Business Breakdown: Parent Company Liability and Partner Dependency

TheParis Court of Appeal ruled on the liability of the parent company of the author of a abrupt termination of established business relationships in the event of interference by the latter in the management of her daughter and the criteria to be taken into account in the event of economic dependence of the partner.

This dispute between the companies Vente-privée.com (parent company), Vente-privée logistics (daughter company 100% owned), and Logi-Presse (coming under the rights of Stocklog) (business partner) concerned the termination of the commercial relationship maintained between the latter two regarding logistics services, including the storage of pallets for Vente-privée.com.

In this case, this relationship was initiated by a 2016 contract concluded with the company Vente-privée.com (parent) and then continued without a written contract with the company Vente-privé logistics (daughter) from 2018 onwards on the occasion of the transfer of logistics operations from the parent company to its subsidiary. The relationship ended in 2020 with 4 ½ months written notice.

At first instance, the Commercial Court of Paris ordered Vente-privée.com and Vente-privée logistique to pay compensation to Stocklog for abrupt termination of the commercial relationship considering that an 8-month notice would have been necessary given the economic dependence of the partner.

Vente-privée.com and Vente-privé logistique therefore appealed against:

1. the admissibility of the action against Vente-privée.com (mother),
2. the existence of an established business relationship, and
3. the brutal nature of the breach.

On the first pointt, the sale-private companies tried to defend themselves by invoking the legal autonomy of both mother and daughter entities. However, the Court considered that this autonomy was not sufficient to exclude the liability of the parent company in view of the evidence produced demonstrating its interference in the logistics management of its subsidiary.

On this point, consistent case law holds that a parent company cannot, in this capacity alone, be designated co-responsible for the sudden termination of an established business relationship notified by its subsidiary to its partner (Cass. com., May 20, 2014, No. 12-36.705; Cass. com., May 7, 2019, No.17-27.229).

However, in this case, concrete evidence of interactions and communications between the parent company and the subsidiary’s partner demonstrated a direct involvement of Vente-privée.com in logistics management, despite the formal transfer of activities to its subsidiary.

An email dated 31 December 2018, sent by a logistics operations manager of Vente-privée.com (mother) was particularly decisive in that it contained detailed instructions on invoicing and logistics procedures, and was interpreted by the Court as proof of the interference of Vente-privée.com (mother) in logistics management, despite the official transfer of these activities to its subsidiary in 2018.

According to the Court “evidence of interference in the logistics services, if not the management itself, of the company Vente-privé.com in the definition of the contractual framework of business relations with its subsidiary for logistics services with the company Stocklog”.

On the other points, the Paris Court of Appeal recognized the existence of an established business relationship over four years, but reversed the judgment on the brutal nature of the breach, considering that the four and a half months’ notice was sufficient rejecting the argument relating to the situation of economic dependence of the Company.

To demonstrate such a situation, Stocklog had nevertheless (i) presented figures demonstrating that the turnover achieved with Vente-privée represented an increasing share of its total turnover, reaching 76.47% in 2018 and (ii) reports significant investments, such as the underwriting of commercial leases to meet Vente-privé storage requests, and the hiring of temporary staff.

However, the Court held that economic dependence could not be deducted only from the share of turnover or investments made. She pointed out that Stocklog had not provided sufficient evidence regarding the efforts made to secure new contracts during the notice period, nor demonstrated the specific barriers faced in the market warranting longer notice. This judgment here seems to oppose the traditional position of the Court of Cassation to assess the situation of the victim on the date of notification of the termination without taking into consideration the subsequent circumstances, and in particular his efforts to find or retrain during the notice period (see not. Cass.com, October 4, 2016, No.15-14.025). It is therefore not certain that this judgment will survive a possible appeal in cassation.

This position should perhaps be seen as the wish of the Paris Court of Appeal to strengthen the obligation of a company to provide diversification efforts by situation of economic dependence and to reserve the granting of longer notice only to dependency situations presenting real specific difficulties after the break-up.

In the absence of the Stocklog company to produce such evidence, the vente-privé companies were ultimately not ordered jointly and severally to compensate the damage suffered by the Stocklog company as a result of the termination of the commercial relationshipjudged to be lawful. (Montpellier Court of Appeal, April 30, 2024, No.22/03998)

(Court of Appeal, Paris, Pole 5, Chamber 11, 18 October 2024 – No. 22/13114)