La Revue Squire

Rédigé par Guillaume Taillandier le Vendredi 20 Janvier 2006 à 15:24

In a judgment of 14 October 2004, the Court of Appeal of Versailles gave an interesting application of article 442-6, I, 5 of the Commercial Code in relation to an international contract for the distribution of perfume.

Article 442-6, I, 5 of the Commercial Code states: "The following acts committed by any producer, trader, manufacturer or person listed in the trade register render the perpetrator liable and entail the obligation to redress the prejudice caused: (…) Suddenly breaking off an established business relationship, even partially, without prior written notice proportionate with the duration of the business relationship and consistent with the minimum notice period determined by the multi-sector agreements in line with standard commercial practices.(...)".

The contract, which was governed by French law, was concluded between a French supplier and a Colombian distributor for an initial period of three years. It was renewable and had a three-month notice period for termination. After sixteen years the French supplier decided to terminate the contract and gave three months notice as required by the contract.

The Colombian distributor objected that there was a “sudden breach of a contract” as set out in article 442-6, I, 5 of the Commercial Code and obtained compensation for not having received sufficient notice which the court said should have been at least one year.

The court’s decision is not new. The court stated that complying with the terms of a contract may not be enough to comply with the provisions set out in article 442-6, I, 5 of the Commercial Code.

By handing down this decision, the court effectively extended the principle set out in article 442-6, I, 5 of the Commercial Code to protect a foreign distributor. The question is whether the court states that the liability is contractual or tortious. Although we do not know for sure, the court seemed to imply that the damage was suffered in France and that it was therefore appropriate to apply French law.

Contrats - Obligations - Responsabilite

Rédigé par Antoine Adeline le Vendredi 20 Janvier 2006 à 15:10

By contrast to English law where the parties, other than in very limited circumstances, have the right to break off negotiations at any point and where there is usually no right to any indemnity, French law imposes a general obligation that the parties will negotiate in good faith.


If a party is "at fault" for the breakdown of discussions and if the other party can prove resulting loss, the party at fault may be liable to pay damages to the other.
In proving fault, the French Courts rely on the notion that the parties should conduct and, where relevant, terminate negotiations in "good faith".
In considering "good faith" the Courts will, in particular, refer to:

- The duration of negotiations and the stage at which negotiations were terminated
The breakdown in negotiations is more sensitive and must in particular be justified when there have been lengthy negotiations and when a binding agreement was very likely.

The Courts consider that a party is at fault if the negotiations have been prolonged artificially when it was clear to that party that the contract would not be concluded.

The circumstances of the breakdown

The suddenness of the breakdown and the existence of aggravating circumstances are considered by the Court to be exemplary of bad faith.

It is particularly important to note that an action for "abusive breaking off of negotiations" (rupture abusive de pourparlers) is an action in tort and may arise even where an appropriately worded letter of intent has been signed and even if this is subject to another law to that of France. Whilst of course this is not a reason to dispense with such a document, caution still needs to be exercised.

Under French law compensation for loss can include direct loss (e.g. costs linked to the negotiations, such as professional fees), indirect loss (such as loss of opportunity to contract) and possibly even intangible loss (e.g. loss of goodwill or loss of reputation).

Contrats - Obligations - Responsabilite

Rédigé par Agnès Berenger le Vendredi 20 Janvier 2006 à 11:09


Rédigé par antoine adeline le Vendredi 20 Janvier 2006 à 10:41

Restructuring and Insolvency

Rédigé par Antoine Adeline le Vendredi 20 Janvier 2006 à 10:39

Restructuring and Insolvency

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