Thirty years of commercial relationships broken overnight: Is an 18-month notice period sufficient?

Applicable Law

Article L. 442-1 II of the French Commercial Code penalizes any sudden termination of established commercial relationships without written notice that takes into account, notably, the duration of the commercial relationship, with reference to trade practices or interprofessional agreements, as well as the pricing applicable during its term.

Mandatory Notice Period

Article L. 442-1 II provides that in the event of a dispute regarding the duration of the notice period, the terminating party cannot be held liable if they have respected a notice period of 18 months.

Terms of Execution of the Notice Period

Contractual modification cannot occur during the notice period

The Paris Court of Appeal allows parties to reorganize their commercial relationships for economic reasons without completely removing the notice period, provided that it does not result in excessive consequences.

Prior conditions

The French Supreme Court has specified that this notice period must be effective, meaning that during this period, the commercial relationship must continue under the prior conditions, and any modifications likely to be made must not be substantial.

For example, an exclusivity clause cannot be removed

Case law has established that removing the exclusivity of the relationship during the notice period is not permitted.

No Notice Period in the Event of Serious Misconduct

Definition of serious misconduct

The notice period can only be dispensed with in the event of serious misconduct attributable to the party whose relationship is terminated. This is defined as a breach of particular gravity that renders the continuation of the commercial relationship impossible, even temporarily.

Ordinary contractual non-performance or simple economic maladaptation cannot constitute grounds for failing to respect the notice period.

Damages

In accordance with settled case law, compensation for loss is carried out through the payment of an indemnity corresponding to the loss of gross margin during the notice period, calculated on the average of the final years.

Tortious or Contractual Liability

The Commercial Chamber has enshrined the tortious nature of the liability arising from the sudden termination of established commercial relationships, based on Article 1240 of the French Civil Code, thereby rendering any jurisdiction clause unenforceable against the victim.

The competent court is that of the place of damage

Pursuant to Article 46 of the French Code of Civil Procedure, the territorially competent court is that of the place where the damage was suffered, which in this case is Company A’s registered office located in Toulouse.

Specialized courts for notice period disputes

By application of the special provision, Article D. 442-2 of the French Commercial Code designates, for the jurisdiction of the Toulouse Court of Appeal, the Bordeaux Commercial Court as the specially and exclusively competent jurisdiction, this rule being a matter of public policy.