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The Macron draft bill provides a framework for distribution networks and impacts (yet again) supplier/distributor relationships
Article IT and Data Protection Competition, Retail and Consumer Law Commercial and International Contracts | 11/03/15 | 9 min. | Alexandra Berg-Moussa Renaud Christol
Whereas the 2015 business negotiations are drawing to a close in a tense climax owing to the legal uncertainty surrounding the application of several aspects of the Hamon Act of March 17, 2014, last week’s adoption, without a vote, of the growth and economic activity draft bill (the “Macron draft bill”) by the French National Assembly, suggests that new changes are likely to provide a framework for distribution networks and impact, yet again, supplier/distributor relationships.
The provision of a framework for distribution networks
The Macron draft bill provides a framework for “contracts entered into between, on the one hand, a natural person or a legal entity governed by private law grouping retailers together (…) and, on the other hand, any person operating, in its name or on behalf of a third party, at least one retail store, the joint purpose of which is to operate one of those stores and which contain clauses likely to limit such operator’s freedom to exercise his business activity”, in other words, contracts relating to the sale and purchase of commercial property and affiliation contracts between major retailers and store managers.
The French Competition Authority (the “FCA”) has been focusing on such contracts for a long time. In the opinion issued by the FCA in 2010[1] relating to the retail food distribution sector (whose proposals were mentioned in another opinion issued in 2012[2] relating to the retail food distribution sector in Paris) the FCA noted that the affiliation contracts were generally long-term and tacitly renewable contracts containing exclusive and non-compete or post-contractual non-re-affiliation clauses which prohibited the affiliate store from entering into a contract with another retail group for another store during the term of the contract or for the retail store which is the subject matter of the contract after the expiry thereof. The FCA also pointed out that the purpose of the clauses contained in the contracts relating to the sale and purchase of commercial property which grant a priority or pre-emption right over the store premises for the benefit of retail groups could either be to prohibit the buyer of land or store premises from exercising a food-related activity or to prohibit, for several decades, the establishment of competing companies on the other land owned by the seller (more often than not contiguous to the land subject matter of said contract).
Such clauses were likely to prevent any inter-brand mobility of the store and to erect artificial barriers to the entry into relevant markets. The FCA had also recommended that the contract term should be harmonized and that such term should be limited to a maximum of five years. The FCA also wished for a harmonization of the termination modes of the different contracts establishing the relationship between the head of the network and the network’s member.
The Macron draft bill is partly in favor of such proposals. It creates a principle of joint expiry and termination of all the contracts establishing the relationship: if either contract is terminated, the other contracts will be also automatically terminated. Furthermore, it is provided that any clause aiming at, following the expiry or termination of such contracts, “restricting an operator’s freedom to exercise his business activity (…) is deemed unwritten”. Therefore, the post-contractual non-compete and non- re-affiliation clauses are prohibited. The same applies to clauses which may provide for the tacit renewal of said contracts[3]. Finally, the Macron draft bill limits the term of the contracts. The initial amendment provided, along the same lines as the FCA’s recommendation, for a 6-year maximum contract term. Certain operators were surprised by such term and held that it would not enable specific investments made by the parties to the contract to be amortized. A sub-amendment[4] set the maximum term to 9 years. The same sub-amendment provides that a decree, issued after the FCA’s opinion was sought, shall define turnover limits below which the above-mentioned rules may be derogated from. The Macron draft bill specifies that all of those provisions shall apply to the expiry of a two-year period as of the date on which the Act will be promulgated for ongoing contracts whose remaining term on that same date is more than six years. They shall apply for a four-year period, as of the promulgation of the Act, to contracts whose remaining term is less than six years on such date.
Supplier/distributor relationships
First, regarding payment terms, article 11 quinquies of the Macron draft bill deals with the question of payment terms and amends the provisions of Article L. 441-6 of the French Commercial Code. In the future, the payment terms agreed upon between the parties to pay the sums due may not exceed 60 days as of the invoice date. It is only by derogation therefrom, and thus by exception thereto, that the other maximum payment terms of 45-day end of month as of the invoice date may only be agreed upon by the parties ”as long as such payment terms are expressly agreed in the contract and provided they are not grossly unfair to the creditor”. Whereas, in the current wording the maximum payment terms could be freely chosen by the parties from among the two aforementioned options, without one prevailing over the other, the purpose of the amendment would be to give preference to the maximum 60-day payment terms over the 45-day end of month payment terms.
