France Update: Logistical Penalties: How to Interpret the Silence of the Legislator on the 1-year Prescription and the 2% Ceiling?

Pending the publication of guidelines from the DGCCRF on the interpretation of the new provisions of Articles L.411-17 and L.411-18 of the French Commercial Code, suppliers and their distributor customers will be keen during the summer to develop and propose their own interpretation of the Descrozaille law of 30 March 2023 on the following two subjects that are already causing controversy:

The question of the one-year limitation period for logistical penalties (i)
The methods of calculating the ceiling of 2% of the value of the products ordered (ii)

I) ONE-YEAR LIMITATION PERIOD

As a reminder, Article L.411-17 of the French Commercial Code specifies that “no logistical penalty may be imposed for the non-performance of contractual commitments occurring more than one year earlier.” This prescription is not provided for penalties that would be imposed by the supplier on the distributor (regulated by Article L.411-18 of the French Commercial Code).

In the absence of interpretation by the Administration or the courts on how to apprehend this limitation rule, it is up to the parties to take a position.

The interpretation favorable to the distributor customer is to consider that this rule is applicable for the non-performance of contractual commitments (missing on delivery for example) from 1er April 2023 (date of entry into force of the law) and that therefore no penalty can be claimed from 1er April 2024 for contractual non-performance prior to 1er April 2023.

This reading prevails if one legitimately considers that the new law is only valid for the future.

The supplier will be tempted to propose another interpretation: the law applies retroactively and thus any penalty notice having as a fact giving rise to a breach prior to 1er According to him, April 2022 should be considered illegal. On the basis of this interpretation, it will refuse any penalty for a delay or a lack of delivery occurring before 1er April 2022.

The retroactive application of the law is understood in the light of the objectives developed by the Descrozaille bill.

The two interpretations are equal (retroactive law or not) and it is the contractual formalization for the choice of an interpretation that will be decisive, in the absence of precision of the Legislator, the Administration or the jurisprudence.

II) CEILING OF 2% OF THE VALUE OF THE PRODUCTS ORDERED

It is difficult to comment on the wording of this part of Article L.411-17 of the French Commercial Code: “The penalties imposed on the supplier by the distributor are proportionate to the damage suffered with regard to the non-performance of contractual commitments, within the limit of a ceiling equivalent to 2% of the value of the products ordered falling within the category of products within which the non-performance of contractual commitments was established. “.

Discussions between suppliers and distributors have already begun on what is meant by the concept of “product category”.»

The definition of the product category is not, however, in our view, the most important in determining the basis of the logistical penalties.

The main thing concerns the basis of the value of the products ordered: is it the value of all the products in the category of products ordered or only the value of the missing products of the category of products ordered?

Parliamentary proceedings (amendment proposed by Senator Loisier in February 2023 in particular) would suggest that the first interpretation would prevail: “If a distributor orders, at the same time, a thousand boxes of cereal and a thousand packets of pasta, and a failure is found on 20 boxes of cereals, the logistical penalty may not exceed 2% of the value of the cereal order, and not the value of the total order. »

But these clarifications have been made more in our opinion to define the concept of category and it is difficult to draw a definitive conclusion on the question of the base (products ordered vs. only missing products).

The above example could be read as follows:

If the box of cereals costs 5 euros, the value of the order will be 5000 euros (thousand boxes) and not 100 euros (20 boxes). The penalty can then be capped at 100 euros (2% of 5000) and not 2 euros (if we took as a base the value of the missing products: 2% of 100 euros).

In this same example, the value of the penalty is equal to the value of the order of the missing products (100 euros). The penalty is then equivalent to 100% of the value of the missing products where previously the practice (notably provided for in the contracts of distributors) was to caper from 15 to 30%.

The principle of proportionality of the penalty for the damage suffered (which appears in both Article L.411-17 and Article L.411-18) may then make it possible to reconcile the different interpretations.

If the application of the 2% rule (which must be a ceiling and not a floor) leads to a penalty amount disconnected from the damage suffered by the distributor or supplier, then it is appropriate to retain the value base of the products ordered that is the most respectful of the principle of proportionality, so that the logistical penalty can fairly and proportionately compensate for the damage suffered.

Suppliers or distributors, be vigilant about the interpretation and formalization of your positions!

By Ginestié Magellan Paley-Vincent, France, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact france@transatlanticlaw.com

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