Brutal

termination of established business relationships

Article L. 442-1, II of the Commercial Code expressly provides that the liability of its author is incurred “by any person carrying out production, distribution or service activities to abruptly terminate, even partially,” an established commercial relationship, in the absence of a written notice that takes into account in particular the duration of the commercial relationship, with reference to commercial practices, or interprofessional agreements “and, for the determination of the applicable price during its duration, the economic conditions of the market on which the parties operate”.

The order of 24 April 2019 specified that in the event of a dispute between the parties over the period of notice “the liability of the person responsible for the breach cannot be incurred for an insufficient period of time once he has complied with an 18-month notice period.»

A.Definition of abrupt termination of established business relationships

This tort requires the meeting of two (2) conditions:

  • established business relationships (1.)
  • a sudden break (2.)

1.Established business relationships

1.1. The concept of commercial relationship, understood in the broad sense, covers all types of relations between professionals and leads to the exclusion of all relations between professionals and consumers as well as non-commercial activities.

1.2. The business relationship must be established.

It can be pre-contractual, contractual or post-contractual.

These can be fixed-term or indefinite relationships.

Article L. 442-1, II, of the Commercial Code does not require that relationships have been formalized in writing.

In order to determine whether or not a commercial relationship can be qualified as established, case law takes into account several criteria:

  • the duration of the relationship;
  • the intensity of relationships and the evolution of turnover: case law verifies whether relationships have been monitored and regular. This intensity can take the form of a continuous increase in turnover. A one-off transaction does not constitute an established relationship (CA Versailles, 18 Sept. 2008: CEPC, rapp. 2008-2009, Annex 11, p. 119) as well as operations described as “unusual” (CA Paris, 15 Apr. 2015, No.13/02730) or “precarious” (Cass. com., May 27, 2021, No.19-19.595);
  • continuity (and the legitimate belief of the victim of this continuity) based on the regularity, significance and stability of the relations: the judges verify whether the commercial relationship referred to was intended to continue. (Cass. com., September 15, 2009, No. 08-19.200; Cass.com., March 22, 2023, No.21-22-741)

A succession of one-off contracts may be sufficient to characterize an established commercial relationship (Cass. com., 15 September 2009, No. 08-19.200).

2.Brutal rupture

2.1. The brutality of the termination of an established commercial relationship may result either from the absence of notice or from the insufficient period of notice.

2.1.1. To escape the characterization of sudden termination, the author of the termination must have sent a written notice to his partner notifying him, unequivocally, of the termination of commercial relations. (Cass. com., March 17, 2004, No. 02-17.575).; Cass.com., Sept. 28, 2022, No.21-16.209). In practice, this notice is given by registered letter with acknowledgment of receipt.
2.1.2. To avoid the sanction of sudden termination, the notice must be sufficient.

Article L. 442-1, II, of the Commercial Code specifies that the notice must take into account “the duration of the commercial relationship, with reference to commercial practices, or interprofessional agreements”.

The sufficient notice period is assessed, in accordance with Article L.442-1, II, “in particular”, taking into account the duration of the commercial relationship but also other circumstances at the time of notification of the termination (Cass. com., 9 July 2013, No. 12-20.468; Cass. com., 1 June 2022, No. 20-18.960) without taking into account the elements that occurred after the termination (Cass. com., 17 May 2023, No. 21-24.809).

Other criteria may be taken into account  such as the financial importance of the business relationship, the nature of the products or services, their reputation, the investments made, the state of economic dependence of the victim, the characteristics of the market in question, the difficulty in finding another partner in the market of equivalent rank.

Its maximum duration is 18 months.

Compliance with the contractual notice period is not enough. In the presence of contractual notice, judges must consider whether this notice period takes into account the duration of the commercial relationship and other circumstances at the time of notification of the termination (Cass. com., 22 October 2013, No. 12-19.500; Cass. com., 20 May 2014, No.13-16.398; Cass. com., 28 June 2023, No.22-17.933).

Moreover, the Court of Cassation considered that “the existence of an interprofessional agreement does not exempt the court from examining whether the notice period, which respects the minimum period set by this agreement, takes into account the duration of the commercial relationship and the other circumstances of the case” (Cass. com., 2 Dec. 2008, No.

08-10.731). The same applies if the notice period complies with the minimum period set by simple professional practices (Cass.com, 3 May 2012, No.11-10.544).

2.2. Article L. 442-1 II of the Commercial Code applies to both total and partial termination of commercial relations.

Total termination corresponds to an outright termination of commercial relations.

Partial rupture can take several forms:

significant

  • reduction in the flow of business (Paris Court of Appeal, October 28, 2005, JurisDataNo. 2005-284109); CA Paris, May 28, 2015, No.14/01691);
  • modification of tariff conditions (Cass. Com., February 6, 2007, No. 04-13.178; Cass.com., May 20, 2014, No. 13-16.398);

    • unilateral and substantial

  • modification of the terms of a contract (Cass. Com., March 31, 2021, No.19-14.545);
  • change of organization in the mode of distribution of a supplier  (Cass. Com., 17 March 2004, No. 02-14.751; Cass. com., 3 Feb. 2015, Case No.13-24.592 and 13-25.496 ).

    • significant

  • decrease in orders or partial de-referencing of products require compliance with a sufficient notice period (Cass. com., 24 September 2013, No. 12-24.155; Cass. com., 6 Feb. 2019, No. 17-23.361).

We regularly write articles on the subject of the sudden breakdown of established business relationships. You can find them in the section “the life of the franchisor”, by selecting in the drop-down menu “manage the competition”, then “termination of established business relations“.

B.Sanction for sudden rupture

The principle of specialization of courts set up by the law on the modernization of the economy of August 4, 2008 has reserved the litigation of restrictive practices of competition to certain specialized courts whose headquarters and jurisdiction have been fixed by decree. Also, pursuant to Article 442-4, III of the Commercial Code, the victim of a sudden termination must bring his action before the courts designated in the annexes of Articles D.442-3 and D.442-4 of the same code (eight commercial courts or judicial courts: Marseille, Lille, Paris, Fort-de-France, Bordeaux, Nancy, Lyon, Rennes and Tourcoing).

In accordance with its methodological sheets, the Paris Court of Appeal held that “the damage suffered, which must be assessed on the day of the termination, corresponds to the loss of margin on variable costs, after deduction of any specific fixed cost savings” (CA Paris, 18 November 2020, RG No. 18/22443).

In the event of a sudden termination, even partial, of the established commercial relationship, the person responsible for the termination shall incur civil liability in tort and shall be liable to pay damages.

In addition to compensation for the damage related to the brutality of the termination, the perpetrator may be sentenced to the payment of a civil fine at the request of the Minister in charge of the Economy or the Public Prosecutor’s Office, the amount of which, in accordance with Article L442-4 of the Commercial Code, may not exceed the highest of the following three amounts: five million euros, three times the amount of the benefits unduly received or obtained and  5% of the turnover excluding taxes achieved in France by the perpetrator of the practices during the last financial year closed since the financial year preceding that in which the practices were implemented.

C. Legal exceptions

Article L. 442-1, II, of the Commercial Code expressly provides that the perpetrator of the sudden termination may be exempted from liability “in the event of non-performance by the other party of its obligations or in the event of force majeure”.