What you need to know about Law n° 2023-221 of March 30, 2023, which applies to both French and foreign companies and all products that are sold in France – also known as “Egalim 3”.
This new law completes two previous laws (“Egalim 1” law of October 30, 2018, and the “Egalim 2” law of October 18, 2021) which were transposed into the French commercial code. The strict framework of the annual commercial negotiations set out in the French commercial code implies the conclusion of distribution agreements between suppliers and distributors before March 1st of each year for the current year.
Egalim 3 aims to reinforce the balance in commercial relations between suppliers and distributors, in order to correct a potential structural imbalance between the two.
The main contributions of the new law include the following:
- While the law is mainly aimed at rebalancing commercial relations in the fast-moving consumer goods sector (FMCG), several of its provisions are general in scope, covering all trade relations. The law applies to any agreements between a supplier and a buyer “concerning products or services marketed on French territory”.
- The provisions are of public order. This means in practice that French and foreign suppliers and distributors will not be able to derogate from the jurisdiction of the French courts and the application of French law. French law applies to all agreements concluded between a supplier and a distributor concerning products or services sold in France.
According to Article L. 444-1-A of the French commercial code: “Chapters I, II and III of this Title apply to any agreement between a supplier and a purchaser relating to products or services marketed on French territory. These provisions are a matter of public policy. Any dispute relating to their application shall fall within the exclusive jurisdiction of the French courts, subject to compliance with European Union law and international treaties ratified or approved by France, and without prejudice to recourse to arbitration”.
- The French commercial code also expressly introduces the principle of good faith in the negotiation in accordance with article 1104 of the French civil code. This new provision only applies to agreements concerning fast-moving products (FMCG). Failure to sign a distribution agreement by March 1st can now lead to an administrative penalty which can reach €200,000 for individuals and €1,000.000 for legal entities. For other products, the amount of the penalty remains the same, i.e., €75,000 for individuals and €375,000 for legal entities.
- The regime of logistic penalties (i.e., financial penalties imposed in the event of non-compliance with logistic provisions of the contract between the supplier and the distributor) is reinforced, by capping the amount of logistics penalties imposed between suppliers and distributors at 2% of the value of products ordered. The law also provides several new rules on the implementation and control of logistics penalties, including an annual obligation for distributors to notify the authorities of the amount of logistics penalties imposed on their suppliers and the amounts received. Failure to comply with this obligation is punishable by an administrative fine which can reach 75,000 euros for individuals and 500,000 euros for a legal entities.
- For all goods and services, on an experimental basis for 3 years (2024, 2025, 2026), a new management mechanism for the termination of commercial relations is introduced. In the absence of an agreement signed before March 1st, the supplier may:
- Terminate the commercial relation without the possibility for the distributor to invoke a “sudden breach of contract” (L442-1 of the French commercial code), or
- Request the application of a notice period of a sufficient length in view of the existing commercial relationship. Determination of the applicable price during this notice period must take into account the conditions of the market on which the parties operate.
The parties may also refer the matter to a mediator for agricultural commercial relations or a business mediator in order to reach an agreement before April 1st. This agreement would set the notice period terms, which must take into account the market conditions.
For further information on the new regime and how it could impact your business, please do not hesitate to get in touch with us!
