1. The EGalim laws take their name from the 2017 Etats Généraux de l’alimentation (French National Food Conference), which aimed to promote, in particular, fairer remuneration for producers. The “EGalim 1” law of 30 October 2018[1] and Ordinance No. 2019-359 of 24 April 2019 have resulted in an overhaul of Title IV of Book IV of the Commercial Code and a simplification of the law on trade negotiations and trade practices. The “EGalim2” law of 18 October 2021[2] has implemented a new regulation and transparency mechanism specific to agricultural and food products.
2. The new law “EGalim 3” No. 2023-221 of 30 March 2023 or “Descrozaille” law[3], named after its rapporteur in the National Assembly, aims to promote a better balance in trade relations between distributors and suppliers. Although the bill tabled by MP Frédéric Descrozaille was initially intended to “secure the supply of consumer products to the French”[4], its content was expanded during parliamentary discussions with a view to strengthening the balance of trade relations and improving the rules governing relations between suppliers and distributors, in a context of inflation that all players must face which strains both trade relations and trade negotiations. The “EGalim 3” law thus adopts an entire series of measures aimed at rebalancing the balance of power between distributors and suppliers (I) and improving the technical framework of certain rules relating to trade negotiations (II).
I. A rebalancing of the balance of power between distributors and suppliers
3. The purpose of the “EGalim 3” law is to attempt to correct, at least in part, the imbalance that is observed each year between the retail chains and manufacturers at the time of the annual negotiations, and to avoid certain abuses that were revealed after the application of the “EGalim 1” and “EGalim 2” laws.
4. To this end, it adopted a body of rules designed to govern and sanction non-compliance with the 1 March deadline or failure in negotiations (1). The framework for promotions and the loss leader threshold have been extended to FMCG products but also extended (2). Provisions have also been introduced to avoid two abuses: that relating to legal evasion, which consists of certain brands relocating contractual negotiations abroad in order to make them subject to more favourable provisions (3), and that relating to penalties imposed in the event of non-performance of contractual commitments (4).
1) Strengthening of the rules and sanctions in case of non-compliance with the 1 March deadline or in case of failure in negotiations
5. In practice, it has been found that if the negotiations fail and the deadline of 1 March for signing the single agreement provided for in Article L. 441-3, IV of the French Commercial Code is not met, suppliers may find themselves obliged to continue to supply distributors at the previous year’s prices. In a period of inflation, this situation was very favourable to supermarkets, which could continue to order thousands of products at the old price for several months, while suppliers were faced with the rise in the cost of commodities, particularly agricultural commodities, and/or the increase in their production costs.
6. The solution initially proposed was to provide in Article L. 441-3 of the French Commercial Code that in the absence of an agreement on 1 March, any order placed by the distributor would be based on the price list and general sales conditions in force[5], in particular so as to avoid suppliers finding themselves in an economic situation of a margin squeeze between unchanged prices and sharply rising costs and to encourage distributors to find and conclude an agreement with their suppliers.
7. In the final version of the law, it was finally decided:
- To add a clarification to Article L. 441 -4, IV of the French Commercial Code to provide that “The negotiation of the written agreement shall be conducted in good faith, in accordance with Article 1104 of the French Civil Code”;
- To introduce a new restrictive practice in Article L. 442-1, I, 5° of the French Commercial Code sanctioning the fact of “Not having conducted the trade negotiations in good faith in accordance with Article L. 441-4, having had the consequence of not leading to the conclusion of a contract in compliance with the deadline provided for in Article L. 441-3”;
- To reinforce the penalties of Article L. 441-6 of the French Commercial Code for non-compliance with the 1 March deadline provided for in IV of Article L. 441-3: instead of an administrative fine of up to 75,000 euros for a natural person and 375,000 euros for a legal person (paragraph 1 ), a specific fine for non-compliance with the 1 March deadline has been provided for, which may not exceed the sum of 200,000 euros for a natural person and 1,000,000 euros for a legal person.
