What is the connection between the abrupt breakdown of established trade relations and Covid-19?
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The abrupt termination of established business relationships is defined by Article L.442-1 II of the French Commercial Code: |
- The termination of established business relationships can only take place after the execution of a notice period that takes into account the duration of the business relationship.
- Any abrupt termination is in principle sanctioned by holding the person responsible for the termination liable.
- Two exemptions: non-performance by the other party of its obligations and the case of force majeure.
| The abrupt disruption of established commercial relationships due to Covid-19 is defined by Article L.merce: |
Effects : The Covid-19 pandemic and its consequences may be considered force majeure if they:
- escape the debtor's control;
- could not reasonably have been foreseen;
- could not be avoided by appropriate measures;
- They make it impossible to continue business relations.
What are the implications?
A business partner can therefore abruptly terminate established business relationships without having to respect any notice period as long as this termination is justified by a case of force majeure.
The notice period currently in effect, granted by the business partner, would not be suspended due to the effects of Covid-19.
P.S.: While not classified as a force majeure event, the Covid-19 pandemic and its effects could nevertheless justify such a waiver of the notice period given their unprecedented impact on the French economy. (French Supreme Court, October 6, 2017, No. 08-12.416, which recognized the economic crisis as a cause exonerating liability for abrupt termination)
What behavior should be adopted?
| For the party wishing to immediately sever its business relationship: |
-To ensure that it can claim a case of force majeure and in particular to verify that appropriate measures cannot be adopted to avoid the effects and consequences of the Covid-19 pandemic
-Notify the other party of its intention to immediately terminate the business relationship due to a force majeure event
-Calculate the notice period that should have been respected in order to assess the potential financial risk incurred
| For the party wishing to anticipate the abrupt breakdown of its relationship with its business partner: |
-Examine situations of established business relationships in which the contracting party can invoke force majeure
-Negotiate the possible continuation of business relations and/or the effective dates of the termination (if, despite force majeure, residual performance of the contract can be envisaged)
