Résumé : Tout le monde connaît la baguette française ou le béret français. Le droit français comporte également des dispositions particulières qui ne sont pas très populaires mais qui doivent être comprises par ceux qui font des affaires en France ou avec des entreprises françaises.
Le texte ci-dessous rédigé en anglais, est consacré à l’article L 442-1 II (anciennement article L 442-6 I 5°) du Code de commerce français qui sanctionne la rupture brutale d’une relation commerciale établie.
Indeed, article L 442-1 II FCC states that " Any producer, trader, or service provider shall be held liable and obliged to make good the damage caused by abruptly breaking off an established business relationship, even partially, without prior written notice commensurate with the duration of the business relationship and consistent with the minimum notice period determined by the multi-sector agreements in line with standard commercial practices.(..)".
Article L 442-1 II FCC is public policy and applies even when the relationships are not formalized through a written contract between the parties ( e.g. when there is a steady flow of sales between a manufacturer and its client).
The relationship can also be pre-contractual [1] or post-contractual. In such a case, to determine the proper notice period, the judge would then take into consideration the duration of the totality of the relation, contractual and post-contractual. [2]
When a contract does exist between the parties and provides for a termination notice period, courts are not bound by the latter and may extend it if it appears insufficient considering the circumstances of the case.
For instance, in a case between a French supplier and its Colombian distributor, a contract had been signed for an initial period of three years, renewable once for the same period, with a three-month notice period for termination.
After eighteen years, the French supplier terminated the contract with three month notice as required by the contract. The Court of appeal stated that the contract had become an open ended contract and that the distributor was entitled to a one year notice period. [3]
Article L 442-1 II FCC is very specific to French law, in comparison particularly with European competition law. It is sometimes analyzed as a reminder of the strong French state hand in the economic field.
At the beginning, this provision was intended to regulate the retail sector as large distributors have the reputation to be quite harsh with their providers.
However, considering its very general wording, article L 442-1 FCC covers every kind of business relation.
Thus, in the past ten years, the number of court decisions concerning article L 442-1 II has grown and French courts have an expansive interpretation of said article.
• What is an “established” relationship ?
If duration is one of the most common criteria of an established relationship, it is not the only one.
The French Supreme Court (“Cour de cassation”) holds that an established commercial relationship exists when there is steady and regular business (and thus not simply a succession of independent contracts) and when the victim of the breach could legitimately expect the business relationship to continue. [4] Courts seek measures of such expectations, including investments realized by the victim, granted exclusivity, product reputation, economic dependence of the victim…etc.
Considering those criteria, the duration of the business relationship that may confer entitlement to article L 442-1 protections may be rather short (for example, 17 months in a case where a firm had benefited from the commercial efforts of the victim and had presented him as its agent). [5]
This being said, and assuming that there is an established relationship between the parties, it is not that easy to calculate the appropriate notice period.
How to determine an appropriate notice period ?
Article L. 442-1 II FCC mentions that the notice period has to be consistent with multi-sector agreements in line with standard commercial practices.
However, the latter are quite scarce. In case of litigation, courts have significant freedom to determine the notice period that the victim should have been granted and thus the damages that the responsible party has to pay.
In this respect, they take into consideration not only the duration of the relationship but also the level of dependence of the victim toward the defaulting party.
Such dependence exists when the victim realizes an important part of its turnover with the other party or does not have alternative solutions (i.e. alternative clients or alternative sources of supply). The Courts, sometimes implicitly, also take into consideration the behavior of the breaching party as an aggravating circumstance (for example, total absence of any notice period or unfairness when a party uses a ground of termination which appears as a pretext).
It is impossible to generalize a calculation method. Very broadly, depending on the specific circumstances of each case and without legal uncertainty, a relationship for a period of less than ten years may lead to a notice period of between six and twelve months, while a relationship of more than twenty years may lead to a notice period of between twelve and twenty months.
However, since the Ordinance dated as of April 24, 2019, the notice period cannot be held insufficient if an eighteen month notice period was respected.
It should be noted that partial breach of a relationship where a party diminishes business progressively, without totally interrupting the business flow may be interpreted as “partial breach” and then be sanctioned accordingly on the basis of article L 442-61 II° FCC. [6]
Considering the above, the damages granted to the victim are calculated generally on the margin it would have made during the appropriate notice period. [7]
The responsible party may also be assessed a civil fine.
Pursuant to article L 442-4 II FCC, the continuation of the relationship or any other temporary measure can be ordered by way of summary proceedings, under pain of a progressive penalty. This may lead to a situation where a party may be compelled to buy goods or services that it does not need.
As regards procedural rules, cases concerning the application of article L 442-4 II FCC have to be brought before some specific commercial courts in first instance and exclusively before the Court of Appeal of Paris in case of appeal
Exceptional possibility of termination without any notice period.
Even if article L 442-1 II FCC is applied broadly, it states that the provision forbidding sudden breach of an established relationship “does not affect the right to terminate without notice in the event of the failure by the other party to perform its obligations or in the event of force majeure”.
