Distribution agreement France
In France parties to a longstanding distribution agreement have to adapt the termination notice period, regardless of contractual provisions.
Termination notice period in France after a long-term commercial relationship
Regarding the termination notice period, French courts have determined that the assessment of the duration of the notice period must be based on all circumstances likely to influence its appreciation at the time of the notice, in particular the length of the commercial relationship, the business volume, the commercial activity sector, the victim’s state of economic dependence, possible non-recoverable expenses incurred and the time needed to find a new business partner (Paris Court of Appeal, 13 September 2017, No. 14/23934).
French courts concur to consider that the notice period for the termination of a long-standing business relationship must be calculated on the basis of one month per year of business relationship, with a ceiling that has long been recognized as amounting to approximately two years, and can be extended to three years (Paris Court Appeal, 4 November 2016, No. 14/15362).
Such case law also applies whenever the parties (French or foreign) have included an arbitration clause in their distribution agreement – for instance an ICC arbitration clause – and indicated that French law is applicable.
Further, Article L. 442-6-I 5° of the French Commercial Code expressly sets out that in cases where the commercial relationship concerns the supply of distribution brands, the minimum notice period should amount to the double of the notice period that would apply if the product was not supplied under the distribution brand.
Damages and compensation
French courts and arbitral tribunals concur that any damage caused by a wrongful conduct gives rise to compensation.
In case of an abrupt termination of a long-standing business relationship, French courts consistently recognize that the damage is that caused by the “brutality” of the termination (Paris Court of Appeal, 7 June 2017, No. 14/17158; Court of Cassation, 6 September 2016, No. 15-10.324).
The valuation of the Claimant’s damages are calculated on the basis of the turnover achieved with the commercial partner. French courts compensate the loss of gross margin – the difference between the turnover and the purchase cost of the products – on the turnover that the victim of the termination could have expected to achieve with its partner during the period of insufficient notice if such notice had been executed, equivalent to the gross margin rate of the last financial year (Paris Court of Appeal, 4 November 2016, No. 14/15362; 17 November 2016, No. 15/14350).
Further, the French Court of Cassation grants any victim of a brutal termination due to the non-application of a sufficient notice period the above-mentioned mandatory compensation for the period what the victim would have earned if the notice period would have been respected (Paris Court of Appeal, 12 December 2016, No. 15/10619).
The above case law is also applied by international arbitral tribunals, even when the distributor in not a French national.
The victim of the sudden termination of a long-standing business relationship can also claim damages for the harm caused to its image, moral damages along with restructuring charges (i.e. cost of dismissal), caused by the brutality of the termination.
With respect to the valuation of such damages, courts consider the high dependence between the parties (Paris Court of Appeal, 18 June 2015, No. 14/04455).
This article has been prepared for informational purposes only. It is not a substitute for legal advice addressed to particular circumstances. You should not take or refrain from taking any legal action based upon the information contained herein without first seeking professional, individualized counsel based upon your own circumstances. The hiring of a lawyer is an important decision that should not be based solely upon advertisements.
Information by ALARIS AVOCATS, English speaking lawyers in France (Paris) specialized in French labor law, especially any kinds of Social Plans, dismissal procedures and labor contract clauses.