Lex in IT

Sudden breach of established business relationships

The rupturing party risks sanctions even when the victim opposes it

Breaking an established commercial relation is not without perils. But some responses allow light to be shed on the matter.

What is an “established” relation?

The first reflex, although deceptive, is to assess the “established” business relationship in terms of its duration.

Other criteria should equally be considered. It is also necessary that there is a regular deal flow, that there is no succession of independent contracts, that the relationship is not precarious, and that the victim of the rupture may prove its legitimate expectation of the continuity of the relationship.

Except in special cases, a relationship may be considered “established” after 18 months if the criteria are met.

The courts seek their presence on the basis of indices: realized investment, granted exclusivity, product reputation, economic dependence of the victim or guarantee / increase in turnover.

It is not necessary that the relation be formalised by a written contract.

How to recognise the “sudden” nature of the rupture?

Partial or total, a rupture is considered “sudden” when it does not give the victim the necessary time to reorganise its activities and if it is not notified in writing.

The notice period is assessed on a case by case basis. For example, it is prudent to observe a notice period of about 6 months to terminate an established relationship of 5 years.

It is not uncommon for judges to impose notice periods greater than may be provided in the contracts.

What are the risks for the party author of the sudden rupture?

–       Damages for the prejudice suffered by the victim

The party author of the rupture should not repair the damage resulting from the termination itself, but as a result of the suddenness of the rupture.

In effect, the victim may only claim the losses of profits (usually gross) during the notice period not complied with, and some losses of inventory / financial costs / termination(s) of personnel.

–       Civil fine of 2 million Euros

The Minister of Economy and the public prosecutor may ask the judge to decide, as against the party author of the rupture, the cessation of practices, restitution and a civil fine of up to 2 million Euros.

The Minister and the prosecutor may take action as against the rupturing party even if the victim opposes it! On the other hand (and being relatively recent), whenever they exercise this right, the rupturing party and the victim of the rupture shall be informed beforehand.

–       Damages for injury of the partners personal and distinct from the victim company

The Supreme Court has recently confirmed that the partners can sue the co-contractors of their company victim for a sudden rupture if they invoke an injury personal and distinct from that suffered by the company itself.

The evidence of that damage is not always apparent. For example, being forced to sell its shares at a price lower than desired, mainly because of losses incurred by the company following the sudden rupture of a business relation, does not characterize, for a partner, a personal and distinct injury.

To succeed in their action, the partners should not rely on an injury that is corollary to that suffered by the company.

However, they may argue that the rupturing party intended, in fact, to counter themselves. In this case, they must demonstrate that the rupture was used to cause financial hardship to the company in order to impose additional costs (such as increased capital) and/or make them lose control. An exercise all the same arduous!

Author: Tudor Dobrinescu

Publication of informative and general nature does not constitute a contract or legal advice. All material or immaterial damages, direct or indirect, arising from the use / interpretation of the information contained herein are the sole responsibility of the readers of this publication.

 Publication à caractère informatif et général ne constituant pas un acte ou une consultation juridique. Tous dommages matériels ou immatériels, directs ou indirects, résultant de l’utilisation / interprétation des informations contenues dans la publication relèvent de la responsabilité exclusive des lecteurs de la publication.

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