Draft 2 Act: Effects on distribution agreements and on restrictive practices: increased contractual flexibility but strengthened sanctions.
On November 8, 2016, Sapin 2 Act (name of French Minister of the Economy) was enacted.
Retail distribution agreements for maximum three years but yearly pricing negotiation:
The requirement of an annual distribution agreement would disappear with an opportunity to make distribution agreement with retailers up to three years. Practically, small suppliers’ and retailers’ professional organizations FEEF and FCD have anticipated this since September 2013 in an agreement (http. // www.feef.org/Engagements-et-r%C3%A9ussites/Accords-sign%C3%A9s-avec-la-FCD/Plate-forme-diff%C3%A9renci%C3%A9e-PME) and number of suppliers and distributors now plan to stick at contractual terms for a certain period over one year to avoid to reinitiating negotiations of these terms each year.
The Act provides that distribution agreements with retailers or wholesalers pursuant to Articles L. 441-7 and L. 441-7-1 of French Commercial Code may be made for a period of one-three years, and shall be agreed and executed no later than March 1 of the year when is come to effect, or within two months after the starting point of the sale of the products or services subject to specific marketing cycles. When concluded for two or three years, the agreement provides the conditions of revision of agreed price. These conditions may refer to public index related to production factor evolution.
Strengthened sanctions:
Failing to comply with the legal requirements related to existence and content of terms and conditions of sales, billing obligations and maximum payment terms (see Articles L. 443-1 and L. 441-6) is subject to an administrative fine skyrocketing from €375,000 to € 2 million.
Inflating Article L. 442-6 of French Commercial Code (torts liability) where the commercial abusive practices between professionals, consists of two additional abuses:
- holding a party liable for requiring the provision of a clause revising prices in multi-annual distribution agreements (2-3 years max.) with a reference to index not directly linked to the concerned products or services ;
- holding a party liable for providing or attempting to provide the other party penalties for late delivery in case of force majeure.
Civil penalty provided in Article L. 442-6 of the Commercial Code which may be ordered when the Minister of Economy brings the claim to prosecute the commercial abuse (e.g. disproportionate consideration, significant imbalance, sudden termination of commercial relations) rises from Euro 2 million to Euro 5 million.
Frédéric Fournier
Partner