This book provides a wide-ranging review of the European rules relating to distribution: exclusive purchase and exclusive supply, exclusive and selective distribution, motor vehicle distribution, franchises, commercial agents.

French Distribution Law

The freedom not to renew the fixed-term exclusive distribution contract must be exercised without abuse. In making the distributor believe that its contract will be renewed or explicitly promising a renewal and then retracting said promise, the supplier is at fault . Likewise, the non-renewal is abusive where the supplier staggers over time the termination of three indivisible contracts entered in …

False hopes of renewal and staggering of terminations.

The successive motor vehicle regulations in force until 2002 all made the benefit of exemption in case of non-renewal of a fixed-term contract subject to the provision of a minimum six-month notice period . Although the making of the sale of new vehicles subject to the general system applicable to vertical restraints since 1 June 2013  has put an end to the requirement of a fixed notice period, the parties will still have to comply with a reasonable notice period in accordance with the general law which requires, inter alia, compliance with a notice period taking account of the duration of the whole of the commercial relationship where there has been a succession of fixed-term contracts. 

The non-renewal of an exclusive distribution contract is not abusive where the contractual notice period has been complied with  provided that that period is itself in compliance with the legal notice period laid down in Article L. 442-1, II (former Article L. 442-6, I, 5°) of the Commercial Code. The notice period starts from the sending of the notification letter by which the manufacturer informs the dealer of its decision .

Regulation No 123/85 of 12 December 1984, and Regulation No 1475/95 of 28 June 1995, Art. 5(2)(3º); Regulation No 1400/2002 of 31 July 2002, Art. 3(5)(a).

See Regulation No 461/2010 of 27 May 2010, Art. 2 and 3.

Cass. com., 6 January 1987, LawLex200200005702JBJ; 2 May 1990, LawLex200200005781JBJ; 4 January 1994, LawLex200200005362JBJ.

Cass. com., 4 June 1980, LawLex201000000511JBJ, for a letter indicating in this case that the manufacturer will offer the dealer a new contract at the expiry of the pending one provided that it gives up distributing a competing brand.

Contractual notice period or reasonable notice period.

Case law is very strict in respect of investments made as part of a fixed-term contract. By accepting to enter into a fixed-term contract in return for exclusivity, a distributor has taken a risk that it must assume . Thus, where a minimum notice period has been complied with, the dealer's investments cannot make abusive the manufacturer's decision not to renew the contract . 

CA Paris, 14 December 2005, LawLex200600000549JBJ: investments incurred more than ten years before the notice of termination, even not amortized, do not make the termination abusive where the distributor took a risk by accepting to enter into the fixed-term contract in return for territorial exclusivity.

Cass. com., 2 May 1990, LawLex200200005781JBJ; 4 January 1994, LawLex200200005362JBJ, quashing on this issue CA Paris, 13 May 1991, LawLex200200005845JBJ, and on referral, CA Rouen, 9 December 1997, LawLex200200002690JBJ. See also TGI Paris, 21 December 1994, LawLex200200005429JBJ.

Investments.

The freedom not to renew the fixed-term exclusive distribution contract must be exercised without abuse. In making the distributor believe that its contract will be renewed or explicitly promising a renewal and then retracting said promise, the supplier is at fault . Likewise, the non-renewal is abusive where the supplier staggers over time the termination of three indivisible contracts entered into with the same dealer under the specific hypothesis that only the combination of the three contracts is such as to ensure the dealer's financial equilibrium .

CA Paris, 23 October 1998, LawLex200200005145JBJ, approved by Cass. com., 3 July 2001, LawLex200200004368JBJ. Cf. where the supplier did not give any hope of renewal, CA Rouen, 9 December 1997, LawLex200200002690JBJ.

Cass. com., 27 October 1998, LawLex200200005148JBJ, approving CA Paris, 1 March 1996, LawLex200200005543JBJ. See also CA Paris, 29 March 1996, LawLex200200005560JBJ.

