Costs and Compensation

When a legal battle concludes in France, who bears the financial brunt? Can the unsuccessful party be held accountable for covering the litigation expenses of the victorious side?

According to the French Code of Civil Procedure, the party on the losing end typically shoulders all legal costs, encompassing court fees, translation expenses, expert fees, and attorney charges, if they are regulated. However, there’s a twist: French courts maintain the authority to allocate part or all of the legal costs to the prevailing party. Additionally, courts hold the discretion to impose other financial obligations, such as supplemental attorney fees, beyond the regulated costs. Notably, while courts possess this discretion, there’s little precedent indicating that litigation funding costs fall under this umbrella. Furthermore, any additional sums ordered by the court (under Article 700) are usually determined on a discretionary basis and may not fully cover the actual expenses incurred by the winning party.

In domestic and international arbitration, the tribunal retains the power to decree costs and determine the proportion in which they should be paid. This could conceivably include third-party funding costs of the prevailing party.

Responsibility for Costs

Is a third-party litigation funder liable for adverse costs?

Typically, if the third-party funding agreement stipulates the coverage of adverse costs—an approach common among Continental European funders—the funder is contractually obligated to shield the funded party from such expenses. However, while the funded party may have recourse against the funder based on this contractual obligation, the successful adverse party lacks enforceable rights against the funder, as there’s no reflexive effect of the contractual obligation towards the funded party.

In the absence of a contractual commitment, French law does not provide an independent legal basis for courts to compel a third-party funder to bear adverse costs.

Security Measures

Can courts mandate security for costs from claimants or third parties?

Although the Code of Civil Procedure doesn’t explicitly authorize courts to demand security for costs from claimants or third parties, in practice, parties in domestic litigation may obtain such orders against the opposing party through requests for interim measures. Similarly, in international arbitration, parties have succeeded in obtaining security for costs against funded claimants by petitioning for interim measures, provided they can demonstrate the urgency and irreparable harm necessitating such measures.

Does third-party funding influence the court’s stance on security for costs?

While the presence of third-party funding could potentially impact evaluations of security for costs requests in arbitration proceedings, it’s not inherently sufficient to justify such an order in practice.

Insurance Considerations

Is after-the-event (ATE) insurance prevalent?

In France, ATE insurance isn’t widespread. Although no legal barriers exist, there’s currently no standardized offering available. Nonetheless, reports indicate that some foreign insurers do provide ATE insurance in certain cases. Additionally, if the funder offers an all-inclusive solution encompassing ATE insurance for adverse costs coverage, it can be incorporated into the litigation funding agreement.

On the other hand, legal cost insurance is a common practice in France. Typically arranged preemptively, this insurance offers coverage for specific types of claims, up to the limits outlined in the policy.

For any inquiries regarding your legal proceedings in France, feel free to contact us.

LACOME D’ESTALENX MARQUIS Law Firm specializes in corporate law, mergers and acquisitions, and related transactions (particularly high-level transactions), as well as business litigation. We provide counsel to individuals (business owners, executives, investors, shareholders, etc.) and French and foreign companies in all stages of pre-litigation and litigation proceedings, as well as enforcement procedures.

For several years, the French government has been working to make the creation and the incorporation of companies faster and simpler while preserving the regulations necessary to ensure legal security and transparency.

Registering a company in France is relatively quick (the administrative process takes only a few days). However, there are a few things to keep in mind if you want to establish a business in France.

1. The different types of companies in France

Classically, the types of companies in the French legal system are classified into two categories: limited liability companies and unlimited liability companies.

The companies most used by economic actors are the following:

The simplified joint stock company (Société par Actions simplifiée – SAS)

The limited liability company (Société A Responsabilité Limitée – SARL)

The public limited company (Société Anonyme – SA), mainly used for large-scale projects, this type of company can be listed on the stock exchange

The property investment company (Société Civile Immobilière – SCI), mainly used for real estate investments

However, it is important to note that the French legal system allows the constitution of tailor-made solutions, according to the characteristics of each project, by adapting the by-laws of each type of company and by establishing a shareholders’ agreement.

2. Stages of the registration of a company in France

The registration of a company in France involves the preparation of a certain number of documents that must be submitted to the authorities, in particular (i) a copy of the company’s articles of association, (ii) the deed of appointment of the legal representative(s) of the company, (iii) a list of the names, addresses, professions and nationalities of each of the company’s partners.

It should be noted that no share capital or minimum investment is required for most types of companies in France.

Furthermore, the legal representative of a company may be an individual resident outside France or even another company (with certain limitations depending on the type of company chosen).

3. Opening a bank account

The opening of a bank account in the name of the company in a bank in France is mandatory for the registration of most companies. This step is often the most time-consuming as banks apply extensive verification process related to anti-fraud and money laundering regulations.

However, it is necessary to underline that the opening of a bank account is not compulsory for the registration of certain companies, in particular the property investment company (Société Civile Immobilière – SCI) used for real estate investments.

4. Declaration of the ultimate beneficial owners

As part of the regulations against fraud and money laundering, France has introduced the obligation, when a company is incorporated or modified, to declare to the ultimate the beneficial owner(s) of the company.

This is a declaration mentioning the partners controlling the majority of the company’s shares or voting rights and, if these partners are themselves companies, the final individuals controlling the company registered in France.

This declaration is mandatory and is subject to strict rules.

5. Control of foreign direct investments (FDI)

Finally, it should be noted that a special control and authorization procedure is instituted for certain foreign investments concerning:

Certain sensitive sectors of activity (public order, public security, national defense);

Specific activities that are determined pursuant to a sensitivity test based on various criteria (e.g., target’s customers, nature of products and services, market substitutability, etc.)

Research and development activities involving critical technology.

If you have any questions, please do not hesitate to contact us.

LACOME D’ESTALENX MARQUIS advises on corporate law, mergers and acquisitions, and related transactions (particularly equity transactions). We advise individuals (company directors, executives, investors, shareholders, etc.) and French and foreign companies in all negotiations for the purchase and sale of companies, transfers, acquisitions of equity interests, partnerships and joint ventures, and the restructuring of groups of companies. Our team has developed specific expertise in assisting healthcare professionals (private practitioners, pharmacists, etc.) in the creation and development of their practice and investment structures.