On April 25, 2019, Ordinance No. 2019-359, recasting Title IV of Book IV of the Commercial Code relating to transparency, restrictive practices of competition and other prohibited practices, was published in the Official Journal [1].
Taken pursuant to the law of 30 October 2018 known as "Egalim" [2] , this order reorganizes, clarifies and simplifies the provisions of said title IV in order to make the latter more readable, better reflect the realities of business life and put a stop to certain abuses of case law [3] .
The new provisions of the ordinance came into force on April 26, 2019. They apply immediately to all agreements or amendments concluded after that date, even if the amendment relates to an agreement concluded previously.
Two exceptions, however:
- Regarding multi-year agreements in progress on the date of entry into force of the order, these must be brought into compliance no later than March 1, 2020;
- Regarding the new billing rules, these apply from October 1, 2019 [4].
Overview of the main changes.
General Terms and Conditions of Sale
The provisions relating to general terms and conditions of sale are no longer found in Article L441-6 of the Commercial Code, but appear in Article L441-1 which is dedicated to them.
For better readability, the article is divided into four parts:
- content of the terms and conditions;
- methods of their communication;
- role of general terms and conditions in the context of commercial negotiation;
- sanctions for failure to communicate.
The main developments in this area are as follows:
- The general terms and conditions no longer have to mention the terms of sale , but are required to include the methods of calculating the price of a service when it is not determined in advance in the general terms and conditions;
- Failure to communicate the terms and conditions is punished by an administrative fine (and no longer a civil fine) imposed by the administrative authority in charge of competition and consumer affairs; this change makes it possible to avoid recourse to the civil courts and to gain in speed and efficiency.
Unique Conventions
In fifteen years, the framework relating to single agreements has been the subject of six reforms [5] . The objective of the ordinance is therefore to restore coherence to the system but also to improve its readability once again.
All provisions relating to single agreements are now gathered in a subsection dedicated to " Written Agreements ".
Furthermore, since Law No. 2016-1691 of December 9, 2016, two regimes applied to agreements: one between suppliers and distributors, and the other between suppliers and wholesalers. While the current ordinance maintains both regimes in Articles L441-3 and L441-4 of the Commercial Code, the divisions are different:
- Article L441-3 establishes a general regime for all agreements concluded between a supplier and a distributor or a service provider (including wholesalers), regardless of the sector .
The obligations of the general scheme initially appear to be less stringent :
- The communication of the price list is no longer required;
- The communication of the general terms and conditions must take place " within a reasonable time before March 1st ".
Furthermore, the concept of " agreed price " is modified to include all elements contributing to the price determination following commercial negotiations, namely: discounts linked to the terms of the sales transaction, commercial cooperation (which was previously excluded), and other obligations intended to foster the business relationship. This new definition would thus ensure consistency with the reality of negotiations based on a " triple net " price applicable for the year [6] . From now on, before March 1st of each year, the parties must determine the overall remuneration for commercial cooperation services .
Finally, the ordinance stipulates that any amendment to the agreement must be in writing, stating the new element justifying it . According to the Report to the President of the Republic explaining the ordinance, this addition will ensure that the amendment " does not call into question the overall economics of the contract " [7] .
- Article L441-4 of the French Commercial Code applies solely to single agreements concluded between suppliers and distributors or service providers concerning fast-moving consumer goods . These goods are defined as non-durable products with high frequency and recurrence of consumption and do not apply to agreements concluded between producers and wholesalers. The provisions of Article L441-4 of the French Commercial Code thus target large retail chains.
The provisions outlined in this article do not include the exemptions of the general regime. Therefore, for single agreements relating to consumer goods, the following requirements remain in place: the communication of the unit price schedule and the communication of the general terms and conditions of sale three months before March 1st.
Furthermore, an additional obligation is now included for these agreements: they must set the annual projected turnover which corresponds to what the ordinance calls the " business plan of the commercial relationship ".
Regarding breaches of single agreements, the former Article L441-7 of the French Commercial Code stipulated that " failure to demonstrate that an agreement meeting the requirements of paragraph I has been concluded within the prescribed time limits is punishable by an administrative fine not exceeding €75,000 for a natural person and €375,000 for a legal entity ." The ordinance extends the scope of these penalties to any breach of the formalities related to the conclusion of single agreements . The amounts remain unchanged.
Billing
Billing details also have a dedicated article (article L441-9 of the Commercial Code).
The ordinance clarifies the invoice issuance date to align its wording with the General Tax Code and eliminate ambiguities between the two. From now on, an invoice must be issued upon delivery (and no longer upon " completion of the sale ") or completion of the service as defined in the General Tax Code.
