2017, French regulations have gradually been opening up the possibility of dematerialising the legal registers kept by companies of all forms. By registers, we refer to any records linked to the life of the company, such as the registers of securities movements, the registers of various company decisive bodies (such as the Board of Directors) or the official employee register (mandatory in any organization having employees).
Firstly, France has legalised the blockchain registration of issuing and sale of financial securities, such as the company’s shares (not listed companies). Since then, a register of securities movements of a company, until then obligatorily kept in a paper form, could be dematerialized. Thus, thanks to the blockchain technology, the registers could have an incomparably safer digital form.
Such securisation of the registers and the simplification of their maintenance represent a considerable advance for SMEs, especially for start-ups.
As a matter of fact, a registration in the register constitutes a proof of a share ownership in a joint stock company, such as the French “SAS”. Keeping of records is in fact required by the provisions of the French Commercial Code (Code du commerce) [2] and the French Monetary and Financial Code (Code monétaire et financier) [3]. French commercial courts remind on regular basis that the production of a single order for the movement of securities is not sufficient to presume the legitimate ownership of shares [4]. Thus, with the transaction anchored in the blockchain, investments in French companies are perfectly secure.
The dematerialization of company registers through blockchain technology can also reassure smaller investors: no more danger of their investment in the capital of fast-growing start-ups to be drowned, or even to be lost (yes, it does happen!), following yet another urgent fundraising round.
The last stage of the dematerialisation of registers in France was completed in November 2019, with the dematerialisation of the registers of proceedings. Now, most corporate registers and other documents they record can be kept in a digital form.
Therefore, at this point in time, French companies can establish and store the following corporate documents in an electronic form:
- the minutes of assemblies and the written consultations of partners (or the sole partner when authorized) of a simplified joint stock company (SAS), an anonymous company (SA), a limited liability company (SARL), a company in collective name (SNC), and ordinary limited partnership (SCS) or limited by shares, as well as the register on which they are consigned;
- the attendance registers of the governing body meetings, for example of the Board of Directors and of the supervisory board of a SA company, of its President etc, as well as the minutes of the deliberations of these bodies and the register in which they are kept;
- the registers of collective decisions of the partners of civil companies (for example companies owning real estates as SCI) as well as the minutes of the assemblies and written consultations of partners which are kept there, and the mention of the decisions of the partners resulting from an act related to this register.
In addition, the documents uploaded and stored in the dematerialised register may themselves have an electronic form – namely – be authenticated by an electronic signature.
Furthermore, to fulfill the legal obligations, the electronic signature of documents, when they are drafted or certified, must at least meet the requirements of the advanced electronic signature (unlike the “simple” or “qualified” signature), as provided in the article 26 of the French regulation known as “eIDAS”.
These latest upheavals demonstrate that France is seeking to dematerialise, to an extent of possible, the registers and the documents kept by French companies.
In the next article we will present the second application of the blockchain in the field of business law: Blockchain and the protection of intellectual property rights.
Ewa Kaluzinska Nicolas Renault Iga Kurowska
Verne Legal, Partner Verne Legal, Lawyer Verne Legal, Partner
Verne Legal provides a customized legal and tax advisory service to both French and foreign companies. It advises clients in running their business in France, offering strategic assistance enriched by multicultural sensitivity. For more information on the tax law in France, we invite you to download “Doing business in France” e-book and to contact our team at info@vernelegal.com.
[1] https://blockchainfrance.net/decouvre-la-blockchain/c- is-what-the-blockchain/
[2] Article L. 228-1 of the French Commercial Code
[3] Articles L 211-16 and L 211-17 of the French Monetary and Financial Code
[4] Court of Appeal of Paris, January 11,2018 (n° 16/10056)