8. In addition to these adjustments, Article 9 of Law No. 2023-221 also introduced a three-year experimental scheme aimed at remedying failed negotiations. In the event of disagreement, the supplier may choose either to interrupt its deliveries until the signature, even late, of a single agreement, or to require the distributor to apply a notice of termination in accordance with Article L. 442-1 II of the French Commercial Code, it being specified that in the latter case the distributor may not invoke the provisions relating to the abrupt termination of established commercial relations provided for in Article L. 442-1, II of the French Commercial Code. It was also specified that the parties had to agree on the conditions applicable during the notice period, which should take into account, inter alia, “the economic conditions of the market in which the parties operate”, and that they could call upon the mediator for agricultural trade relations or the business mediator to conclude an agreement under his aegis before 1 April[6].
9. However, a number of grey areas remain. What price will be applied in practice until the parties reach an agreement? The question arises in the event that the parties finally reach an agreement, whether with or without the help of a mediator, and thus on or after 1 April, for the period up to 1 April or until they reach an agreement: it would not make sense for it to be the price of the previous year, since the spirit and the text of the law militate rather in favour of a price that takes account of the new economic conditions prevailing on the relevant market.
10. Similarly, if the supplier has chosen to request the application of a notice period in accordance with Article L. 442-1 II of the French Commercial Code, which may in fact be very long, and the supplier and the distributor have finally failed to reach an agreement, the question arises as to how the supplier will be able to obtain compensation for its loss, which corresponds to the difference between the price applied until the parties reached an agreement and the price that ultimately resulted from the agreement of the parties and which should have been applied retroactively for all orders placed after 1 March.
2) The extension and prolongation of the framework for promotions and the resale at loss threshold
11. The “EGalim 3” law was also an opportunity to extend two measures resulting from Law No. 2020-1525 of 7 December 2020, known as the “ASAP” Law: the framework for promotions and the resale at loss threshold.
12. The framework for promotions, which must not exceed 25% in volume and 34% in value, has not only been extended to all fast-moving consumer goods (FMCG), as listed in Decree No. 2019-1413 of 19 December 2019 (including hygiene products, batteries, cleaning products, etc.), but has also been extended until 1 March 2024[7].
13. The increase in the resale at loss threshold introduced in 2018 by the “EGalim 1” law in order to allow better remuneration for farmers and obliges supermarkets to sell food products (with the exception of fruit and vegetables, given the drop in sales) at least 10% more than the price at which they were purchased, has also been extended by two years, until 15 April 2025 instead of 15 April 2023 initially[8].
14. Two new features have also been included:
- With regard to the framework for promotions, Article 7 of Law No. 2023-221 provides that the Government must submit to Parliament, before 1 October each year, a report assessing the effects of the promotion framework on prices. This report will have to distinguish between the effects of the promotion framework on food and petfood prices and those on FMCG prices. It should also specifically analyse “the consequences for the development of the income of farmers and the effects of the measure on small and medium-sized enterprises”[9].
- With regard to the loss leader threshold, Article 2 of Law No. 2023-221 of 30 March 2023 imposes stricter transparency obligations on distributors. Distributors will have to communicate to the ministers responsible for the economy and agriculture, before 1 September each year, precise information on the surplus turnover recorded following the implementation of the loss leader threshold increased by 10%. The document provided by the distributors will then be sent by the Government to the Chairman of the Economic Affairs Committee of the National Assembly and the Senate, and cannot be made public.[10]
These provisions aim not only to protect suppliers from possible value-destroying practices of supermarkets, but also and above all to protect the remuneration of farmers and other links in the chain, such as wholesalers.
3) The applicability of French law and the jurisdiction of French courts
15. In order to combat attempts at legal evasion by certain supermarkets, which decide to relocate contractual negotiations, in particular by setting up their central purchasing offices in other European countries, with the aim of benefiting from more favourable legal provisions that are less protective of French farmers and suppliers, a new article has been introduced within a new chapter. This is Article L. 444-1 of the French Commercial Code which states that “Chapters I, II and III of this Title apply to any agreement between a supplier and a buyer relating to products or services marketed on French territory” and that “Any dispute relating to their application falls within the exclusive jurisdiction of the French courts”[11].
