September 2023 : may the indemnification (due for abrupt termination) be reduced if the victim of the termination has successfully reconverted?

 

 

 

• Context and Legal framework

• Who is concerned ? both the author and victim of an established business relationship

• Which regulation is at stake? What indemnification is due?

Pursuant to article L.442-1-II of the French commercial code, may be held liable any person (manufacturer, supplier, distributor etc.) who terminates an established business relationship « abruptly, even partially » without complying with a written notice taking into account, among other parameters, the duration of the business relationship.

The indemnification that the author of the termination may be sentenced to pay is aimed at repairing the damage suffered by the victime, which, in the first place, should have been granted a notice period reflecting the duration of the established business relationship (capped to 18 months except in cases of aggravating circumstances justifying the award of additional damages).    

Interesting question : May the economic reconversion of the victim after the notification of the termination allow for a reduction of the indemnification due? 

• Answer: not necessarily, as stated in a decision rendered on May 17, 2023 by the Comercial Chamber of the French Supreme Court (“Cour de cassation”), overruling the Court of Appeal’s decision to reduce the amount of the indemnification due based on the post-termination successful economic reconversion of the victim.   The Cour de cassation considers, in this regard, that the duration of the notice period that should bave been granted must be solely appraised based on  circumstances existing at the time of notification, and not in light of circumstances occurring afterwards.   

• Key takeaway : the duration of the notice period (and the amount of the indemnification due) is to be assessed at the time of termination.

• For the party initiating termination :  it is risky and potentially doomed to fail to claim for a lower indemnification based on the fact that the victim of the termination has successfully “bounced back” after the termination.

• For the party undergoing termination : it may be awarded an indemnification based on the damage suffered at the time of termination, even though such damage is no longer « current » and has since been offset by a successful repositioning in the market. 

by Sarah Temple-Boyer

Attorney at law