Pursuant to case law, the right to terminate the relationship without notice is subject to a requirement of gross misconduct by the other party, such as significant non-payment of delivered goods or unfair practices.
Thus, the party which decides to invoke the fault of the other party to breach the relationship with immediate effect has to be very cautious as it ultimately bears the risk of being disavowed by the court.
In particular, the termination letter has to be carefully drafted, as it will be used as evidence in case of dispute.
The nature of the action grounded on Article L 442-1 II FCC : tort or contract.
Traditionally, French case law would hold that claims based on article L 442-1 II FCC are based in tort.
However, the Granarolo judgement rendered by the European Court of Justice (“ECJ”) on July 14, 2016, placed this in issue. [8]
The case involved an Italian company named Granarolo in a dispute with its French distributor. The latter had introduced a law suit against the manufacturer for sudden breach of an established relationship before the French commercial court of Marseille.
The issue at stake before the ECJ was whether French courts were competent to rule in a case involving corporates from different European member states. This issue was governed by Council Regulation (EC) no 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [9] (“Regulation n° 44/2001”).
The ECJ ruled that Article 5(3) of Regulation n° 44/2001 “must be interpreted as meaning that an action for damages founded on an abrupt termination of a long-standing business relationship, such as the termination at issue in the main proceedings, is not a matter relating to tort, delict or quasi-delict within the meaning of that regulation if a tacit contractual relationship existed between the parties, a matter which is for the referring court to ascertain.”
Application of article L 442-1 II in an international context.
As article L 442-1 II is very specific to French Law, the issues of the competent court and applicable law are debated in the context of international disputes.
Most of the time, the victim will launch its action before French courts and claim the application of French law, but this may be disputed by the defendant.
Firstly, if the parties are bound by a contract, French Courts will give effect to the jurisdiction clauses that such contract may contain, provided that the clause is drafted to include any litigation in relation with the contract. [10]
It would also give effect to arbitration clauses. Recently, the Court of Appeal of Paris decided that French Courts were not competent to rule in a dispute involving a U.S. company and its French distributor, where the distributor was claiming sudden breach of an established relationship. The contract between the parties contained an arbitration clause under the rules of the American Arbitration Association, with the place of the arbitration being set in the State of Arizona. [11]
When no jurisdiction or arbitration clause exists between the parties, French courts would apply their own rule of conflict.
In this respect, in most cases, a French person alleging sudden breach of established relationship can bring its action against a U.S person before French Courts pursuant to article 14 of the French civil code which provides that “An alien, even if not residing in France, may be cited before French courts for the performance of obligations contracted by him in France with a French person ; he may be brought before the courts of France”. It is observed that article 14 applies to legal or natural persons, for tortious as well as for contractual actions.
For its part, a U.S. natural or legal person which is a victim of sudden breach of an established relationship from a French natural or legal person may bring an action before the French courts.
As regards the determination of the applicable law, the situation is quite complex for the time being as the French Supreme Court has not, so far, clearly decided whether or not article L
442-1 II was an international mandatory provision that French courts would apply as a law of the forum.
For its part, the Court of Appeal of Paris considers that, at least as regards international disputes, the action based on article L 442-1 II FCC is contractual and that such provision is a mandatory international provision. [12] This explains why the jurisdiction issue remains of the highest importance for the parties in international disputes based on article L 442-1 II FCC.
Is there a way to limit the application of article L 442-1 II ?
The parties cannot agree in their contract to limit or a fortiori exclude the application of article L 442-1 FCC and a party cannot waive in advance its right to make a claim based on such provision which is considered as mandatory law. However, it is still possible to conclude a settlement ex-post, once the dispute revealed.
As a conclusion, in a strategic point of view, it is highly recommended to consult counsel before terminating a relations with a French business partner or, alternatively, when suffering / anticipating such a breach from the latter.
Valérie SPIGUELAIRE
Partner – ADAMAS Lawfirm
Attorney at law – Member of the Paris Bar
Notes
1. Cour de cassation, Chambre commerciale, May 5 2009, n° 08-11.916
2. Cour de cassation, Chambre commerciale, November 24, 2009, n° 07-19.248
3. Cour d’appel de Versailles, October 14, 2004, n° RG 2003-04512
4. Cour de cassation, Annual report 2008
5. Cour de cassation, Chambre commerciale, May 5, 2009, n° 08-11.916
6. Cour de cassation, chambre commerciale, September 11, 2012, n° 11-14.620,
7. Generally, the courts calculate the damage on the gross margin of the victim. They now tend to use the notion of gross margin on variable costs which is less favorable to the victim.
8. Judgment of the ECJ (Second Chamber) of 14 July 2016.Granarolo SpA v Ambrosi Emmi France SA.
9. Now replaced by Regulation (EC) n° 1215/2012.
10. Cour de cassation, première chambre civile, March 6, 2007, n° 06-10.946
11. Cour d’appel de Paris, March 21, 2018, n° 18/01877
12. Cour d’appel de Paris, November 7, 2018, n° 16/14312