16. These provisions are intended to impose the primacy of French law and French courts for all products sold in France, including those negotiated by the central purchasing offices of large retailers based abroad. Although it was specified that these provisions “are public policy”[12], they were not expressly given the nature of overriding mandatory rules, meaning that litigants will no doubt take advantage of this to continue to dispute the overriding mandatory rule nature of certain provisionsof Title IV of Book IV of the French Commercial Code. To avoid any risk of conflict with European law or treaties ratified by France, it was specified in Article L. 444-1 of the French Commercial Code that French law applied and that French courts had jurisdiction “subject to compliance with European Union law and international treaties ratified or approved by France and without prejudice to recourse to arbitration”[13].
17. Even if its wording could have been firmer and more explicit, the introduction of this new article is to be welcomed since it shows, on the one hand, the legislator’s intention to fight against the legal evasion of retailers, and on the other hand, will necessarily encourage, or at least we can hope, the French courts to go in this direction, and consequently favour the application of French law and the jurisdiction of the French courts as soon as the products are concerned by the French market.
18. In particular, the new article on the application of French law and the jurisdiction of French courts should facilitate the action of the DGCCRF when it implements the provisions of Title IV of Book IV of the French Commercial Code before the French courts against GAFAM or central purchasing offices of large retailers located abroad but purchasing and marketing products on French territory. If we combine the new rules resulting from the “EGalim 3” law with the “Eurelec” case law of the Court of Justice[14], two cases should be distinguished. Either the Minister acts before the French courts and under French law on the basis of the Brussels I bis Regulation simply to request the cessation of practices, the nullity of unfair terms and/or the recovery of undue payments, as a private operator could do, and in this case as a third party to the disputed contracts and exercising an autonomous action of its own with a view to respecting the public interest, under the new text, he will be considered a fortiori as not being bound by the jurisdiction clauses they contain[15]. Or the Minister acts on the basis of his investigative powers and/or to request the imposition of a fine, in which case, in application of the Eurelec judgement, the rules of jurisdiction will not depend on the Brussels I bis Regulation, but only on the public policy rules laid down by the “EGalim 3” law, and in this case his action will be governed without any possible dispute by French law and the French courts, in strict compliance with European law.
4) The framework for penalties imposed for non-performance of contractual commitments
19. The “EGalim 3” law was also an opportunity to refine the system relating to logistics penalties, which have been the subject of much debate and of a certain number of abuses by large retailers. Created by the “EGalim 2” law of 18 October 2021, Article L. 441-17 of the French Commercial Code provides that penalties may be imposed by the distributor on the supplier in the event of non-performance of contractual commitments, while providing for a sufficient margin of error with regard to the volume of deliveries provided for in the contract.
20. Prior to Law No. 2023-221 of 30 March 2023, it was specified that these penalties could not exceed an amount corresponding to a percentage of the purchase price of the products concerned. It is now specified that penalties imposed by the supplier or distributor must be proportionate to the damage suffered in relation to the non-performance of contractual commitments. In addition, a ceiling equivalent to 2% has been included, based on “the value of the products ordered in the product category in which the non-performance of contractual commitments has been established”[16]. Paragraph 3 of Article L. 441-17, I of the French Commercial Code also provides that the distributor may claim penalties from its supplier for non-performance of contractual commitments, but only up to a maximum of one year following the occurrence of the non-performance of contractual commitments. The same option is provided for the supplier in the event of non-performance of contractual commitments by the distributor in Article L. 441-18 of the French Commercial Code, in which the same adjustments were made with the “EGalim 3” law.
21. Wholesalers have also been excluded from this scheme (Article L. 441-17, IV and Article L. 441-18 of the French Commercial Code). Because of their specificity and their dual upstream and downstream relationship in marketing, it would not have been normal for wholesalers to be subject to logistics penalties that they could not recover from their own customers.
