• To Avoid Sudden Termination, Business Relations Must Be Maintained Under the Same Conditions Until the Notice Period Has Expired
  • April 15, 2015
  • Law Firm: Dentons Canada LLP - Toronto Office
  • By order of February 10, 2015, the French Supreme Court ruled on the conditions governing the termination of established business relations and the scope of the compensable harm following sudden termination.

    In the case at hand, two companies had been involved in business relations for almost thirty years under an exclusive distribution agreement. After noting a decline in the distributor’s commercial commitment and its withdrawal from the distribution charter, the supplier terminated relations, giving a 12-month notice period, and adapted the termination conditions, which involved the immediate withdrawal of territorial exclusivity for distribution.

    The distributor challenged the immediate withdrawal of territorial exclusivity, considering that this deprived it of the interest of the notice period granted as it was not given time to reorganize. The Court of Appeal, corroborated by the Commercial Chamber, upheld the distributor’s arguments and found that, by granting a notice period, the supplier waived sudden termination for serious breach by its co-contracting party. The Supreme Court found that the granting of a notice period implies the maintenance of business relations under the same conditions and therefore qualified the withdrawal of territorial exclusivity as sudden. It therefore confirmed that the distributor had suffered harm by making a distinction between the loss of margin of €10,000 suffered throughout the first six months during which exclusivity was largely maintained, and the loss of €190,000 suffered during the six months following complete withdrawal of exclusivity.

    The Supreme Court then recalled that the Court of Appeal had to show that the distributor’s expenses, related to the costs for amending the editorial database and travel and training expenses for employees incurred in the search for new suppliers, were due to the suddenness of the termination and not the termination itself.