The Commission interpreted Article 3 of Regulation No 1400/2002 of 31 July 2002 as imposing an obligation to state reasons for the termination, in order to qualify for the block exemption, in indefinite-term contracts only . This solution complied with national case law which does not make the lawfulness of the renewal subject to the statement of legitimate grounds . Where the contractual notice period has been complied with, the real grounds for non-renewal - insufficient sales , network restructuring , or parallel exports  - have no impact on its validity. This solution has, since motor vehicle distribution came under the vertical restraints regulation in 2013, now become clearly established, as the regulation no longer contains provisions purporting to protect the weaker party.

Explanatory Brochure of Regulation No 1400/2002, question 72. See also, Commission's answer to the questions of the Association européenne des concessionnaires Citroën (question 3).

Cass. com., 6 January 1987, LawLex200200005702JBJ. - Contra, See Cass. com., 6 June 1990, LawLex200200005789JBJ: the fallacious character of the non-renewal ground, drawn of the refusal to sign a crossed agency contract, renders it abusive.

Cass. com., 2 May 1990, LawLex200200005781JBJ.

Cass. com., 3 November 1992, LawLex200200005952JBJ.

Cass. com., 4 January 1994, LawLex200200005362JBJ. See also, in the same case, Cass. com., 10 October 2000, LawLex200200003354JBJ.

No obligation to state reasons.

Two main hypotheses must be distinguished in the case of the pursuit of contractual relations depending on whether it is subject to a specific agreement or a tacit renewal.

In the case of a specific agreement, the parties may agree to extend the contract before its expiry, simply by amending its term and in deciding to pursue the same contract by joint agreement (extension), or decide to renew the contract by concluding a new contract which is identical to the previous one (renewal).

The conclusion of a new contract has considerable consequences, in particular the loss of the guarantees attached to the first contract. 

Most often in matters of distribution, provided that neither of the parties has terminated the contract before its term, they do not establish a specific agreement but continue their relations on expiry of the first.

Does a commercial relationship that continues after the termination of the fixed-term distribution contract give rise to a new master agreement or only to successive sales contracts? Three cases must be distinguished.

Where the contract provides for a tacit renewal clause, the continuation of the relationship gives rise to a new master agreement. Tacit renewal cannot be reduced to a mere extension of the term of the initial contract, but gives rise to a new contract . This principle is particularly important where a surety guarantees the performance of the obligations: in effect, the guarantee owed by the guarantor is limited to transactions related to the initial contract .

Where the contract expressly excludes any tacit renewal, subsequent relations are analyzed as mere successive sales. In such a case, the non-renewal of the exclusive distribution contract does not incur the supplier's liability, according to the traditional rules of contract law . The clause must however be clear and detailed and it is not sufficient to provide that the contract will “automatically” end .

Where the contract does not make any provision with regard to renewal, it is deemed to be tacitly renewed if the business relationship is carried on after its expiry . The parties' intention to renew the contract may be demonstrated from the maintenance of signs, the display by the former distributor of motor vehicles bearing the supplier's brand, supplies made by the latter or the opening by the distributor of a bank account with a subsidiary of the supplier.

To put an end to the tacitly renewed master agreement, the supplier must of course comply with a reasonable notice period . This principle of the general law of contracts must be applied in connection with the provisions of Article L. 442-1, II (former Article L. 442-6, I, 5º) of the Commercial Code which lay down that a reasonable written notice period, which takes account of the duration of the relationship, must be observed. In effect, if a fixed-term contract does not in principle create an established commercial relationship , this is not so in the case of a succession of contracts . In such a case, the terms and conditions of negotiated termination between the parties, and in particular the duration of the notice period to put an end to the fixed-term contract, must comply with Article L. 442-1, II of the Commercial Code . Thus, it has been held that the non-renewal of a one-year fixed-term contract is a sudden termination of an established commercial relationship, even if it expressly excludes tacit renewal where it has been renewed for twenty-three consecutive years .

