“Egalim II” Law: What’s new on logistics penalties between suppliers and distributors?

09/12/2021

The “Egalim II” Law of October 18th, 2021 introduces several new provisions on logistics penalties into the French Commercial Code.

These new provisions came into force on October 20th, 2021 and apply to all types of products for contracts between suppliers and distributors.   

Firstly, it should be noted that Article L. 442-1-I-3° of the French Commercial Code relating to restrictive competition practices reintroduces a prohibition on the automatic deduction of logistics penalties for the benefit of the supplier only and also introduces a prohibition on disproportionate penalties with regard to the non-performance of contractual commitments.

Secondly, the new Articles L. 441-17 and L. 441-18 of the French Commercial Code provide for a new mechanism regarding penalties imposed on both suppliers and distributors:

  • With regard to logistics penalties imposed by the distributor: the contract may provide for penalties imposed on the supplier in the event of non-performance of its contractual commitments, subject to a sufficient margin of error with regard to the volume of deliveries provided for (i.e. service rate). In addition, the supplier must have sufficient time to inform the distributor in case of a contingency.

In any event, the distributor is required (i) to provide proof of the breach, which may be established by any means, and (ii) to allow the supplier a reasonable period of time to verify and, if necessary, contest the reality of the grievance.

It is specified in this regard that the distributor is not entitled to refuse or return goods, except in the event of non-conformity of the goods or failure to meet the delivery date.

These penalties (i) may not exceed an amount corresponding to a percentage of the purchase price of the products concerned – a percentage that we recommend being explicitly specified in the contract – (ii) must be proportionate to the prejudice suffered regarding the non-fulfilment of contractual commitments and (iii) must only be imposed in the event of stock shortages or when the distributor demonstrates in writing the existence of a prejudice.

It should be noted that moderation mechanisms are provided for: the distributor who considers imposing logistics penalties is required to take into account circumstances beyond the control of the parties, it being specified that in the event of force majeure, no logistics penalty may be imposed.

Finally, the distributor may not require the supplier to pay the penalties within a period that is shorter than the payment period it applies from the date of receipt of the goods.

  • With regard to logistics penalties imposed by the supplier: the supplier may also, subject to proof by any means, impose penalties in the event of non-performance of contractual commitments by the distributor.

Like the penalties imposed by the distributor, these penalties (i) may not exceed an amount corresponding to a percentage of the purchase price of the products concerned – a percentage that we also recommend to specify in the contract – and (ii) must be proportionate to the prejudice suffered regarding the non-performance of contractual commitments.

In any event, the distributor should also have a reasonable time to verify and, if necessary, contest the reality of the grievance.

Finally, it should be noted that a guide to good practice for the application of these new provisions will be published by the DGCCRF and updated regularly, although it will not be a binding text.

By Catherine Chappellet-Rempp et Ophélie Sommé for the Competition department.

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