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The current civil and criminal sanctions are repealed.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°.