22. Article L. 441-19 of the French Commercial Code has also been supplemented by imposing a number of obligations on distributors. Distributors are now obliged to declare each year to the DGCCRF, no later than 31 December, a statement of the amount of logistics penalties imposed, subject to an administrative fine of up to 500,000 euros for a legal entity.[17]
23. Another new feature introduced by the “EGalim 3” law is that Article L. 441-3 of the French Commercial Code relating to the single common law agreement contains a new II bis under which it is specified that the reciprocal obligations in terms of logistics, including penalties, will have to be the subject of a separate document which in practice is already referred to as a “logistics agreement”. It provides that “The reciprocal obligations in terms of logistics to which the supplier and the distributor or service provider commit, in particular the amount of the penalties mentioned in Article L. 441-17 and the methods for determining this amount, shall be the subject of a written agreement, separate from that mentioned in I of this article. The provisions of IV of this article relating to the deadline of 1 March shall not apply to this agreement”, it being specified that the termination or expiry of this agreement shall not result in the automatic termination of the single agreement concluded pursuant to I of Article L. 441-3 of the French Commercial Code. Although this double contractualisation makes negotiations and their formalisation more complex and cumbersome, everything suggests that it was most certainly introduced with the aim of discouraging distributors from providing for excessive logistics penalties against their suppliers, or at least to provide a better framework for them, it being specified that failure to comply with this provision will be sanctioned by Article L. 441-6 of the French Commercial Code, i.e. by an administrative fine of up to 750,000 euros.
II. A better technical framework for certain rules on commercial negotiation
24. In addition to rebalancing trade relations, the aim of the “EGalim 3” law is to reframe certain rules that either had not been sufficiently specified or needed to be reorganised following the “EGalim 1” and “EGalim 2” laws. Thus, the specific regime for wholesalers has been moved to new provisions created within the French Commercial Code (1) and clarifications have been added regarding the consideration of the price of agricultural commodities (2). FMCGs have also been subject to a number of adjustments and new features (3), and a framework for distributors’ margins has also been envisaged for products with quality and origin identification signs (4).
1) Safeguarding the regime applicable to wholesalers
25. With the adoption of Law No. 2023-221 of 30 March 2023, the regime applicable to wholesalers was not only confirmed, but also secured. No changes were made to the regime, only a reorganisation of the provisions was implemented. Previously, the rules and exemptions for wholesalers were scattered throughout various articles of the French Commercial Code. While the regime applicable to wholesalers was set out in Article L. 441-3 of the Commercial Code, the definition of wholesalers was set out in Article L. 441-4, II of the Commercial Code, the non-application to wholesalers of Article L. 441-4 of the Commercial Code (single agreement on FMCGs) was provided for in Article L. 441-4, II of the Commercial Code, and finally the non-application to wholesalers of Article L. 443-8 of the Commercial Code (single agreement specific to foodstuffs and pet food).
26. There are now specific provisions for wholesalers in each of the sections of Title IV of Book IV of the French Commercial Code. Article L. 441 – 1-2 defines wholesalers and clarifies the rules for general terms and conditions of sale applicable to wholesalers, both in their relations with suppliers and in their relations with buyers. I recalls the definition of wholesalers resulting from the law of 6 August 2015 known as the “Macron law”. The use of this definition shows that it is sufficiently robust, that it covers all possible qualifications, in particular by referring to central wholesale purchasing agencies and central wholesale listing agencies, and makes it possible to prevent the concept of wholesaler from being misused by large retailers’ purchasing groups.
27. II of Article L. 441-1-2 of the French Commercial Code reproduces the provisions of Article L. 441-1 by providing in particular for the possibility of concluding specific conditions and special conditions of sale, and by excluding the application of the provisions of Article L. 441-1-1 relating to food and pet food products. An Article L. 441-3-1 on the single agreement applicable to wholesalers has been introduced, and at the same time enshrines the exclusion of wholesalers from the single agreement for consumer products (Article L. 441-4 of the French Commercial Code) and from the single agreement for food and pet food products (Article L. 443-8 of the French Commercial Code).
28. This safeguarding is to be welcomed, as wholesale trade is present in most sectors, whether food, industrial or non-food, and also has a number of specific features which explain why it is subject to some adjustments and exemptions. These specificities are due in particular to the fact that wholesalers have always been considered, both in French and European law, as players in their own right playing an important and specific role in the distribution chain, and to the fact that wholesalers are intermediaries who deal with both upstream and downstream operators, and moreover with operators who may be just as powerful upstream as downstream, and are therefore subject to a situation of double constraints upstream and downstream which should not be aggravated by additional legal constraints.
