Reform of the French Commercial Code on commercial relationships
On April 25, 2019, the order No. 2019-359 of April 24, 2019 on the revision of Title IV, Book IV of the French Commercial Code on transparency, anti-competitive practices and other prohibited practices, as well as the order No. 2019-358 of April 24, 2019 on liability actions for abusively low prices, adopted pursuant to the law No. 2018-938 of October 30, 2018, known as the EGalim Law, have been published in the Official Journal. The main objective of these texts is to reorganize, simplify and clarify the provisions of the French Commercial Code on commercial relationships.
The order No. 2019-359 provides for an immediate application of its provisions to all agreements or amendments concluded after its entry into force, i.e. from April 26, 2019. Ongoing multi-annual agreements still in force on the date of entry into force of the order will have to comply with the new provisions as from March 1, 2020. The new rules applicable in terms of invoicing will have to be applied by professionals as from October 1, 2019.
The order No. 2019-358 provides for an entry into force delayed by four months for the ongoing agreements on the date of entry into force of the order.
The legislator first clarified the content and terms of communication of Terms and Conditions of sale ("T&Cs"). In the new Article L441-1, the role of "sole basis of commercial negotiations" of T&Cs is reaffirmed and the civil penalty for non-communication of the T&Cs is replaced by an administrative penalty of €15,000 for an individual and €75,000 for a legal entity, a penalty that can be ordered by the DGCCRF (French General Directorate General for Competition Policy, Consumer Affairs and Fraud Control).
The order then restructured the provisions relating to single agreements, through two regimes:
- A more flexible basic regime under new Article L441-3, applicable to all suppliers and distributors or service providers (including wholesalers), in all sectors, that provides the obligation for suppliers to communicate their T&Cs within a "reasonable time" instead of three months before the deadline.
- A reinforced regime under new Article L441-4 for "agreements on consumer products" (defined as "non-durable products of high consumption and recurrence", a list of which will be drawn up by decree), that provides the obligation for suppliers to communicate their T&Cs within three months before the deadline of March 1, 2019. It should be noted that the notion of "agreed price" has been modified to take into account all the elements negotiated and to be reproduced in the single agreement, and that these agreements will now have to fix a provisional annual turnover, and include the negotiated "business plan". This will allow the administration to have direct knowledge of these elements during its audits.
Concerning invoicing, the new Article L441-9-I harmonizes the rules of the French Commercial Code on the invoice's issue date with those of the French Tax Code, and adds two additional mandatory mentions (the purchaser's and buyer's invoicing address if different from their address, as well as the purchase order number if it has been established by the buyer). The new Article L441-9-II transforms the criminal penalty into an administrative penalty (the amount remains unchanged) which can be ordered by the DGCCRF.
Regarding the rules relating to payment terms, new Articles L441-10 to L441-16 were created solely to reorganize the provisions to make them more legible, but the substance remains unchanged.
The order then refocuses the list of the 13 anti-competitive practices included in former Article L442-6 around three general notions in the new Article L442-1: significant imbalance, benefit without consideration and sudden termination of the commercial relationship. It is important to note that even if some practices that were previously listed are no longer expressly mentioned, they have not become lawful; they can be covered through one of the three general practices.
Regarding the significant imbalance and the benefit without consideration, the notion of "commercial partner" is replaced by "the other party" and the terms "to no commercial service actually rendered" in the definition of the benefit without consideration have been replaced by the terms "no consideration". The purpose of these changes is to broaden the scope of the Article.
Regarding the sudden termination, the order limits the duration of the notice period to 18 months. Moreover, the order removes the condition of lawful doubling of the notice period in the case of private brand or competitive bidding by remote auction.
Two types of practices are provided for in separate Articles:
- New Article L442-2 sanctions the breach of the prohibition to resell outside the network imposed on a distributor bound by an exclusive or selective distribution agreement. This Article also covers the third parties to the distribution agreement; and
- New Article L442-3 reproduces the prohibitions of discounts, rebates or retroactive commercial cooperation agreements and, further, the most favored nation clauses.
To clarify the conditions for implementation of court actions, the new Article L442-4 states that any person justifying an interest, such as the Ministry of Economy or the Public Prosecutor's Office, can petition the courts for the cessation of the practices and the invalidity of the clauses concerned in addition to damages and the repayment of amounts unduly received. On the other hand, the civil penalty is reserved for the latter. The penalty is limited at the highest of: €5 million, triple the amounts unduly received or obtained by the company, and 5% of the turnover of the company having perpetrated the practices.
The order also creates a new Chapter III in which are regrouped all the provisions specifically applicable to food and agricultural products. However, it is reasonable to assume that this chapter will be further modified to take into account the changes made by the Directive concerning unfair trading practices in business-to-business relationships in the food supply chain, adopted by the European Council on April 9, 2019, which is to be transposed within 24 months of its publication.
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