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Q&A on Distribution Agreements

Part 1: Legislative framework

Q1. Please specify the legislative framework generally applicable to the conclusion and execution of distribution agreements (a)? Please include a link to the official publication of the applicable rules (e.g., relevant link to the Official Gazette) (b) and, if available, to the English translation of the legislative framework (c).

a. Legislative framework:

General terms and conditions of sale: Art. L.441-1 and L.441-2 French Commercial Code.

General terms and conditions of sale for specific food and petfood products: Article L. 441-1-1 of the French Commercial Code

Specific distribution agreements: 

  • Art. L.441-3 to L.441-7 French Commercial Code
  • Art. L. 443-2 French Commercial Code
  • Art. L. 443-8 of the French Commercial Code

Exclusivity clauses: Art. L.330-1 to L.330-3 and Art. R. 330-1 French Commercial Code 

Restrictive competition practices: Art. L.442-1 to L.442-7 French Commercial Code

Anticompetitive practices: Art. L. 420-1 to L. 420-6 French Commercial Code

b. Link(s) to official publication:

General terms and conditions of sale: Art. L.441-1 and L.441-2 French Commercial Code

General terms and conditions of sale for specific food and petfood products: Art. L. 441-1-1 French Commercial Code

Specific distribution agreements: Art. L.441-3 to L.441-7,  Art. L. 443-2 and L. 443-8 French Commercial Code

Exclusivity clauses: Art. L.330-1 to L.330-3 and Art. R. 330-1 French Commercial Code

Restrictive competition practices: Art. L.442-1 to L.442-7 French Commercial Code

Anticompetitive practices: Art. L. 420-1 to L. 420-6 French Commercial Code

c. Link(s) to English translation:

An English translation of the French Commercial Code is accessible via this link

Q2. Other than for agency agreements pursuant to Directive 86/653 (EEC) on the coordination of the laws of the Member States relating to self-employed commercial agents, are there specific rules depending on the distribution format (e.g. franchising, exclusive distribution)?

Yes.

If yes, which specific rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and, if available, to the English translation of the legislative framework (c).

a. Specific rules depending on distribution format:

Exclusivity clauses are regulated in Art. L. 330-1, L. 330-2 and R. 330-1 French Commercial Code.

b. Link(s) to official publication:

Art. L. 330-1, L. 330-2 and R. 330-1 French Commercial Code.

c. Link(s) to English translation:

An English translation of the French Commercial Code is accessible via this link

Q3. Other than general contract law and competition law, are there other rules which may generally restrict the parties when drafting and concluding distribution agreements (e.g., rules in relation to unfair contract terms in B2B agreements, specific requirements in the context of a prohibition of abuse of economic dependence)?

Yes.

If yes, which general rules apply (a)? Where available, please also include a link to the official publication of the applicable rules (b) and to the English translation of the regulatory framework (c).

a. General rules:

French law contains specific provisions regarding B2B relationships which should be taken into account by the parties when they negotiate, conclude and execute distribution agreements.

1. Restrictive competition practices regarding B2B agreements (Art. L. 442-1 and L. 442-3 French Commercial Code)

Any party carrying out production, distribution or service activities who commits one of the following offences during the negotiation, conclusion or performance of an agreement shall be held liable: 

  • obtaining or seeking to obtain from the other party an advantage which does not correspond to any counterpart or which is manifestly disproportionate to the value of the counterpart given (Art. L. 442-1 I. °1 French Commercial Code); 
  • subjecting or seeking to subject the other party to obligations that create a significant imbalance in the rights and obligations of the parties (Art. L. 442-1 I. 2° French Commercial Code); 
  • imposing logistical penalties not complying with Art. L. 441-17 French Commercial Code (Art. 442-1 I. 3° French Commercial Code);
  • with regard to food products and petfood products subject to the provisions of I of Art. L. 441-1-1, to practise, with regard to the other party, or to obtain from it discriminatory prices, terms of payment, conditions of sale or terms of sale or purchase and not justified by real counterparts or considerations provided for by the agreement mentioned in Art. L. 443-8 by creating, as a result, for this party, a disadvantage or an advantage in competition (Art. L. 442-1 I. 4°);
  • benefitting retroactively from discounts, rebates or commercial cooperation agreements (Art. L. 442-3 a. French Commercial Code); 
  • benefitting automatically from more favourable conditions granted to competing undertakings by the contracting party (Art. L. 442-3 b. French Commercial Code); 
  • prohibiting the other party from transferring its claims on the other party to third parties (Art. L. 442-3 c. French Commercial Code).

