BRUTAL TERMINATION OF ESTABLISHED COMMERCIAL RELATIONSHIPS – Elements subsequent to the notification of termination cannot be taken into account in determining the length of the notice period
Legal watch
26 July 2023
Cour de Cassation, Ch. Com. May 17th, 2023, n°21-24.809
Determining the notice period following the brutal termination of an established business relationship cannot take into account factors occurring after the date of notification of such termination.
In this case, the company TNT has entrusted the performance of transport and delivery services for international shipments to the company MATIM, a company specialised in the transport of goods in Morocco.
In 2009, TNT and MATIM signed an agreement for the aforementioned services, which provided a 45-day notice period in the event of termination.
In 2016, FEDEX acquired the shares of TNT, and the following year, launched a call for tender to select its next delivery service provider in Morocco.
The participation to this call for tender required candidates to sign a non-disclosure agreement. As it wished to apply, MATIM signed this agreement on October 2nd, 2017, which contained, in view of its relationship with TNT, a clause under which MATIM accepted the consequences of an early termination of their contractual relationship, this agreement constituting the starting point for the notice period relating to such termination.
By letter dated January 15th, 2018, TNT informed MATIM of the rejection of its application and indicated that this letter triggered the starting point of the 45-day notice period.
Feeling victim of a fictitious call for tenders, MATIM summoned TNT in order to pay it the sum of €7,776,000 as compensation for the brutal breach of established commercial relations on the basis of article L.442-6 I 5° of the French Commercial Code, in addition to pay the moral prejudice suffered, the reimbursement of the bank guarantees taken out by its manager and the costs of the proceedings.
As a preliminary point, it should be emphasized that in this case, article L.442-6 I 5° of the French Commercial Code was the one applicable in its previous version (amended by decree no. 2019-359 of April 24, 2019, and now the new article L.442-1 II of the French Commercial Code).
The International Commercial Division of the Paris Court of Appeal, by his ruling rendered on July 18th, 2019, (RG no. 19/14727) has adjudicated in favour of MATIM while reducing the damages claims to TNT.
The Court of Appeal has pointed out that in the event of the termination of established business relationships that, “the sufficient notice period is assessed taking into account the duration of the commercial relationship and the other circumstances at the time of notification of the termination“, and that the “main criteria to be taken into account are economic dependence, the length of the relationship, sales volume and sales growth, specific investments made and not amortized, exclusive relationships and the specificity of the products and services in question“.
The appeal judges considered that the starting period of the notice period ran from the signing of the non-disclosure agreement on October 2nd, 2017, and not from the letter of January 15th, 2018. In fact, the Court considered that MATIM could not have been unaware of TNT’s desire to question the service agreement between them, and that it had expressly agreed, by signing the non-disclosure agreement relative to the call for tender, to this act being the starting point for the notice period. In fact, TNT gave MATIM 5 months’ notice from October 2017.
To calculate the notice period, the Court of Appeal weighed up two aspects of the effects of terminating this contractual relationship.
On the one hand, the Court of Appeal considered the economic dependence of MATIM, which achieves approximately 70% of its business with TNT, its contractual exclusivity and its two-year contractual and post-contractual non-competition obligation with TNT, as well as the significant investments made by MATIM for the deployment of services in Morocco, all of which were assessed within the context of a highly competitive market.
On the other hand, the Court also took into consideration the fact that even if MATIM had “lost a large part of its customers, employees and work tools, […] it was able to reorganise, find other outlets and adapt its business. It has now regained 75% of its former customers and is developing a promising business with the TOTAL group“, it has reinvented itself and “is now operating under the name ‘MTI Express‘,” and has “developed a business competing with that of TNT. […] and highlights the “pricing agreements negotiated with the market’s leading carriers, such as DHL, UPS, Aramex and Chronopost, as well as [its total] independence from them.“
In view of these factors, which demonstrate not only the impact of the severance of this relationship but also MATIM’s successful conversion and current profits, the Court of Appeal has determined the notice period at 12 months, including the 5 months’ notice already done. TNT was ordered to pay €1,052,513 for the remaining 7 months’ notice, which had not been served.
The Cour de Cassation overturned the decision on the grounds that the Court of Appeal, in considering MATIM’s successful conversion following the termination of the business relationship, “relied on factors subsequent to the notification of the termination of business relationship in order to assess the length of notice to which MATIM was entitled”.
As a result, the Cour de Cassation has ruled that only factors prior to the notification of the termination of business relationship can be taken into consideration when calculating the required notice period.
The parties are referred to the Paris Court of Appeal.
