France – Sudden termination of international contract

Article 442-1.II of the French Commercial Code (former Article L. 442-6.I.5 °) punishes the termination by a trader of a written contract or an informal business relationship without giving sufficient written prior notice. Over the last twenty years, this article became the recurring legal basis for all compensation actions (up to 18 months of gross margin, plus other damages) when a commercial relationship or a contract ends (totally or even partially).
Therefore, a foreign trader who contracts with a French company should try not to fall under the aegis of this rule (part I) and, if it cannot, should understand and control its implementation (part II).

In a nutshell:

How can a foreign company avoid the risk linked to the « sudden termination of commercial relations » set by French law? 

Foreign companies doing business with a French counterpart should:

• enter, as soon as possible, into a written (frame) agreement with their French suppliers or customers, even for a very simple relation and;
• stipulate a clause in favour of foreign court or arbitration and foreign applicable law while, failing to choose it, they would rather be subject to French courts and laws;

How can a foreign company master the risk linked to the « sudden termination of commercial relations » when French law applies ?
 
Foreign companies doing business with a French counterpart should:

• anticipate a wide scope covering almost all type of commercial relationship or contracts, whether written or not, fixed-term or not;
• check whether its relation/contract is sufficiently long, regular and significant and whether the other party has a legitimate belief in the continuation of this relation/contract;
• give a written notice of termination or non-renewal (or even of a major modification), which length takes mainly into account the duration of the relation, irrespectively of the length of the contractual notice;
• invoke, with cautiousness, force majeure and gross negligence of the party, to set aside “sudden termination”;
• anticipate, in case of insufficient notice, a compensation which amount is the product of the average monthly margin per the length of non-granted prior notice.

To read the full article published on Legalmondo, please click here.

By Christophe HERY, partner – june 2024: