Indemnity Rights of Distributors in France
(See also Information on Indemnity Rights of Commercial Agents in France)
In the event that either a supplier or its distributor terminates the relationship in the absence of reasonable prior notice, the termination will generally be deemed under French law to have constituted a « brutal » termination. Such brutal termination would therefore give rise to the terminated party being entitled to receive an indemnity..
For example, one of our French clients manufactured a medical devise. A Germany company had for over 8 years acted as the sole distributor of the medical device within the European Union (excluding France). The German company sent our client a 6 month termination notice and it would have been difficult for our client to put in place a satisfactory alternate distribution system upon such short notice. The distribution agreement provided that French law was applicable,
We advised our client that, based upon the particular facts, an 18 month termination notice might be deemed to have been reasonable and that grounds for seeking substantial damages existed.
Below is the French Commercial Code provision relating to the damages to be paid to a terminated supplier or distributor.
| Article L442-6 (I. 5) I.-Any producer, trader, manufacturer or person registered in the trades register shall incur civil liability and obligation to indemnify for damage caused, * * * |
Article L442-6 (I. 5°) I.-Engage la responsabilité de son auteur et l’oblige à réparer le préjudice causé le fait, par tout producteur, commerçant, industriel ou personne immatriculée au répertoire des métiers: * * * |
| 5. To break abruptly [brutally], even partially, an established commercial relationship without notice written taking into account the duration of the business relationship and respecting the minimum fixed term of notice, with reference to commercial usage, by inter-professional agreements. When the business relationship for the supply of products under private label, the minimum notice period is double that which would apply if the product was not provided under private label [emphasis added]. In the absence of such agreements, orders of the Minister for the Economy may, for each product category, set, taking into account usage of trade, a minimum notice period and supervise the conditions of termination of business relations, including function of their length. The foregoing shall not preclude the right to cancel without notice in the event of default by the other party of its obligations or in the event of force majeure. When the termination of the business relationship is the result of a competition by remote auction, the minimum notice period is twice that resulting from the application of the provisions of this paragraph in cases where the initial notice, the duration is less six months and one year in other cases; | 5° De rompre brutalement, même partiellement, une relation commerciale établie, sans préavis écrit tenant compte de la durée de la relation commerciale et respectant la durée minimale de préavis déterminée, en référence aux usages du commerce, par des accords interprofessionnels. Lorsque la relation commerciale porte sur la fourniture de produits sous marque de distributeur, la durée minimale de préavis est double de celle qui serait applicable si le produit n’était pas fourni sous marque de distributeur. A défaut de tels accords, des arrêtés du ministre chargé de l’économie peuvent, pour chaque catégorie de produits, fixer, en tenant compte des usages du commerce, un délai minimum de préavis et encadrer les conditions de rupture des relations commerciales, notamment en fonction de leur durée. Les dispositions qui précèdent ne font pas obstacle à la faculté de résiliation sans préavis, en cas d’inexécution par l’autre partie de ses obligations ou en cas de force majeure. Lorsque la rupture de la relation commerciale résulte d’une mise en concurrence par enchères à distance, la durée minimale de préavis est double de celle résultant de l’application des dispositions du présent alinéa dans les cas où la durée du préavis initial est de moins de six mois, et d’au moins un an dans les autres cas ; |
There exists very substantial/voluminous case law on how the amount of « damages » should be determined.
Choice of applicable law
In a transnational supplier /distributor relationship, if the parties have not agreed in writing as the the applicable law, it will be necessary to determine the applicable law. If both parties are located within the European Union. it is quite possible that Article 4 1. (f) of EC Regulation 593/2008 may be relevant. Such Article provides as follows:
| Article 4 Applicable law in the absence of choice
(f) distribution contract shall be governed by the law of the country where the distributor has his habitual residence; |