Distribution Law in France – Some interesting insights and reminders

published on 17 October 2022 | reading time approx. 2 minutes

Sanctions as a result of logistical misperformance

The regulations on penalties for logistic non-performance, whose material scope is limited to relations between suppliers and distributors, have been fundamentally reformed since the entry into force of the provisions of Law Egalim 2.

In order to avoid the application of penalties in the absence of actual damage to the distributor, Article L.411-17 of the Commercial Code now provides that these penalties, whose amount may not exceed a certain percentage of the purchase price of the products in question, must be proportionate to the damage caused by the non-fulfillment of contractual obligations (late delivery, non-conforming delivery) and that only situations that have led to stock disruptions may justify the application of logistic penalties.

In addition, the practice of deducting ex officio penalties or discounts corresponding to non-compliance with a contractual obligation from the supplier's invoice amount is prohibited. It should be noted that this text should apply as soon as the supply is made on French territory.

To ensure proper application of this text, guidelines on the subject were published by the Administration on July 11, 2022. https://www.economie.gouv.fr/dgccrf/foire-aux-questions-portant-sur-les-lignes-directrices-en-matiere-de-penalites-logistiques

Retailer-branded products: a new guide to good practices

The Commission for Commercial Practices Control (la Commission d'examen des pratiques commerciale, CEPC), which is responsible for balanced relationships between manufacturers, suppliers and resellers, had already adopted a recommendation on best practices relating to retailer-branded contracts in November 2020 (Recommendation No. 20-2).

In July of this year, it published a new best practices guide, in line with the provisions resulting from the Egalim 2 Law (Recommendation No. 22-1).

As a reminder, the Egalim 2 Law modified the regulation of retailer-branded food products ("MDD") contracts, which are defined as contracts between a supplier and a distributor "(...) related to the development and production of food products according to modalities that meet the specific needs of the buyer and sold under a private label (...)".

The updated recommendation is divided into three parts:

an inventory of the market for retailer-branded products.
the legal framework for contracts for retailer-branded products, before explaining the Commission's position.
the best practices that should be applied in the relationship between the manufacturer of the products and the distributor from the negotiation phase to the contract performance.

This recommendation is welcome to shed light on the provisions of article L.441-7 of the Commercial Code applicable to the same contracts and, more generally, their regulation.

Among the new provisions of this text, it should be recalled that the supplier - under certain conditions - is obliged to notify: Indicators listed "in the ninth paragraph (of III) of article L. 631-24 and in articles L. 631-24-1 and L. 631-24-3 of the Code rural et de la pêche maritime ...or, where appropriate, any other available indicators".

To summarize, these first indicators refer to the relevant agricultural production costs and the evolution of these costs, to the prices of agricultural products and foodstuffs recorded on the market or markets where the buyer operates, and to the evolution of these prices related to the quantities, composition, quality, origin and traceability of the products or to compliance with a specification.

These indicators may be drawn up and published by the inter-branch organizations, using as appropriate the observatory referred to in Article L. 682-1 or the body referred to in Article L. 621-1 of the Code rural et de la pêche maritime.

However, the choice of indicators is not limited to those published by the inter-branch organizations but may be determined by the supplier in accordance with the guidelines of the DGCCRF following the promulgation of the EGalim Law 1.

A clause for automatic price adjustment (under certain conditions),
a clause for renegotiation depending on the change of certain parameters,
a clause on the expected volume that the trader undertakes to have produced over a certain period of time, and a reasonable advance warning period to allow the producer to anticipate possible volume fluctuations.

It should be noted that current agreements that do not comply with this text must be adapted to the new provisions no later than January 1, 2023.

Terms of payment

Since the law on the modernization of the economy of August 4, 2008, contractual payment terms between companies are strictly regulated. The period agreed between the parties to settle the sums due may not exceed 60 days net from the date of issue of the invoice or, by way of derogation, 45 days end of month, provided that this derogation is included in the contract.

As non-compliance with interprofessional payment terms is highly detrimental to the proper functioning of the economy, the DGCCRF investigates each year to ensure the proper application of the legislation in this area.

The DGCCRF guidelines on sanctions applicable to payment terms published in December 2021 provide useful details on the procedural level, on the determination of the amount of the fine, and on the methodology followed by the investigators.

The DGCCRF does not hesitate to impose heavy penalties, as evidenced by the record of penalties imposed in the first half of 2022. Thus, the administration has checked the payment terms of 632 establishments. It should be noted that 138 administrative fine procedures have been implemented, for an amount of nearly €13.8 million for inspections carried out in 2021. In 2021, 227 fines were notified for non-compliance with payment deadlines, for a total amount of €29.7 million (169 fines for €16.7 million in 2020).

Finally, let's remember that the Sapin II Law has systematized the "name and shame" sanction, the condemnations being now published on the DGCCRF website.