Sanctions:  

  • regarding Art. L. 442-1 French Commercial Code, the violation of its provisions may result in the infringer’s liability and compensation for the damage thus caused;
  • regarding Art. L. 442-3 French Commercial Code, the clauses shall be deemed null and void.

For the practices mentioned in Art. L. 442-1 and L. 442-3 French Commercial Code, the French minister for Economic Affairs and Finance may: 

  • ask the court to which the case is referred to order that the practices above mentioned be ceased;
  • for all these practices, request a declaration of nullity of the illegal clauses or agreements and the recovery of the mistaken payments;
  • request the imposition of a civil fine, the amount of which may not exceed the highest of three following amounts:
    • five million euros;
    • three times the amount of the benefits unduly received or obtained;
    • 5% of the turnover net of tax achieved in France by the perpetrator of the practices achieved in one of the financial years ended after the financial year preceding that in which the practices were implemented.

 2. Abuse of the state of economic dependence in B2B agreements (Art. L. 420-2 French Commercial Code)

In addition to the previous behaviours, abuse of the state of economic dependence is considered illegal. Three criteria are necessary to constitute this offence, which the French case law rarely considers fulfilled: 

  • firstly, the existence of a state of economic dependence of one undertaking on another is required. This state is characterised by a situation in which one undertaking is obliged to continue trading with another when it is impossible for the undertaking  to obtain supplies or substitutable products under equivalent conditions (Cour de cassation, chambre commerciale, April 8, 2002, case n° 00-13.921); 
  • secondly, this situation must be abused by the undertaking on which the other party is dependent. Such abuse can be expressed by a brutal increase in prices;
  • thirdly, and lastly, such behaviour must have an actual or potential effect on the structure or functioning of competition (Art. L. 420-2 paragraph 2 French Commercial Code).

Sanctions: 

  • any agreement relating to this prohibited practice is null and void (Art. L. 420-3 French Commercial Code); 
  • the French Competition Authority can sanction the company involved by a maximum fine of 10 % of the highest worldwide turnover, net of tax, achieved in one of the financial years preceding that in which the practices were implemented (Art. L. 464-2 French Commercial Code); 
  • any physical person fraudulently taking a personal and decisive part in the design, organisation or implementation of such practices is subject to a prison sentence of four years and a fine of 75,000 Euros (Art. L. 420-6 French Commercial Code).

b. Link(s) to official publication:

Restrictive competition practices: Art. L. 441-17 and  Art. L.442-1 to L.442-7  French Commercial Code

Anticompetitive practices: Art. L. 420-1 to L. 420-6 French Commercial Code and Art. L. 464-2 French Commercial Code

c. Link(s) to English translation:

An English translation of the French Commercial Code is accessible via this link

Part 2: Pre-contractual phase

Q4. Are there mandatory provisions in relation to the disclosure of pre-contractual information prior to concluding and/or executing distribution agreements?

Yes. 

If yes, which mandatory provisions apply (a) and which information must be disclosed (b)? Where available, please also include a link to the official publication of the applicable rules (c) and, if available, to the English translation of the regulatory framework (d).

a. Mandatory provisions:

General provisions: Art. 1112-1 French Civil Code

Exclusivity clauses: Art. L. 330-3 and R. 330-1 French Commercial Code

General terms and conditions of sale: Art. L. 441-1 and L. 441-2 French Commercial Code

General terms and conditions of sale for specific food and petfood products: Art. L. 441-1-1 French Commercial Code

Specific distribution agreements: Art. L. 443-4 French Commercial Code

b. Information to be disclosed:

The French Civil Code contains general provisions concerning pre-contractual information (1). The French Commercial Code adds additional requirements, some of which are specific to certain distribution relationships (2).