To expedite invoice payment, the new invoicing regulations include two additional mandatory details on invoices :
- the billing address of the buyer and the seller (if different from their address);
- the purchase order number when it has been previously established by the buyer.
Finally, regarding the penalty for failing to comply with the invoicing regulations, the ordinance eliminates criminal penalties in order to continue the decriminalization process initiated by the Hamon Law of March 17, 2014 [8] and to strengthen the pressure on professionals. The fine is now administrative , with a maximum amount of €75,000 for individuals and €375,000 for legal entities.
Restrictive competition practices
In order to make it more understandable, the famous article L442-6 of the Commercial Code is divided, its provisions reorganized and modified.
The new Article L442-1 of the Commercial Code establishes the list of restrictive practices and reduces it to only those practices that constitute the bulk of the litigation in this area, namely:
- to obtain an advantage that is not commensurate with any consideration or is manifestly disproportionate;
- subject the other party to obligations that create a significant imbalance;
- to break off an established business relationship.
Two modifications can be noted here a priori only with regard to the first two subjects.
Firstly, the notion of " business partner " disappears to be replaced by " the other party ", which is likely to significantly broaden the scope of the article.
Furthermore, the criteria for verifying the granting of an advantage are changing, shifting from " not corresponding to any actual commercial service rendered " to " not corresponding to any consideration ." The previous wording had, in fact, limited this practice to commercial cooperation agreements only, due to the reference to a " commercial service ."
Regarding the abrupt termination of an established business relationship, Article L442-1-II of the French Commercial Code now stipulates that " the party terminating the relationship cannot be held liable for insufficient notice provided that they have respected an eighteen-month notice period ." This addition aims to curb abuses related to notice periods and provides legal certainty to the system.
In procedural matters, the rules for initiating legal action are now set out in Article L442-4 of the French Commercial Code. This article now states that any person with a legitimate interest, the public prosecutor, and the Minister for the Economy may request the court to order the cessation of the practices, declare the unlawful clauses or contracts null and void, and demand the restitution of undue advantages. According to the report to the President of the Republic, this new wording clarifies provisions that previously suggested that " only the Minister and the public prosecutor were entitled to request the annulment of the disputed clauses ."
The maximum civil fine for restrictive practices is specified, with Article L442-4 now stating that the amount of the civil fine cannot exceed the highest of the following three:
- 5 million euros;
- three times the amount of the unduly received or obtained benefits;
- 5% of the turnover excluding VAT achieved in France by the perpetrator of the practices during the last financial year closed since the financial year preceding the one during which the practices were implemented.
The ordinance also creates a specific article concerning violations of the prohibition on resale outside the network imposed on distributors bound by a selective or exclusive distribution agreement. Previously found in Article L442-6-I, 6°, this provision is now found in Article L442-2 of the Commercial Code and extends liability to any person participating in this violation, even if they are a third party to the network .
Finally, of the five prohibited clauses or agreements in Article L442-6-II of the Commercial Code, the ordinance retains only two relating to the possibility of benefiting from:
- retroactively of discounts, rebates or commercial cooperation agreements;
- automatically more favorable conditions granted to competing companies by the contractor.
[1] Order No. 2019-359 of April 24, 2019, recasting Title IV of Book IV of the Commercial Code relating to transparency, restrictive practices of competition and other prohibited practices.
[2] Law No. 2018-938 of October 30, 2018 for the balance of trade relations in the agricultural and food sector and healthy, sustainable and accessible food for all.
[3] Report to the President of the Republic relating to Ordinance No. 2019-359 of April 24, 2019, recasting Title IV of Book IV of the Commercial Code relating to transparency, restrictive practices of competition and other prohibited practices.
[4] Order No. 2019-359 of April 24, 2019, Article 5. The order does not, however, specify the conditions of its entry into force with regard to restrictive practices of competition.
[5] Law No. 2005-882 of August 2, 2005 in favour of small and medium-sized enterprises, Law No. 2008-3 of January 3, 2008 for the development of competition in the service of consumers, Law No. 2008-776 of August 4, 2008 on the modernisation of the economy, Law No. 2014-344 of March 17, 2014 relating to consumption, Law No. 2015-990 of August 6, 2015 for growth, activity and equal economic opportunities and finally Law No. 2016-1691 of December 9, 2016 relating to transparency, the fight against corruption and the modernisation of economic life.
[6] Report to the President of the Republic relating to Ordinance No. 2019-359 of April 24, 2019.
[7] Report to the President of the Republic relating to Ordinance No. 2019-359 of April 24, 2019.
[8] Law No. 2014-344 of March 17, 2014 relating to consumption.
