News April 2021 : Two interesting decisions when prosecuted for the sudden termination of an established business relationship
Reminder: According to article L.442-1 - II of the French Commercial Code (former article L 442-6, I, 5 °): “Any producer, trader, or service provider shall be held liable and obliged to make good the damage caused by 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. (...)”
What to remember: The two noteworthy judgments enshrine two arguments commonly used to thwart the action of sudden termination of an established commercial relationship, namely:
- the merits of the breach due to the other party's breach of its obligations
- the lack of established commercial relationship due to the frequent use of calls for tenders
- Paris Court of Appeal, pole 05, 4th chamber, March 24, 2021, Promod v. Paris Première, No 19-15.565: On March 24, the Paris Court of Appeal ruled, to the detriment of a supplier to the company Promod, that the breach inflicted on it by the latter was justified because of the supplier's particularly serious breaches of the ethical charter imposed by Promod on all its suppliers and considered crucial for the maintenance of these relations.
The 4th chamber had, in 2019, rendered a similar judgment (Paris Court of Appeal, March 13, 2019, Monoprix, No 17-21.477); in this case, the company Monoprix had terminated without notice a long-standing commercial relationship, for failure by one of its suppliers to comply with the applicable social and ethical rules. The Paris Court of Appeal then considered the fault to be of sufficient gravity to allow termination without notice in accordance with former article L.442-6 I, 5° of the French Commercial Code (now since article L.442-1 - II of the same code).
What lessons in practice?
For many companies, the « compliance » clauses and adherence to ethical charters remain « style clauses » that are not subject to any particular sanction. This judgment proves that this is not the case and that failure to comply with a « compliance » clause is sufficient to characterize a serious breach justifying immediate termination of the relationship, without the victim of such termination unable to claim any recourse. Pay attention to the « compliance » clauses when negotiating contracts.
- Paris Court of Appeal, April 15, 2021, Gervais Transports v. Hasbro, No 18-15899: In this judgment, the Paris Court of Appeal held that regular recourse to calls for tenders is likely to confer on the commercial relationship, whatever its duration, "a precariousness exclusive of any sudden termination". In this case, for twenty years, Hasbro and the transport company Gervais had been working together following tenders carried out by Hasbro. This relationship ended in 2016, however, when Hasbro notified Gervais that it was not selected for price competitiveness reasons, the transport company then considers itself the victim of a sudden termination of the commercial relations established within the meaning of former article L.442-6, I, 5°, since calls for tenders systematically resulted in the renewal of its contract. However, it is settled case-law (Cour de cassation, October 18, 2017, No 16-15.138) that the “relationship established on the basis of systematic calls for tenders is, in essence, precarious”. The Paris Court notably justifies this case-law by the existence of a hazard, born of systematic competition, which did not allow the partner to legitimately believe in the sustainability of the relationship.
What lessons in practice?
The longevity of the relationship (in this case 20 years) built and renewed following systematic calls for tenders does not necessarily make it an “established commercial relationship” within the meaning of article L.442- 1-II of the French Commercial Code; recourse to a call for tenders characterizing in principle the precariousness of a relationship.
Sarah Temple-Boyer Ambre Boyer
Lawyer Legal intern