1. General provisions of the French Civil Code

The French Civil Code provides for a general obligation to inform the co-contractor. The parties may neither limit nor exclude this obligation. In addition to the liability of the party required to provide information, the violation of this obligation can result in the annulment of the agreement (Art. 1112-1 French Civil Code).

The party who knows information that is of decisive importance for the consent of the other party must inform him of it when the latter does not legitimately know the information or relies on the contracting party for such information. However, this duty to inform does not cover the assessment of the value of the act of performance. Information which has a direct and necessary connection with the content of the agreement or the quality of the parties is deemed decisive (Art. 1112-1 French Civil Code).

2. Specific provisions of the French Commercial Code

2.1. In general terms and conditions of sale

Any party engaged in production, distribution or service activities establishing general terms and conditions of sale shall be obliged to communicate them to any purchaser who requests them for a professional activity (Art. L. 441-1 and L. 441-2 French Commercial Code).

When the parties are subject to Art. L. 441-3 and L. 441-4 French Commercial Code, general terms and conditions of sale shall be communicated to the distributor within a specific period: 

  • for mass-marked products: before December 1 of each year (Art. L. 441-4, French Commercial Code);
  • for other products: within a reasonable timeframe before March 1 of each year, except where the agreement has a duration of two or three years (Art. L. 441-3 French Commercial Code).

General terms and conditions of sale shall include, in particular, the terms of payment, as well as the elements for determining the price, such as unit prices and price reductions (Art. L.441-1 and L. 441-10 French Commercial Code).

Additional information shall be specified in the general terms and conditions of sale for specific food and petfood products (Art. L.441-1-1, French Commercial Code)

2.2. In exclusivity or quasi-exclusivity relationships

There is a specific obligation regarding distribution agreements that applies especially to franchise agreements and exclusive sales concessions. Any party who provides to another party a trade name, trademark or corporate name, requiring from that party exclusivity or quasi-exclusivity for the exercise of his activity, shall be required, prior to the signature of any agreement between both parties, to provide for the other party a document giving accurate information, enabling him to make a commitment in full knowledge of the facts. This information must be provided at least twenty days before the signature of the agreement (Art. L. 330-3 French Commercial Code).

The aforementioned document shall mention, in particular, the seniority and experience of the business, the state and development prospects of the relevant market concerned, the size of the network of operators, the duration, the conditions of renewal, termination and assignment of the agreement, and the scope of exclusivity rights (Art. L. 330-3 paragraph 2 French Commercial Code).

The document must also include the address of the registered office of the company, the nature of its business, its registration number, bank account(s), the creation date of the company with a reminder of the main stages in its development and its professional experience, the annual accounts for the last two financial years, and a presentation of the network of operators, as well as the nature and amount of the expenses and investments specific to the sign or trademark that the party to whom the draft agreement is addressed commits to before starting operations (Art. R. 330-1 French Commercial Code).

c. Link(s) to official publication:

General provisions: Art. 1112-1 French Civil Code

Exclusivity clauses: Art. L. 330-3 and Art. R. 330-1 French Commercial Code

General terms and conditions of sale: Art. L. 441-1 and Art. L. 441-2 French Commercial Code 

General terms and conditions of sale for specific food and petfood products: Art. L. 441-1-1 French Commercial Code

Specific distribution agreements: Art. L. 443-4 French Commercial Code

d. Link(s) to English translation:

An English translation of the French Commercial Code is accessible via this link

Q5. Is there a standstill obligation linked to the requirements imposed for the pre-contractual phase?

No.

Q6. Does the relevant regulatory framework impose sanctions if the pre-contractual obligations are not (fully) respected?

Yes. 

If yes, which sanctions apply (e.g., nullity of contract, penalty payment)?

1. General provisions of the French Civil Code

In addition to the liability of the party required to provide information, the violation of this obligation could be a ground for nullity of the agreement (Art. 1112-1 French Civil Code).

2. Specific provisions of the French Commercial Code

2.1. In general terms and conditions of sale

A fine of 15,000 Euros for physical persons and of 75,000 Euros for other legal entities (such as: companies) are set when the general terms and conditions of sale are not transmitted (Art. L.441-1 French Commercial Code). 


If the terms of payment are not indicated to the other party, the sanction is a fine of 75,000 Euros for physical persons and 2 million Euros for other legal entities (Art. L. 441-16 French Commercial Code).


