Termination of a Business relationship
Abruptly breaking off an established business relationship in France
Under the French law, abruptly breaking off an established business relationship can make your company liable and convicted to pay very high damages to the former business partner (Article L. 442-6 – I – 5 °).
The Commercial Code provides for commercial breach of contract after an established business relationship:
“Article L. 442-6
I. – Any producer, trader, manufacturer or person recorded in the trade register48 who commits the following offences shall be held liable and obliged to make good the damage caused:
5° Abruptly breaking off an established business relationship, even partially, without prior written notice commensurate with the duration of the business relationship and consistent with the minimum notice period determined by the multi-sector agreements in line with standard commercial practices. Where the business relationship involves the supply of products bearing the distributor’s brand, the minimum notice period shall be double that which would apply if the products were not supplied under the distributor’s brand. In the absence of such agreements, the orders issued by the Minister for Economic Affairs may determine a minimum notice period for each product category, taking due account of commercial practices, and may lay down conditions for the severing of business relations, in particular based on their duration. The foregoing provisions do not affect the right to terminate without notice in the event of the failure by the other party to perform its obligations or in the event of force majeure.
Where the business relationship is terminated as a result of competitive bidding via distance auction, the minimum notice period is double that of the period resulting from the application of the provisions of this paragraph if the duration of the initial notice period is less than six months, and at least one year in the other cases.”
SUDDEN TERMINATION WITHOUT NOTICE MAY RESULTS IN DAMAGES
Abruptly breaking off an established business relationship means a « unpredictable, sudden, violent » termination (CA Rouen, May 30, 2002, Docket No. 00/00310, JurisData No. 2002-184180).
Damages are granted to the victim of the sudden termination without notice period, if the following evidences are produced:
- TOTAL OR PARTIAL END OF A LONG TIME/ established BUSINESS RELATIONSHIP
- LACK OF WRITTEN NOTICE or NOTICE TOO SHORT considering the duration of the business relationship
- Economic Loss resulting from the absence of a written notice or a notice period too short given the duration of the business relationship.
The termination letter has to be a written evidence of a prior notice period, commensurate with the duration of the business relationship and consistent with the minimum notice period determined by the multi-sector agreements in line with standard commercial practices.
Using a breach of contract to terminate the contract without any notice period can be dangerous. A strategic reflection on the legal consequences of the breaking off an established business relationship has to be done with the assistance of a business lawyer.
Some clauses state that in case of a serious or gross misconduct/breach of contract, the other party may not have to provide a reasonable notice period.
The courts often reject this qualification and consider therefore the termination as: abruptly breaking off an established business relationship.
There are many disputes arising from the termination of a commercial agency contract.
Termination of commercial lease is a very specific issue, which obeys the very complex law of the commercial leases.
Legal proceedings after the breaking off an established business relationship are open to different contracts: distribution of goods, service delivery contracts (advertising contracts, franchise agreement, outsourcing contract, maintenance contract …).
The termination of a commercial contract, whatever its nature, requires in practice compliance with a reasonable notice period in order not to expose the company to legal action.
Damages for breaking off an established business relationship are calculated with the gross margin that the victim of the termination would have perceived during the notice period.
NEGOTIATE A SETTLEMENT
A lawyer in France can negotiate a settlement, in a confidential manner, putting an end to the dispute by preventing any judicial proceedings.