French Cour de Cassation - Commercial division, January 29, 2013, n° 11-23.676

Unless a contractual termination clause targets this situation, the disposal of all the shares in a company leading to a change in management does not authorise the termination of a distribution agreement without notice, irrespective of the intuitu personae nature of the contract.

Following the sale of all the share capital of its sole distributor, leading to a change in management, a supplier had terminated its ten-year commercial relationship with this distributor. The latter, considering such termination to be abrupt, demanded damages. The Montpellier Court of Appeal upheld the claim for the payment of damages to the distributor and ordered the supplier to make good the loss resulting from the abrupt termination of their commercial relationship.

The latter appealed the decision, on the grounds that a distribution agreement is entered into on an intuitu personae basis and that consequently the termination of the agreement in the event of a change in management takes place as of right, without there being any abuse. The supplier also contested the length of the notice period granted.

The Court rejected the arguments developed by the supplier recalling that, due to the principle of autonomy of the legal entity, the latter remains unchanged in the event of a total sale of all the shares in a company or a change in management. Thus, in the absence of a clause authorising the termination as of right in such situations, and irrespective of the intuitu personae nature of the agreement, the agreement is maintained. The French Cour de Cassation a contrario accepts that it is possible to terminate an agreement without notice if the latter contains a termination clause stipulating that termination is possible in the event of a change in management.

On the second ground, the French Cour de Cassation stated that the length of the notice period granted is assessed on the date on which the person initiating the termination serves notice thereof, and therefore, despite the temporary maintenance of the procurement terms granted by the supplier, the fact of asking the distributor to immediately stop using the logo and trademark rendered the notice period uncertain. Despite this affirmation, the Court took into consideration the five months of "effective and provisional maintenance of the established commercial relationship" and deducted them from the notice period deemed appropriate.