On April 24, 2019, the French government adopted Ordinance n°2019-359 with the aim of clarifying and strengthening the effectiveness of rules relating to unfair trade practices and to the formalization of business relationships. This reform, although aimed at clarification, should lead to further enforcement by the regulator, victims and third parties.
The Ordinance applies directly to contracts adopted after its entry into force on April 26, 2019. Long-term contracts in effect on the date of its entry into force must be modified by March 1, 2020.
1. A shorter list of prohibited practices
The French Commercial Code sets out a number of rules protecting weaker parties against abusive conducts by their contracting partners (so-called “unfair trade practices”). The Ordinance dated 24 April 2019 refines the list of prohibited behaviors around only three broad practices: (i) significant imbalance between the obligations of the parties, (ii) benefit without consideration (i.e., fictitious services or services which value is unrelated to the services invoiced) and (iii) abrupt termination of business relationships.1
In addition to these three illegal practices – which can only be established following an analysis of the circumstances of the case – the list of clauses automatically prohibited is also reduced from five to two: (i) clauses providing for retroactive rebates and (ii) MFN clauses allowing a contracting party to automatically benefit from more favorable conditions granted to competitors by its contracting partner.
Wider scope of unfair trade practices
The “significant imbalance” and “benefit without consideration” prohibitions are no longer limited to long-term commercial relationships and now cover short-term contractual relationships such as one-time supply contracts not intended to last for a substantial period of time.
In the same vein, the “benefit without consideration” prohibition is no longer limited to consideration for “commercial cooperation services” (i.e., services facilitating the marketing of products, such as the allocation of a privileged location in stores or marketing efforts). Similarly to what was decided in a few court cases, judges can thus establish the lack of consideration in a wide range of circumstances (e.g., whether royalties paid under a license agreement are not manifestly disproportionate).