When a contract comes to an end, the law applicable to it significantly changes the exit procedures. While French law protects investment over the long term, English law sanctifies the word given. The outcome of a dispute over the termination of a commercial relationship can vary by several million euros. It is therefore important to anticipate at the stage of drafting the contract, especially with regard to the choice of applicable law. A few details.

In France: protected seniority

French law protects the “established commercial relationship”, that is to say the stable, ongoing and usual commercial relationship. The idea is simple: you don't leave a 20-year partner like a 20-day partner. Breaking such a relationship requires compliance with a notice period whose objective is to allow the company to turn around.

Is the relationship “established”?

The relationship is established if your partner” could reasonably anticipate a certain continuity of business flow with its commercial partner in the future ” (Cass. com. October 2, 2019, No. 18-14.849).

Relationships are excluded:

• punctual and not followed up (Cass. com., April 25, 2006, No. 02-19.577; Cass. com., March 15, 2017, No. 15-17.246),
• irregular or inconsistent (Cass. com., April 5, 2018, No. 16-27.901),
• drawn from a fixed-term contract coming to an end, without there being any legitimate hope of renewal (Cass. com., November 20, 2012, No. 11-22.660).

Is the breakup “brutal”?

Article L.442-1, II of the Commercial Code punishes the so-called “sudden” breach. Termination without notice or with insufficient notice is sudden and does not take into account the duration of the relationship, in reference to commercial practices or inter-professional agreements.

Of course, some breakdowns without notice remain justified, especially in the event of a sufficiently serious breach or force majeure. In addition to these two cases, if the notice is non-existent or insufficient, the victim of the breakup will be entitled to compensation.

How does the judge calculate fair notice?

To determine whether the breakup was sudden and entitled to compensation, the judge will work to calculate the duration of the notice that should have been granted, that is to say the “theoretical” notice, taking into account, in particular, the relationship between the parties, its duration, its duration, the volume of business and income, and the sector of activity.

The judge places himself on the date of the breakup; subsequent events are irrelevant. The Paris Court of Appeal states that” Sufficient notice must mean the time needed for the abandoned business to reorganize, find another partner or an alternative solution. The main criteria to be taken into account are the length of the relationship, the degree of economic dependence (understood as the share of turnover generated by the victim with the person who broke up), the volume of business achieved, the increase in turnover, the investments made, the investments made, the exclusive relationships and the specificity of the products and services in question. ” (CA Paris, December 14, 2022, No. 21/00642).

If the notice granted is in line with this “theoretical” notice, the break will not have been sudden. On the other hand, if the notice actually granted, if any, is less than this theoretical notice, the victim will be entitled to compensation.

Generally, a notice of one month per year of seniority of the relationship will be retained, except for two clarifications:

• In the event of economic dependence of the victim of the breakup on its author, the judge may increase the theoretical notice period. Dependency will be characterized in particular in the event of the impossibility of having a technically and economically equivalent solution with another company (Cass. com., February 12, 2013, No. 12-13.603; Cass. com., December 3, 2025, No. 23-23.997), or in case of exclusivity or investments that cannot be reused.
• If 18 months' notice has been granted, the responsibility of the person who broke up cannot be incurred. Article L.442-1, II in fact specifies that compliance with this floor makes it possible to exempt the offender from the breach.

What is the amount of the compensation?

The compensation will correspond to gross margin lost by the breakup victim. This is the gross margin that the victim would in fact have earned during the notice if the notice had been respected. This gross margin is calculated as follows:

[turnover excluding tax] — [variable costs saved excluding tax]

it being specified that the costs saved correspond to the variable costs that were not incurred due to the lack of notice (or, in other words, the variable costs that would have been incurred if the notice had been respected) (Cass. com., January 23, 2019, No. 17-26.870).

Fixed expenses such as rent and salaries are not deducted. These costs are only deducted if they have been saved, for example in the event that the company has had to stop operating (Cass. com., January 23, 2019, No. 17-26.870).