If the additional information required by Art. L. 441-1-1 French Commercial Code for specific food and petfood products is not specified in general terms and conditions of sale, the sanction is a fine of 75,000 Euros for physical persons and 375,000 Euros for other legal entities (Art. L. 441-6 French Commercial Code).

2.2. In exclusivity or quasi-exclusivity relationships

The offence is punishable by a fine of 1,500 Euros, and in the event of a repeat offence, a fine of 3,000 Euros for a physical person (Art. R. 330-2 French Commercial Code; Art. 131-13 French Criminal Code). If the infringer is a legal entity, the fine is multiplied by five, and is therefore set at 7,500 Euros, or 15,000 Euros for a repeat offence. The supplier may as well obtain, where there is a defect in consent, the nullity of the agreement. Nullity is pronounced if it is shown that the failure to provide pre-contractual information has vitiated the distributor’s consent (Cour de cassation, chambre commerciale, February 12, 2008, case n° 07-10.462).

Q7. Can a party be held liable if it terminates the pre-contractual negotiations?

Yes.

If yes, on what grounds (a); under what conditions (b); and what consequences are generally linked to such liability (c)?

a. Grounds for pre-contractual liability:

According to Art. 1112 French Civil Code, the opening of negotiations and termination of pre-contractual relations are free. 

However, any human action whatsoever that causes harm to another obliges the party to compensate the prejudice (Art. 1240 French Civil Code).

b. Conditions for pre-contractual liability:

Three conditions are required by Art. 1240 French Civil Code: a fault, a damage and a causal link.

Fault is only accepted in the case of a breach of pre-contractual relations if an abuse is established, for example in the case where negotiations are conducted in bad faith: the party knows that the negotiations will not succeed but does not inform the other party or leave the process (Cour de cassation, chambre commerciale, November 26, 2003, case n° 00-10.243).

c. Consequences of pre-contractual liability:

However, even in the case of fault, the damage consists only in  expenses incurred during the negotiations, and not in the loss of an opportunity to conclude the agreement, nor the loss of the expected benefits of the agreement not concluded (Art. 1112 French Civil Code). The party who has abusively terminated the pre-contractual relationship can only be required to compensate said expenses (Cour de cassation, chambre commerciale, November 26, 2003, case n° 00-10.243).

Q8. Are there other relevant rules and/or restrictions that apply during pre-contractual negotiations between supplier and distributor?  

No.

Part 3: Contractual phase

A. Form of distribution agreements

Q9. Must a distribution agreement be executed in writing to be valid and enforceable?

Only in certain instances.

If only in certain instances, please explain when a written agreement is required.

Distribution agreements are consensual agreements and are therefore formed upon the exchange of consents. No form is required for their validity (the principle). 

However, an exclusive distribution agreement cannot be presumed. To be able to avail of an exclusivity, the party must have agreed in writing on the principle of this exclusivity and its scope with the other contracting party. Otherwise, it will be very difficult for him/her to invoke the existence of this exclusivity

The existence of an exclusive distribution agreement therefore requires in principle that the object of the concession, the exact delimitation of the territory conceded, its duration, the reciprocal rights and obligations of the parties and the terms of termination be established in a precise and unequivocal manner.

Q10. Are there any (other) requirements as to the form of the distribution agreement for it to be valid and enforceable?

No. 

B. Content of distribution agreements

Q11. Other than restrictions imposed by EU competition law (including Regulation (EU) 330/2010), do specific rules and/or restrictions apply in distribution agreements with respect to

  • the territory in which or the customers to whom the goods/services will be sold;
  • an exclusivity granted to the distributor;
  • (exclusive) sourcing/purchasing obligations;
  • resale prices;
  • non-compete clauses?

Yes, specific rules apply with respect to (1) (exclusive) sourcing/purchasing obligations and (2) resale prices.

If yes, what do these specific rules and/or restrictions entail?

1. Exclusivity clause

According to Art. L. 330-1 French Commercial Code, the period of validity of any exclusivity clause by which the distributor undertakes with regard to the supplier not to buy similar or additional items from another supplier shall be limited to a maximum of ten years.

