Abrupt termination of established business relations: The Court of Cassation invites the judges on the merits to seek the true author of the termination

In a major ruling dated 22 June 2022, the Commercial Chamber of the Court of Cassation held that the head of a distribution network may be held liable on the basis of Article L.442-1 II of the Commercial Code when the members of the network, formally at the origin of the termination, have no autonomy in decision-making process.

Court of Cassation com., 22 June 2022, no. 21-14.230

The right to terminate established business relationships continues to be enriched by sometimes very pragmatic decisions.

What the French Commercial Code provides in this respect

It should be recalled that, pursuant to the aforementioned Article of the French Commercial Code, the company that is the victim of the termination of an established business relationship is entitled, in principle, to expect notice from the person terminating the relationship; the duration of this notice depends in particular on the duration of the business relationship in question, and whether or not the “victim” is able to find new business.

In this case

In this case, a supplier criticised the head of a major distribution network for causing the breakdown of the commercial relations that it had established with the companies that are members of this network.

To reject the supplier’s appeal, the Court of Appeal held that the members of the network, who had notified the termination, had to personally respond to it as they were operated by companies with independent legal personalities separate from the head of the network.

The question of law posed to the Court of Cassation

The question put to the Court of Cassation was therefore whether, and under what conditions, the head of a network may be held liable when the termination was notified by the companies that are members, following the decision of this head.

Pursuant to a ruling of 5 July 2016, the Court of Cassation considered that a parent company could be held liable on the basis of Article L.442-1 II of the French Commercial Code when its wholly-owned subsidiaries were without any decision-making power (Court of Cassation, Com., 5 July 2016, no. 14-27.030).

The Court of Cassation refines its case law in this area

The ruling of 22 June 2022 reiterates and refines this solution by considering that companies that are members of a distribution network and that notify their supplier of a termination of their commercial relationship cannot be held liable in this respect when they have no autonomy in decision-making regarding the choice of their suppliers and the continuation of their commercial relationship with them.

However, the Court of Cassation goes further by specifying that this solution applies regardless of the status of the company in question and regardless of whether it has a legal personality separate from that of the head of the network.

The legal autonomy of a company does not therefore prejudge its operational autonomy

The judges on the merits are then asked to investigate whether the termination is freely decided by the co-contractor who is formally behind it or whether it is imposed on it by a company third party to the contract, which for its part could incur its liability under Article L.442-1 II of the French Commercial Code.

The Court of Cassation therefore (cautiously) removes the veil of legal personality to seek the liability of the true author of the termination that imposed its decision on members of its network.

This decision must be fully approved, and invites all litigants to consider the true perpetrators of the termination of established commercial relations before initiating legal action.

Authors of this article: Nicolas Contis and Matthieu Guignès, lawyers, law firm Kalliopé

Contact : Kalliopé · Nicolas Contis · Partner · · 06 63 92 17 15

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