In England: “freedom of contract” with some reservations

Unlike France, English law does not protect the “established” commercial relationship. If your contract provides for notice, it applies regardless of the length of the relationship. The question of sudden termination only arises if the contract is silent. In this hypothesis, however, some safeguards exist.

The protective exception: the commercial agency

If your distributor is qualified as a “commercial agent”, he benefits from a protective regime.

Who is a commercial agent?

A commercial agent is an independent intermediary responsible on a permanent basis for negotiating the sale or purchase of goods on behalf of a principal, or for negotiating and concluding the sale or purchase of goods on behalf of and on behalf of that principal (The Commercial Agents (Council Directive) Regulations 1993, Section 2 — it being specified that this legislation remains applicable post-Brexit because it is a Assimilated Law, namely an internal regulation derived from European law that was not repealed by the Withdrawal Act 2018, amended 2020).

However, he is not a commercial agent:

• a person who, as an organ of a company or association, is authorized to make commitments binding on that company or association;
• a partner legally authorized to make commitments binding on his partners;
• a person acting for the company in the context of insolvency proceedings.

What is the notice applicable to the commercial agent?

The termination of the commercial agency relationship must comply with a notice:

• of one month for a relationship that lasted one year,
• two months for a relationship that lasted two years,
• of three months for a relationship that lasted three years and beyond.

(The Commercial Agents (Council Directive) Regulations 1993, Section 15 (2)).

During this period, the agent must continue to work normally while the principal must pay all commissions on the sales concluded.

What is the severance pay?

First, if the notice is not respected, the agent is entitled to claim damages for” Breach of Contract ”.

Then, the breakup of the relationship gives rise to the payment of a sum corresponding to either:

• an indemnification, which applies if it is provided for in the contract (Sections 17 (1), 17 (3) and 17 (4)),
• compensation (“compensation”), which applies by default in case of silence (Sections 17 (2), 17 (6) and 17 (7)).

The compensation is applicable even if the notice period is respected. It is capped at one year of commissions (Statutory Cap) and is calculated as follows:

1. evaluation of the value of the new, additional and lasting business that the agent has brought to the client: the judge looks at whether the agent has brought new customers to the client or has significantly developed transactions with existing customers and whether the client continues to derive substantial profits from these transactions;
2. assessment of what is fair in light of all factors, including commissions “lost” by the agent.

From the determined amount are deducted the costs that would have been incurred to bring in these new or additional business (Moore v Piretta PTA Ltd [1999] 1 All ER 174). The judge determines the amount in equity and can reduce the amounts, especially if the agent has received significant commissions that greatly exceed his client contribution (Abbey Life Assurance Co Ltd v Kay [2002] Lloyd's Rep PN 136).

Compensation applies if the contract does not provide for anything, or if there is no writing at all, to repair the damage resulting from the breach. The damage is deemed to have been suffered in particular when:

1. the breach deprives the commercial agent of the commissions that the correct execution of the contract would have earned him, while at the same time providing the principal with substantial profits related to the commercial agent's activities; or
2. the breach did not allow the commercial agent to amortize the costs and expenses he incurred for the execution of the agency contract.

The amount of compensation corresponds to the loss of the value of its commercial agency activity (Lonsdale v Howard & Hallam Ltd [2007] UKHL 32). The English judge assesses the amount by determining what a potential buyer would pay to acquire the agent's business as it is. The net income of the agent, the market price for a business of the same type, and the principal's level of activity are therefore relevant. In fact, if the client's activity is in decline and therefore the agent was not going to be able to generate significant contracts and revenues, the value of the agent's activity collapses, so that the judge will consider that the agent does not have to receive compensation.

The safeguard: “reasonable” notice

The most convincing example of the severity of English law with regard to the termination of commercial relationships is undoubtedly the 30-year relationship established by Marks & Spencer with a partner, which did not give rise to any notice or compensation. The English courts considered that there was only a succession of individual purchase contracts without proof of intent to create a continuing distribution contract despite the longevity of the relationship (Baird Textile Holdings Ltd v Marks & Spencer Plc [2001] C.L.C. 999).