In that case, the distributor is committed to purchasing the products only through its co-contractor and/or, if it is authorized, from supplier(s) designated by it.

Where the agreement containing the exclusivity clause referred to in Art. L. 330-1 is subsequently complied with between the same parties, by other similar obligations relating to the same type of goods, the exclusivity clauses contained in such new agreements shall terminate on the same date as the initial agreement (Art. L. 330-2 French Commercial Code).

2. Resale below cost

French law introduces a specific regulation regarding resale below cost. 
According to Art. L. 442-5 French Commercial Code, any party who resells or advertises the resale of a product in its unaltered state at a price lower than its actual purchase price is punished by a fine of 75,000 Euros. This fine may be increased to half of the advertising costs if an advertisement, regardless of the medium, mentions a price lower than the actual purchase price.

The effective purchase price is the net unit price shown on the purchase invoice, less the amount of all other financial benefits granted by the seller expressed as a percentage of the net unit price of the product,  and plus taxes on the turnover, specific taxes relating to such resale, and the price of transport.

The effective purchase price is multiplied by a coefficient of 0.9 for wholesalers who distribute products or services exclusively to professionals who are independent of the wholesaler and who are active as retailers, processors or final service providers.

It is subject to a coefficient of 1.10 for food products and pet foods resold as is to the consumer (Art. 125 of Law n° 2020-1525, December 7, 2020).

These provisions shall not apply:

  • to voluntary or forced sales caused by the cessation or change of commercial activity;
  • to products which are sold according to a marked seasonal nature, during the final period of the sale season, and in the interval between two sale seasons;
  • to products that no longer meet general demand due to fashion trends or the emergence of technical improvements;
  • to products with identical characteristics, of which the restocking has occurred at a lower price, with the actual purchase price being replaced by the price resulting from the new purchase invoice;
  • to food products marketed in a shop with a sale area of less than 300 square metres and to non-food products marketed in a shop with a sale area of less than 1,000 square metres, of which the resale price is aligned with the price legally applied to the same products by another trader in the same area of activity;
  • provided that the reduced price offer is not advertised in any way outside the place of sale, to perishable products from the moment when they are subject to rapid deterioration; 
  • to the products on sale mentioned in Art. L. 310-3 French Commercial Code. 

Moreover, Art. L. 420-5 French Commercial Code prohibits price offers or consumer sales price practices that are excessively low compared with production/processing and marketing costs.

Q12. Do specific rules and:or restrutions apply in distribution agreements with respect to

  • obligations of the supplier vis-à-vis the distributor, including in relation to the remuneration of the distributor;
  • obligations of the distributor vis-à-vis the supplier or vice versa;
  • a non-solicitation clause during and/or after the term of the distribution agreement;
  • minimum sales quota imposed on the distributor;
  • specific sector rules?

Yes, specific rules apply with respect to (1) obligations of the supplier vis-à-vis the distributor, including in relation to the remuneration of the distributor, (2) obligations of the distributor vis-à-vis the supplier or vice versa, and (3) specific sector rules.

1. Provisions imposed by Art. L. 441-3 French Commercial Code

Where Art. L. 441-3 French Commercial Code is applicable, the French Commercial Code requires the conclusion of a specific written agreement in relationships between a supplier and a distributor or service provider aimed at contractualising the conditions of sale of a product or service resold as is, when the relationships are not only based on the general terms and conditions of sale.

Under Art. L. 441-3 French Commercial Code this specific written agreement must be formalized between the supplier and the distributor or service provider in cases where the products or services are resold as is to the end customer. These legal provisions have a wide scope.

Art. L. 441-3 specifies the mandatory content of this agreement: 

  • the conditions of the sale of products or services, including price reductions and situations where derogations are possible; 
  • the commercial cooperation services, suitable for promoting the marketing of the supplier's products or services, that the distributor or service provider provides to the supplier, not covered by the purchase and sale obligations, specifying the purpose, the planned date, the terms of performance, the remuneration of these services as well as the products or services to which they relate and the overall remuneration relating to all these obligations;
  • other obligations intended to promote the commercial relationship between the supplier and the distributor or service provider, specifying for each the subject matter, the planned date and the terms of performance, as well as the overall remuneration or price reduction relating to all these obligations;
  • the purpose, date, terms of performance, remuneration and products to which it relates of any service or obligation under an agreement with a legal entity located outside French territory with which the distributor is directly or indirectly linked.

