Home Termination of Established Business Relationships— cases in which termination without notice is permitted

Termination of Established Business Relationships— cases in which termination without notice is permitted

Paris Court of Appeals, Division 5, Chamber 4, September 2, 2015 (CHRISTIAN LOUBOUTIN v. ROSENSTEIN CHAUSSURE INC)

Article L 442-6, I, 5° penalizes abrupt termination that occurs “without written notice that takes into account the duration of the commercial relationship and complies with the minimum notice period determined, in accordance with commercial practices, by interprofessional agreements.” This article adds that “when the commercial relationship involves the supply of private-label products, the minimum notice period is twice that which would apply if the product were not supplied as a private-label product.”

To assess whether the notice period is sufficient, the text refers to two factors: (i) the duration of the commercial relationship and (ii) the minimum period determined by interprofessional agreements in accordance with commercial practices.

With regard to the second criterion—“the minimum period determined by industry-wide agreements”—currently, only three such agreements have been concluded to establish the minimum notice period: in the do-it-yourself, automotive, and printing sectors. Where agreements exist that set the notice period, the court may deem compliance with the period thus determined to be sufficient; however, since this period constitutes only a minimum, it does not relieve the court from assessing whether the notice is sufficient.

Whether or not there is an industry-wide agreement establishing the minimum notice period, the adequacy of the notice must be assessed in light of the duration of the business relationship and other circumstances at the time the termination was notified (Cass. com., Nov. 6, 2012, No. 11-24570; Cass. com., Sept. 11, 2012, No. 11-14.620).

The various circumstances taken into account by case law are as follows:

• The distributor’s economic dependence on the supplier due to the significant portion of its revenue derived from its business with that partner (Commercial Cassation, Dec. 2, 2008, No. 08-10.732; Orléans Court of Appeal, Sept. 16, 2010, JurisData No. 2010-029431),
• The existence of an exclusivity agreement between the parties (Douai Court of Appeal, Sept. 29, 2005);
• The financial significance of the business relationship (Commercial Cassation Court, July 7, 2004, No. 03-11.472);
• Investments made in the context of the relationship (Commercial Cassation Court, January 7, 2004, No. 02-12.437)
• The time required to find other clients (Paris Court of Appeal, February 3, 2010, JurisData No. 2010-004324) or a replacement partner (Orléans Court of Appeal, March 31, 2011, JurisData No. 2011-006954) or opportunities for career transition (Versailles Court of Appeal, December 2, 2004, JurisData No. 2004-267459);
• The foreseeability of the termination due to a decline in business relations over the past few months (Paris Court of Appeal, May 19, 2010, JurisData No. 2010-012312) or the difficulty in reaching agreements over the past few years (Commercial Cassation, Sept. 11, 2012, No. 11-14.620).

Furthermore, even if the notice period is of sufficient duration, the contract must continue to be performed under the previous terms throughout the entire notice period. For example, a reduction in the quantities ordered during the notice period constitutes a partial abrupt termination of commercial relations and may be classified as an abrupt termination of commercial relations (Cass. com., Dec. 16, 2014, No. 13-21.363, Ikea Supply v. Green Sofa Dunkerque; Cass. com., Nov. 10, 2009, No. 08-18337 Carrefour v. Legal Le Goût). If the distribution contract provides for territorial exclusivity, such exclusivity must be maintained during the notice period to allow the distributor to reorganize (Cass. com., Feb. 10, 2015, No. 13-26.414).

However, Article L 442-6, I, 5° of the Commercial Code permits termination without notice “in the event of non-performance by the other party of its obligations.” This is the case, for example, when the distributor fails to pay for the goods.

In this case, a luxury shoe manufacturer, CHRISTIAN LOUBOUTIN, notified its distributor, ROSENSTEIN CHAUSSEUR INC, of the termination of their business relationship, giving 19 months’ notice due to ROSENSTEIN CHAUSSEUR INC’s recurring delays in paying for the merchandise. However, this notice could not be carried out due to ROSENSTEIN CHAUSSEUR INC’s failure to pay, resulting in the cancellation of new orders. ROSENSTEIN CHAUSSEUR INC sued CHRISTIAN LOUBOUTIN for damages based on the abrupt termination of established commercial relations under Article L 442-6, I, 5° of the Commercial Code.

In a judgment dated February 21, 2013, the Paris Commercial Court dismissed ROSENSTEIN CHAUSSEUR INC’s claims and ordered it to pay CHRISTIAN LOUBOUTIN the sum of 19,394. 02 euros and 10,000 euros pursuant to Article 700 of the Code of Civil Procedure, finding that ROSENSTEIN CHAUSSEUR INC’s failure to pay the invoices had entitled CHRISTIAN LOUBOUTIN to terminate the commercial relationship without notice and to refuse to fulfill the orders placed.
ROSENSTEIN CHAUSSEUR INC filed an appeal against this judgment.

On September 2, 2015, the Paris Court of Appeals upheld the trial court’s judgment, finding that the termination of the business relationship during the notice period was attributable to ROSENSTEIN CHAUSSEUR INC, which had breached one of its essential obligations, namely the payment of invoices issued by CHRISTIAN LOUBOUTIN, and ordered ROSENSTEIN CHAUSSEUR INC to pay CHRISTIAN LOUBOUTIN the sum of 9,394.02 euros and an additional 10,000 euros pursuant to Article 700 of the Code of Civil Procedure.

 

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