This rigor is explained by:

• the absence of bona fide obligations Strictly sensu in English law, except in the event that the commercial or practical coherence of the contract requires its implicit integration (Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72),
• the exercise of a termination clause will never be considered an abuse under English law (Monde Petroleum SA v Westernzagros Limited [2016] EWHC 1472 (Comm).

Nevertheless, case law has sought to temper this rigor. Excluding a commercial agency, and only in the event of a silent contract in this respect, judges require that a “reasonable” notice be respected (Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] CA 173).

The reasonable nature of the notice will be determined in light of the circumstances existing at the time the notice was given, as opposed to those at the time the contract was concluded (Martin-Baker Aircraft Co. v Canadian Flight Equipment Ltd [1955] 2 Q.B. 556).

In particular, exclusivity, the distributor's investments to develop the market, the turnover generated, the duration of the relationship, and the formalization or degree of formalization of a written contract will be taken into account (Alpha Lettings Ltd v Neptune Research And Development Inc [2003] EWCA Civ 704).

How long for reasonable notice?

• 12 months for an exclusive distributor in its region and having concluded a non-competition agreement for an indefinite period (Martin-Baker Aircraft Co. v Canadian Flight Equipment Ltd [1955] 2 Q.B. 556),
• 12 months for a distributor who had invested substantially to develop the market in the United Kingdom, whose relationship was broken after only 3 years when it was only expected to become profitable after 5 years, and for whom the relationship represented 83% of its turnover (Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 W.L.R. 361),
• 9 months for an exclusive distributor in the United Kingdom without a non-competition commitment, whose relationship lasted 2 and a half years (Jackson Distribution Limited v Tum Yeto Inc [2009] EWHC 982 (QB)),
• between 3 and 6 months for a relationship lasting about 15 years without a commitment of non-competition or particularly strict restrictions on the distributor; the judge having set it at 4 months considering that this period was sufficient to resolve the relationship correctly (Alpha Lettings Ltd v Neptune Research And Development Inc [2003] EWCA Civ 704),
• 6 weeks for a three-year contract, considered as a” Rolling Contract ”, that is to say a form of contract renewed tacitly (G&A Limited v HN Jewellery [2004] EWCA Civ 674).

How much is the compensation in case of non-compliance with “reasonable” notice?

In the event that the judge considers that the person who broke up did not comply with reasonable notice, he will award damages (” Damages in lieu of notice ”).

Its amount is guided by the principle of contractual expectations (” Expectation Interest ”): the victim must be placed in the exact financial situation in which they would have been if the contract had been properly executed until the end of reasonable notice (Robinson v Harman (1848) 1 Exch 850, 855). It is therefore a question of calculating the net profit lost (Net Profit).

In France, the judge considers that during the notice period that was not observed, the rent, insurance and wages continued to run for the victim, so the compensation must cover these costs. In England, it is considered that a breakup should not enrich or pay the victim's structural costs — the fixed costs would have been due regardless of whether the notice was observed or not. Thus, unlike French law, which compensates for the gross margin, which includes fixed costs, English law focuses on the net loss of profit. This is calculated as follows:

[turnover excluding tax] — [costs saved excluding tax] — [fixed costs excluding tax]

Thus, if the reasonable notice is set at 6 months by the judge, the compensation would correspond to the expected income over six months minus all operating expenses saved over six months.

Low compensation weakened by the obligation to minimize losses

This is the total break point with the French system. The victim has a legal obligation to limit their harm. On a notice of 4 months, if the victim finds a new customer one month after the breakup, they no longer suffer a loss. She will therefore not be able to claim compensation for the remaining months of the notice period.

Even more: a victim cannot recover losses that they could have avoided by taking reasonable measures (British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912]). Thus, if the person who broke up can prove that the victim did nothing to look for new contracts or partners, the English judge will drastically reduce the compensation.

In essence

Where French law will do its business to protect the commercial partner, in a contract subject to English law, it can only be recommended (i) in the case of a commercial agency contract, to expressly provide for the application of “indemnities” which is more favourable than the default “compensation” regime; and (ii) in other contracts, to expressly provide for the terms relating to termination, notice and compensation.