Failure to comply with these provisions is punishable by an administrative fine of up to 75,000 Euros for a physical person and 375,000 Euros for other legal entities. The maximum fine is increased, respectively, to 150,000 Euros and 750,000 Euros, if the infringement is repeated within two years of the date on which the first penalty decision became final (Art. L. 441-6 French Commercial Code).

In addition to these formal requirements, the parties must ensure that they do not engage in restrictive competition practices within the meaning of Art. L. 442-1 and L. 442-3 French Commercial Code, when formalising and implementing their distribution agreement. 

2. Specific provisions for certain products imposed by the French Commercial Code

2.1 Certain widely consumed products

In addition to Art. L. 441-3 French Commercial Code, the supplier and distributor of certain widely consumed products must respect the additional requirements imposed by Art. L. 441-4 French Commercial Code as mentioned below.

The list of products concerned by these legal provisions is specified by Art. D. 441-9 French Commercial Code:

  • Food and non-alcoholic beverages;
  • Alcoholic beverages;
  • Electric batteries for all purposes;
  • Cleaning agents and washing products such as soaps, washing powders, liquid detergents, scouring powders, detergents, bleach, fabric softeners, window cleaners, drain cleaners, disinfectants and distilled water, but excluding waxes, polishes, dyes, insecticides and fungicides;
  • Articles for cleaning purposes such as brooms, scrubbing brushes, dustpans and handbrushes, feather dusters, rags, dishcloths, mops, household sponges, scouring pads, steel wool and chamois leathers; 
  • Paper products such as filters, tablecloths and napkins, kitchen paper, hoover bags and cardboard tableware, including aluminium foil and plastic bin liners;
  • Adhesive and non-adhesive bandages; 
  • Pet food;
  • Non-electrical appliances such as razors and razor blades, nail files, toothbrushes, excluding mechanical hair trimmers and their blades, scissors, combs, shaving brushes, hairbrushes, nailbrushes, hairpins, hair curlers, bathroom scales, baby scales; 
  • Articles for personal hygiene such as toilet soap, medicinal soap, cleansing oil and milk, soap, shaving cream and foam, toothpaste;
  • Beauty products, perfumes and deodorants such as lipsticks, nail polish, make-up and make-up removal products (including compacts, brushes and powder puffs), hair sprays and lotions, pre-shave and after-shave products, sun protection products, depilatories, perfumes and toilet waters, body deodorants, bath products; 
  • Other products such as toilet paper, paper handkerchiefs, paper towels, tampons, cotton wool, cotton buds, disposable baby diapers, toilet sponges.

Art. L. 441-3 “does not apply to wholesalers, which means any individual or legal entity who, for business purposes, buys products from one or more suppliers and mainly resells them to other wholesalers or retailers, to processors or any other traders or companies that procure supplies for their business. Central procurement units and collective wholesale purchasing organisations are considered to be wholesalers. Companies or groups of individuals or legal entities that directly or indirectly operate one or more retail outlets or work in the distribution sector as a central procurement unit or collective buying organisation for retail companies are excluded from the concept of wholesaler” (Art. L. 441-3, II French Commercial Code”). Indication of: 

  • unit prices communicated by the supplier in the general terms and conditions of sale; 
  • the forecast turnover, which shall constitute one of the parts of the business plan for the commercial relationship; 
  • the terms and conditions under which the forecast turnover shall be reviewed when the agreement spans two or three years.

Failure to comply with these provisions is punishable by the same fines as those mentioned above (Art. L. 441-6 French Commercial Code).

Furthermore, for agricultural products or food products comprising one or more agricultural products, where indicators exist for the formation of prices and margins, the distribution agreement shall refer to them and explain the conditions under which they are used (Art. L. 443-4 French Commercial Code).

The sanctions are identical to those mentioned in Art. L. 441-6 (Art. L. 443-4 II French Commercial Code).

