COMPETITION • FRENCH LAW • RESTRICTIVE PRACTICES
Article L. 442-1, II (former Art. L. 442-6, I, 5°) of the Commercial Code punishes the abusive termination, even when partial, of an established commercial relationship without sufficient written notice. Originally intended to apply to acts of de-listing by certain distributors, it is now broadly worded and potentially applicable to most types of business relationship. It places on a legal footing the need to respect a reasonable period of notice that takes into account the length of previous relationships and other factors such as the victim’s possible dependency and its possibilities for reorientation. The offense covers almost all “professionals”, whether the relationship is formalized or not, and even fixed-term contracts. The law nevertheless reserves the right of immediate termination in the event of a case of force majeure or contractual non-performance. Going further, the case law demands the commission of a serious breach of contract. Since the Ordinance of 24 April 2019, in the event of a dispute between the parties over the length of the notice period, the terminating party cannot be held liable for an insufficient period of notice where eighteen months’ notice has been given. Failure to comply with the notice period give rise to an order to pay compensation for the loss of profits of the terminated party that would have been made if the the notice period had been granted.
However, the ordinary law on the termination of established commercial relations cannot derogate from the special rules relative to notice periods. This applies to standard contracts for the public transport of goods, commercial agency agreements, bank loans, commercial leases, and to relations between cooperatives and their members. In addition, the courts recognizes the right of contracting parties to come to a settlement on the conditions of termination and compensation.
A commercial relationship is considered to be established when it is long-lasting and continuous and is characterized by a stable increase in turnover between the partners or at least a significant volume of business. Relationships lasting a few months or one-off orders are not sufficient to form an established commercial relationship. On the other hand, the absence of a written document does not call into question the existence of an established relationship. Similarly, as it is an economic and not a legal concept, an established commercial relationship may concern a series of fixed-term contracts, or exchanges maintained between the partners after the term of their contract.
A commercial relationship may be undermined by the systematic use of calls for tenders before each order for products or services, even if the same operator is always selected, or by contractual restrictions on the renewal of a fixed-term relationship, such as the need to acknowledge the services performed and sign an amendment several months before the expiry date or to reach an agreement on prices for the coming year.
The sudden termination of established commercial relations may be total or partial. The termination is only partial when there is still a flow of trade between the partners. A significant drop in the volume of business between trading partners may thus fall within the scope of the rule. However, Article L. 442-1, II does not apply when a decrease in orders is justified by the client’s financial difficulties or is not the result of a voluntary strategy on its part but of its own decrease in business, which it merely passes on to its supplier. The Court of Cassation considers that the economic crisis in the sector in which the client operates may justify a drop in orders. A reduction in the extent of a service provider’s activities or the loss of an exclusive right is also considered to be a partial termination of an established commercial relationship.
Article L. 442-1 provides that the perpetrator of an abuse of dependency, and in particular the sudden termination of established commercial relations, incurs liability. In addition, as for all breaches of Article L. 442-1, the perpetrator of a sudden termination is liable to a civil fine of EUR 5 million, which may be increased to three times the amount of unduly received advantages or to 5% of the turnover generated in France by the perpetrator in the last fiscal year ended since the fiscal year preceding the one during which the practices in question were implemented.