Sudden termination of commercial relations: A pragmatic approach from French Courts

A distributor who was able to continue working normally during a reasonable notice delay with its remaining stock cannot claim indemnities for a wrongful or brutal termination. A decision of March 1, 2017 from the French Civil and commercial supreme Court highlights the pragmatic approach of French judges when ruling on a claim for indemnities related to an alleged brutal termination of commercial relations.

 

Since 2000, a Taiwanese supplier distributed exclusively its products in France through a French distributor .

The Taiwanese supplier decided to reorganize its distribution structure for France. The supplier decided to create a subsidiary in France to distribute its products starting in January 2009. This decision was notified to the French distributor on November 2008.

After less than a month, the French distributor had lost its exclusivity for the French territory. However the French distributor continued working and selling these products. Several orders had been passed by the French distributor between September and December 2008. These orders were fulfilled by the supplier. Deliveries occurred between January 2009 and June 2009.

The distributor considered that the termination was brutal or sudden and therefore claimed damages.

The Court of Appel of Paris ruled that it seemed fair to allow a 6 months notice to terminate a commercial relation of 8 years.

The court however refused to grant indemnities. Appeal Judges considered that deliveries were made for more than 6 months after the notice had been notified.

Therefore, the French distributor had been able to continue working in similar conditions as before during this reasonable notice period. The Court took into account a turnover of 1.5 million euros made by the french distirbutor during this 6 months period representing a commercial margin which was comparable to the activity before the termination. The commercial margin made during the notice period in fact exceeded the calculations of potential indemnities.

The Court of appeal on these grounds dismissed the distributor’s claims ruling no damages had been suffered by the dstributor.

The distributor brought the case to the Supreme Court. The distributor complained that it had lost its exclusivity during the notice period and therefore a reasonable notice hadn’t been given.

The Supreme Court confirmed the appeal decision. It ruled that the Court of appeal had correctly characterized the existence of a normal activity for the distributor during the notice period. Even if the distributor had lost its exclusivity it continued to do business as usual without the exclusivity.

This decision shows that the Courts have a practical analysis of the claimant’s activity during the notice period to assess the existence of damages. Despite modifications to the activity with the loss of an exclusive distribution right, sales continued on a same level and no losses were suffered by the distributor for a brutal termination.

This decision also highlights the fact that judges take into consideration the activity done with the remaining stock. This position limits the risks of seeing distributors raising voluntarily their stocks to be able to continue selling products for longer while still attempting to claim indemnities.

This practical approach allows less opportunities for distributors to actually use the brutal termination to obtain damages which were in fact inexistent due to a persistent activity with the remaining stock.

This position seems more than reasonable and balances the attitude of some distributors trying to benefit as much as possible from the termination.

 

 

Article written by Olivier VIBERT,

Lawyer in Paris

 

 

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