The same Article provides for another derogation from the aforementioned maximum payment terms “for the sale of products or the provision of services falling under sectors presenting a particularly notable seasonable nature”. For those products or services, for which it is provided that a list of the relevant sectors under which they fall must be drawn up in a decree, the parties may, in the future, agree upon maximum payment terms of up to 90 days, “as long as such payment terms are expressly agreed in the contract and provided they are not grossly unfair to the creditor”
The scope of the annual single agreement of Article L. 441-7 of the French Commercial Code is also likely to change. Currently, such scope is very wide as it comprises all the supplier/distributor-service provider relationships. The amendment introduced by article 10B of the Macron draft bill is significant as the effect thereof would be to considerably reduce the scope of application of the annual single agreement. Indeed, in the future, the obligation to enter into the annual single agreement before March 1st of each year, in the forms of Article L. 441-7 of the French Commercial Code, would only apply to relationships between suppliers and retail distributors, i.e. – according to the text – to distributors achieving more than half of their turnover, excluding taxes, via the sale of goods to consumers for domestic use, but also to such distributors’ central purchasing bodies or referencing bodies. Thus, the relationships between suppliers and wholesalers and more generally with all types of B2B distributors would fall out of the scope of application of the annual single agreement. It seems that the French authorities have heard the insistent requests of such players to have the current regulations modified in order to take into account specificities, including inter alia in the trading business.
Private labels would officially enter into the scope of application of the “review clause” contained in Article
L. 441-8 of the French Commercial Code, which would require, in the future, that a price renegotiation clause be inserted in the event of a fluctuation of the price of raw materials and agricultural materials in the contracts “whose performance term exceeds three months and which concern the design and production of the products mentioned in the first paragraph, according to the terms and conditions meeting the purchaser’s special needs”. It should be noted that the relevant private labels contracts would be those concerning the sale of private labels products set out in the list already drawn up by decree, i.e. certain specific agri-food products. Therefore, the purpose is not to extend the clause and the price renegotiation procedure in all the private labels contracts, whatever the sector.
L. 441-8 of the French Commercial Code, which would require, in the future, that a price renegotiation clause be inserted in the event of a fluctuation of the price of raw materials and agricultural materials in the contracts “whose performance term exceeds three months and which concern the design and production of the products mentioned in the first paragraph, according to the terms and conditions meeting the purchaser’s special needs”. It should be noted that the relevant private labels contracts would be those concerning the sale of private labels products set out in the list already drawn up by decree, i.e. certain specific agri-food products. Therefore, the purpose is not to extend the clause and the price renegotiation procedure in all the private labels contracts, whatever the sector.
Finally, the Macron draft bill modifies the sanction provided for the restrictive practices of Article L. 442-6 of the French Commercial Code. In the future, the amount of the civil fine incurred in the event of a breach of the provisions of such Article would be increased to 5% of the turnover achieved in France by the author of such incriminating practices, whereas the fine currently stands at EUR 2 million. It should be noted that such Article lists a significant number of restrictive practices likely to be sanctioned, a great number of which have generated lawsuits over the last few years, such as for example the sudden termination of established business relationships, false commercial cooperation, unfounded requests for the line-up or upholding of margins, significant imbalance, etc.
The Macron draft bill, adopted last week without a vote by the National Assembly at first reading, still needs to be examined by the Senate, before the National Assembly’s final vote. Therefore, the text, including the provisions described above, is still likely to change in response to the upcoming parliamentary debates. More to come…/.
Alexandra Berg-Moussa, Counsel
Renaud Christol, Counsel
[1] Opinion No. 10-A-26 of December 7, 2010 relating to contracts regarding the affiliation of independent retails stores and the terms and conditions of purchase of commercial property in the retail food distribution sector.
[2] Opinion No. 12-A-01 of January 11, 2012 relating to the competitive situation in the retail food distribution sector in Paris.
[3] Book III, (new) title IV of the French Commercial Code entitled “Commercial distribution networks” which created Articles L.341-1 et seq. of the French Commercial Code.
[4] Sub-amendment No.3228.