On 29 January 2014 the Senate adopted in second reading the text of the future consumer protection law (“Loi Hamon”) which will now be examined by a joint committee of the two chambers. A first assessment can be made of the changes brought by the future law to rules applying to business relations in view of further tackling late payment and reinforcing the framework for business negotiation.
Payment terms: a stricter regime
In the current regime under Article L. 441-6 of the French commercial code, the deadline for payment agreed between the parties cannot exceed 45 days “end of month” or 60 days from the date of issue of the invoice. The draft law introduces a new legal maximum of 45 days from the date of issue of the invoice for periodic invoices, that is to say when a supplier carries out deliveries to its client several times a month and issues a summary invoice at the end of the month.
The Senate reintroduced the maximum of 60 days from the date of issue of the invoice for the purchase of building materials, removed in second reading by the National Assembly, to limit the effect of the reduction of payment terms for summary invoices in the constructions sector. The exemption from the general regime for goods purchased VAT free and intended to be resold outside the European Union was set aside by the Senate.
The legal payment term of 30 days following the date of receipt of the goods or performance of the service, which is applicable if no contractual payment term is agreed, remains unchanged.
An administrative fine of € 75,000 for a natural person and € 375,000 for a legal person, doubled in case of repeat offence, imposed by the DGCCRF (the governmental agency for competition policy, consumer affairs and fraud control) under the conditions laid down by the new Article L. 465-2 of the commercial code, punishes, namely, non-compliance with payment deadlines (including contractual payment deadlines currently outside the scope of the criminal sanction), and non-compliance with methods for computing payment terms.
This new infringement for non-compliance with methods for computing payment terms creates an obligation for business partners to set out precisely in their contract a method for calculating “end of month” payment periods (45 days from invoice date plus end of month or end of month of the invoice plus 45 days) and to apply such method.
The current civil and criminal sanctions are repealed. Therefore, imposing on a business partner payment deadlines infringing legal maximums or, in any case, manifestly unfair deadlines, is no longer specifically sanctioned as an offence under Article L. 442-6 I of the commercial code.
Under threat of the same administrative fines, the draft law prohibits any clause or practice abusively delaying the starting point of payment deadlines.
In the same aim, the provisions under part VI of Article L. 441-6 of the commercial code are complemented in order to include the delay for accepting or verifying the conformity of goods or services which is, in principle, of 30 days from receipt of the goods or performance of the service, within the maximum payment deadline.
The draft law also modifies the provisions of Article L. 111-3-1 of the French construction and housing code with regards to instalments payable during implementation of private markets and subcontracts governed by Law n° 75-1334. The new rules provide for the issuing of down-payment requests at the end of each month of an amount corresponding to the value of the work performed. The deadlines for payment of these monthly instalments and of the balance due cannot exceed the legal maximum of 45 days from the date of issue of the invoice. The delay of intervention of the main contractor or of any provider upon which payment of the instalments is conditional is, moreover, included in the deadline for payment of monthly instalments.
Distribution agreements: a reinforced framework
According to Article L. 441-7 of the commercial code, suppliers and distributors engaged in a long-term business relationship in France need to sign yearly an annual distribution agreement setting out the specific terms and conditions for the supply of products in the relevant year and, if any, the services mutually rendered by the parties in connection with the distribution of the products. The annual agreement, which can be either a single contract or a framework agreement implemented by several single sales contracts, must be concluded before March 1st of each year or within two months from the starting point of the period of commercialisation of the goods or services. The future consumer protection law modifies the content of the annual agreement and fixes strict rules for its negotiation.
Under the new provisions of Article L. 441-6, paragraph 7 of the commercial code, the supplier’s general terms and conditions of sale, including the standard price list, must constitute the “sole basis for business negotiation”. Accordingly, the new paragraph 7 of Article L. 441-7 provides that the supplier must communicate its general terms and conditions of sale to the distributor at the latest three months before the deadline of March 1st or two months before the starting point of the commercialisation period.
Also, in view of putting an end to certain distributors’ practice of refusing right from the start of negotiations any price increases requested by the suppliers and its general terms and conditions of sale, the annual agreement must mention the price list previously communicated by the supplier or at least indicate how the price list in the version which served as a basis for the negotiation can be accessed.
Under the future Article L. 441-7 1° of the commercial code, price reductions on the supplier’s standard prices must be explicitly stated in the annual agreement.
The provisions of Article L. 441-7 2° concerning commercial cooperation services, i.e. services provided by the distributor in connection with the sale of the products (advertising, head of aisle display, cataloguing etc.), remain unchanged and still need to be precisely defined in the annual agreement by mentioning their object, date and conditions of implementation as well as the corresponding fees charged by the distributor to the supplier.
The parties may also agree to other obligations aimed at promoting the business relation which do not relate to the promotion of the sales as such (i.e. monthly reporting, specific ordering procedures etc.). For these obligations, the upcoming provisions of Article L. 441-7 3° provide that, in addition to their object, dates and conditions of implementation, the parties also specify the remuneration or the global price reduction related to these obligations. The remuneration of commercial cooperation services and obligations aimed at promoting the business relation must not be manifestly disproportionate to the value of these services.
The upcoming law will create a legal framework for promotional advantages granted by the supplier to end customers (virtual package deals three for two, the second item half-price, loyalty cards, discount coupons etc.). The amount and the nature of such promotional advantages as well as the period during which the advantages are granted and their conditions of implementation need to be defined in specific agreements with the distributor.
According to the future Article L. 441-8 of the commercial code, sales agreements concerning agricultural and food products of a duration exceeding three months must include price renegotiation clauses in case of fluctuations in raw materials prices.
The Senate reintroduced the new Article L. 441-9 of the commercial code, removed in second reading by the National Assembly, which sets out an obligation to conclude a written agreement in subcontracting relationships for any purchase of manufactured goods, made on request of the buyer and intended to be integrated in his own production and for which he fixes a minimum content.
The infringement of Articles L. 441-7, L. 441-8 and L. 441-9 is sanctioned by an administrative fine which may not exceed € 75,000 for a natural person and € 375,000 for a legal person, doubled in case of repeat offence within two years from the date at which the first sanction became final.
Imposing or attempting to impose a change in an ongoing contract in order to maintain or increase the margins or profitability may qualify as an offence under the future Article L. 442-6 I 1° of the commercial code entailing the author’s civil liability . A new specific offence consisting in placing, paying for or invoicing an order at a different price than the agreed price is also created in Article L. 442-6 I 12°.