Finally, agreements with a performance period of more than three months relating to the sale of agricultural and food products, of which the production prices are significantly affected by fluctuations in the prices of agricultural raw materials and foodstuffs and agricultural and food products and, where appropriate, energy costs, shall include a clause on the arrangements for renegotiating the price so as to take account of such fluctuations (Art. L. 441-8 first paragraph French Commercial Code).

2.2. Products concerned by Article L. 443-8 of the French Commercial Code

Additional requirements are imposed for specific food and petfood products by Art. L. 443-8 French Commercial Code. Essentially, the agreements on these products shall contain particular clauses, failing which an administrative fine may be imposed. 

2.3. Products mentioned in Art. L. 443-2 French Commercial Code

For perishable agricultural products or products from short production cycles, live animals, carcasses or fishery and aquaculture products, a distributor or service provider may only benefit from discounts, rebates and refunds or provide for the remuneration of services rendered on the occasion of their resale that are suitable for promoting their marketing and that do not fall within the scope of the purchase and sale obligations, or services with a distinct object, if these are provided for in a written agreement relating to the sale of such products by the supplier (Art. L. 443-2 French Commercial Code).

This written agreement shall include, in particular, clauses relating to volume commitments, the manner of determining the price in relation to the volumes and qualities of the products and services concerned, and the setting of a price. It shall mention the tariff advantages granted by the supplier to the distributor with regard to the latter's commitments.

Specific requirements are also set out in Art. L. 443-2 French Commercial Code when the agreement concerns the purchase of fresh fruit and vegetables.

By way of derogation, a purchaser, distributor or service provider may not benefit from discounts, rebates and refunds for the purchase of fresh fruit and vegetables. He may, however, benefit from price reductions resulting from a qualitative or quantitative non-conformity of the product delivered if an agreement concluded by an interprofessional organisation has specified the conditions thereof (Art. L. 443-2 French Commercial Code).

For all these categories, mentioned under Art. L. 443-2 French Commercial Code, any breach of the rules set above by the purchaser, distributor or service provider shall be subject to an administrative fine of up to 15,000 Euros for a physical person and 75,000 Euros for other legal entities. The maximum fine is increased to 30,000 Euros for a physical person and 150,000 Euros for other legal entities if the infringement is repeated within two years of the date on which the first penalty decision became final.

2.4. Private label products

The agreement concluded between a supplier and a distributor for the design and production of food products in a manner that meets the particular needs of the purchaser and sold under a distributor's brand, shall mention the price or the criteria and procedures for determining the purchase price of the agricultural products used in the composition of these food products (Art. L. 441-7 first paragraph French Commercial Code).

This obligation shall apply only if a written agreement is established (Art. L. 441-7 second paragraph French Commercial Code).

The rules mentioned in Art. L. 441-8 et L. 443-4 French Commercial Code, detailed above, may also apply to private label products, depending on the nature of the products.

3. Specific provisions contained in the French Rural and Maritime Fisheries Code

This code contains specific requirements for the sale of agricultural products delivered on French territory by a producer or agricultural cooperatives.

C. Term and termination

Q13. Are there particular rules and/or restrictions in relation to the term (incl. renewal) of distribution agreements?

Yes.

If yes, what do these specific rules and/or restrictions entail?

1. Distribution agreements mentioned in Art. L. 441-3, L. 441-4 and L. 443-8 French Commercial Code

The written agreement mentioned in these legal provisions shall only be concluded for a period of one, two or three years, no later than 1 March of the concerned year (Art. L. 441-3 and L. 443-8 French Commercial Code).

2. Exclusivity agreements mentioned in Art. L. 330-1 French Commercial Code

The period of validity of any exclusivity clause by which the purchaser, transferee or lessee of a movable asset undertakes with regards to the seller, assignor or lessor not to use similar or additional items from another supplier shall be limited to a maximum of ten years (Art. L. 330-1 French Commercial Code).

Q14. Are there any specific rules and/or restrictions with respect to the termination of distribution agreements (e.g. minimum notice period, statutory right to compensation (goodwill or other))?

Yes. 

If yes, what do these specific rules and/or restrictions entail (a)? Please include whether these specific rules and/or restrictions differ depending on whether the distribution agreement is of definite or indefinite duration (b) or whether the distribution agreement is terminated by one party for convenience or for breach by the other party (c).

a. What do these specific rules and/or restrictions entail:

Suppliers and distributors bound by an indefinite-term agreement are free to terminate their business relationship. However, they must give reasonable written notice as imposed by Art. L. 442-1 French Commercial Code, when their relationship is stable and established.

