• Abrupt Termination Can Be Settled!
  • April 16, 2015
  • Law Firm: Dentons Canada LLP - Toronto Office
  • By decision of December 16, 2014, the Supreme Court confirmed that parties can compromise on notice of termination of business relations which could have qualified as insufficient, pursuant to Article L. 442-6 I 5° of the Commercial Code.

    In the case at hand, a furniture manufacturer and Ikea had been involved in a business relationship since 1993. In 2009, in the context of the economic crisis and a drop in sales, the parties entered into a settlement agreement fixing an indemnity in favor of the manufacturer.

    At the same time, the manufacturer responded to an Ikea call for tenders for provisional volumes and a turnover lower than those in their usual agreements. The distributor agreed to continue their relations under the same pricing and volume conditions until 2010, in consideration for the manufacturer entering into an agreement fixing the terms of the end of their collaboration, intended for December 31, 2012. The agreement reached between the parties provided for a progressive decrease in supply undertakings.

    At the end of their business relation, the manufacturer summoned Ikea to pay damages for sudden termination. The Court of Appeal granted the manufacturer’s request, asserting that Article L. 442-6 I 5° of the Commercial Code is an economic public policy provision which cannot be the subject of any derogation by agreement.

    The Supreme Court condemned this decision and asserted that, while the parties cannot waive in advance their liability in relation to sudden termination, nothing prevents the parties from fixing the terms and conditions of the end of relations and reaching a compromise on the indemnification of the harm caused.

    The contents of the agreement ending the contract or settlement agreement should, however, be balanced. Nothing prevents the public prosecutor or the Minister of the Economy from challenging the lawfulness of the agreement on the grounds of a significant imbalance or other abusive commercial practices.