Where an exclusive distribution agreement is renewed by tacit agreement, it is in the interests of the parties to take care in the drafting of the terms of the new contract.

If the initial contract fixes the duration of the new contract in the event of a tacit renewal, it goes without saying that the new contract will have a fixed term .

In the absence of clear stipulations, particularly when the tacit renewal stems from the material continuation of the contract, the duration and the terms and conditions of the new contract are likely to give rise to disputes and generate much legal uncertainty. It was generally accepted that tacit renewal gave rise to the formation of a new contract generally with the same content as the former, except for its term now of open-ended duration, and, where applicable, clauses separable from the rest of the contract. A controversial judgment has created some legal uncertainty concerning this rule by holding that “subject to provision or intention to the contrary, the tacit renewal of a fixed-term contract, of which expiry of the term has produced its effects, gives rise to a new contract, of indefinite duration, and of which the other elements are not necessarily identical” . The subsequent case law of the commercial chamber of the Court of Cassation seems to show a certain reticence with regard to this solution by referring, relative to the question of the determination of a renewed contract, to the discretion of the trial courts, which must look to the parties' intention . Under these conditions, parties would be advised to ensure that the slightest details relating to terms and duration of a contract stemming from the tacit renewal of an earlier agreement are adjusted accordingly.

See, on that principle, Cass. com., 13 March 1990, LawLex201000000931JBJ, shipping insurance, Cass. com., 22 October 1996, LawLex200200004610JBJ (lease management agreement).

Cass. com., 14 December 2004, LawLex200400003516JBJ.

CA Versailles, 14 May 1996, LawLex200200005567JBJ: the distribution contract cannot be suddenly terminated without abuse after it has been tacitly renewed.

Cass. com., 30 November 1993, LawLex200200005355JBJ: a supplier cannot suddenly terminate a distribution contract tacitly renewed; CA Lyon, 7 May 1999, LawLex200200005209JBJ: a fixed-term contract cannot be unilaterally terminated by the supplier after having been tacitly renewed.

T. com. Alençon, 8 October 2007, LawLex200700001582JBJ, which reminds that where there is not succession of contracts, the termination of a fixed-term contract upon expiry of its term is not sudden.

CA Lyon, 10 April 2003, LawLex200300002497JBJ, succession for approximately 35 years of various exclusive distribution contracts; T. com. Paris, 3 November 2004, LawLex200500005651JBJ; CA Nancy, 10 March 2004, LawLex200400002728JBJ; CA Versailles, 15 March 2007, LawLex200700001811JBJ, succession of contracts for 57 years; CA Paris, 29 November 2007, LawLex200800002226JBJ, succession of contracts for 21 years. Contra, see CA Paris, 29 May 2008, LawLex200800002248JBJ: the renewal twice of a fixed-term distribution contract which expressly excludes any tacit renewal does not allow the dealer to rely on the existence of an established commercial relationship due to the hazard existing at the expiry of each contract.

CA Lyon, 10 April 2003, aforementioned: insufficient 12-month notice period, need to comply with a 20-month notice period given the term of the relationship; CA Versailles, 7 December 2006, LawLex200800000189JBJ; CA Lyon, 8 October 2009, LawLex201000000021JBJ.

CA Paris, 6 May 2009, LawLex201000000091JBJ. Cf. CA Caen, 23 April 2009, LawLex200900001496JBJ: whether Article L. 442-1, II of the Commercial Code applies to all types of relationships, including fixed-term relationship, it is on condition that the party which relies upon it could have reasonably expected the partnership to continue, which is not the case where the contract expressly excludes any tacit renewal after two renewals; CA Rennes, 22 May 2002, LawLex200400002727JBJ: the non-renewal of a one-year fixed-term contract concluded without possibility of tacit renewal does not constitute a sudden termination of an established commercial relationship.

French Distribution Law

306. False hopes of renewal and staggering of terminations.

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306. False hopes of renewal and staggering of terminations.

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