The notice period must be determined taking into account several criteria such as the duration of the commercial relationship, the economic dependence existing between the parties, a non-competition clause, the existence of a cycle of production, financial investments made by the terminated party for the performance of the agreement and not depreciated at the time of the termination, etc.

Even if the parties have contractually agreed on a prior notice, it does not bind the judge who remains free to decide what a "reasonable prior notice" is in his opinion. Judges evaluate case by case the “reasonable prior notice" considering the specificities of the relationship (its duration, the economic dependence between the parties, the existence of a non-competition clause, the financial investments made by the terminated party, the nature of the products, etc.).

Where the party observes a notice period of eighteen months, he cannot be held liable on the basis of Art. L. 442-1 II French Commercial Code.

Should the party fail to give sufficient notice, the victim is entitled (except in cases of force majeure or serious misconduct) to claim compensation for the damage suffered (loss of profit margin during the period of notice that should have been observed and, where appropriate, compensation for additional damage).

The majority of the case law has a broad appreciation of the notion of an established commercial relationship. In some cases, Art. L. 442-1 II French Commercial Code applies even in the case of a succession of fixed-term agreements.

b. If applicable, differences dependent on whether the distribution agreement is of definite or indefinite duration:

In the absence of a specific clause, the parties cannot, as a matter of principle, terminate a fixed term agreement before its term.

When the agreement has an indefinite duration, the parties can terminate the agreement by giving notice, provided they comply with the rules set out in Art. L. 442-1 II French Commercial Code.

c. If applicable, differences dependent on whether the distribution agreement is terminated by one party for convenience or for breach by the other party:

Art. L. 442-1 II French Commercial Code does not affect the right to terminate the agreement without notice period in the event of the failure by the other party to perform his/her obligations or in the event of force majeure.

There is no notice period in the event of serious misconduct. Under contractual freedom, the parties are free to specify the cases in which immediate termination is possible. However, the judges have the discretion to assess whether the breach invoked to justify immediate termination of the agreement is sufficiently serious. In practice, it is recommended that the decision to terminate the agreement immediately be accompanied by a written notice informing the other party of this decision and explaining the reasons for it.

If the agreement is terminated for specific reasons related to the party terminating it (e.g. network reorganisation), a notice period is mandatory.

Q15. Is it possible to terminate the distribution agreement based on certain grounds for termination (breach or other) included in the distribution agreement?

Yes. 

If yes, is prior judicial intervention required in order for the termination of the agreement to take effect?

No.

Part 4: Post-contractual phase

Q16. Is the supplier required to repurchase the stock that is still at the distributor’s disposal when the distribution agreement ends?

No.

Q17. Are there other post-contractual obligations that generally apply to either of the parties in the context of the termination of the distribution agreement?

No.

Part 5: Dispute resolution

Q18. Do specific rules and/or restrictions apply as regards the choice of forum and/or jurisdiction?

Yes. 

If yes, what do these specific rules and/or restrictions entail?

Regarding disputes based on Art. L. 442-1, L. 442-2, L. 442-3, L. 442-7 and L. 442-8 French Commercial Code, the competent jurisdictions are those indicated in the Annex 4-2-1 of this Code.

Q19. Can the parties opt for arbitration?

Yes. 

If yes, are there any rules and/or restrictions as regards the enforceability of arbitration clauses in distribution agreements?

The arbitration clause or agreement must be in writing, and may result from an exchange of writings or from a document in which the agreement is mentioned (Art. 1442 and 1443 French Code of Civil Procedure). To be effective, the agreement must precisely describe the subject matter of the disputes to be settled by arbitration in order to avoid any unnecessary litigation regarding its scope.

Furthermore, only when the agreement is clearly void or unenforceable the court will be deemed competent.

Both parties can always ask the judge for provisional or conservatory measures.

Q20. What is the statute of limitations applicable to claims regarding the performance of a distribution agreement?

Claims are limited to 5 years (Art. 2224 French Civil Code; L. 110-4 French Commercial Code).

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