2) Refocusing on consumer products
29. While the “EGalim 1” law was a more general law, which aimed to review the entire law of commercial negotiation and commercial practices, and the “EGalim 2” law was specific to food, agricultural and pet food products, the “EGalim 3” law aimed to adapt the framework that had initially been given to the FMCGs listed by Decree No. 2019- 1413 of 19 December 2019. For this reason, Law No. 2023-221 of 30 March 2023 limits the new provisions relating to non-compliance with the 1 March date or to the failure of negotiations to FMCGs. This results from Article L. 441-4 of the French Commercial Code, but also and above all from Article L. 441-6 of the French Commercial Code and the new practice incorporated in Article L. 442-1,1, 5° of the same code[18]. Similarly, the “EGalim 3” law has, as explained above[19], extended the framework for promotions in Article 125 of Law No. 2020-1525 of 7 December 2020, known as “ASAP”, to all FMCGs.
30. In general, the legal regime for FMCGs has been made more restrictive, in the same way as the provisions that already existed for food products. The single FMCG agreement will thus have to mention “each of the reciprocal obligations to which the parties have committed at the end of the commercial negotiation and their unit price”[20]. This reference seems to impose an individualised statement of reasons for the agreed obligations and a quantification of the benefit obtained in return. It will make it possible to monitor the existence of possible discriminatory practices, the prohibition of which, previously limited to food products, is extended by Article 4 of the law to all FMCGs. The former prohibition of discriminatory practices between professionals, repealed by the 2008 LME law, reinstated in the meantime for food products by the “EGalim 2” law, and now extended to FMCGs, has thus been given a new lease of life and the abundant case law handed down under the old texts is set to be revived.
3) A few clarifications on the inclusion of agricultural commodity prices
31. The aim of the “EGalim 2” law was in particular to ensure that farmers’ production costs were better taken into account and to allow better compliance with the prices charged by manufacturers. The legislator seems to have taken advantage of the “EGalim 3” law to provide some additional clarifications with the same objective.
32. The transparency mechanism set out in Article L. 441-1-1 of the French Commercial Code has thus been supplemented with regard to the valuation of the share of agricultural commodities in the evolution of industrial prices. From now on, in the event that the supplier opts, during the negotiations, for the intervention of a trusted third party (option no. 3 appearing in 3° of Article L. 441-1-1,1 of the French Commercial Code), it will have to send two certificates proving the share of the evolution of the prices of agricultural commodities or processed products, the first before the conclusion of the contract, and the second after the conclusion of the contract. The supplier will also have to send all the documents needed to draw up the certificates, in particular “the methodology used to determine the impact on its prices of changes in said agricultural commodities or processed products”[21].
33. Beyond this first aspect, the “EGalim 3” law was also an opportunity to specify in Article L. 441-7,1, paragraph 2 of the French Commercial Code relating to products sold under private labels that price negotiations could not cover the share of the price of agricultural commodities and processed products, as was already the case for products other than products sold under private label[22].
4) Control of distributor margins for products with an identification sign
34. A new feature has been included in Article 6 of Law No. 2023-221 of 30 March 2023. This article provides that the Government must submit to Parliament within three months of the promulgation of the “EGalim 3″law, i.e. by 1 July 2023 at the latest, “a report studying the possibility of setting up a framework for distributor margins on products with quality and origin identification signs so that they cannot be higher than the margins on conventional products”, a way for the legislator to protect products with quality and origin identification signs and to enhance the value of these products, while controlling the margins of distributors on these products.
35. In short, these new features and adaptations are bold, and show the real intention of the legislator, which is to facilitate negotiations, while correcting the structural imbalance that persists in the relationship between suppliers and distributors, and while preserving the remuneration of farmers, particularly with regard to consumer products on supermarket shelves. Its application over time could have been subject to specific provisions. Law 2023-221 of 30 March 2023 does not include any transitional provisions, with the exception, however, of the framework for promotions for FMCGs, which does not come into force until 1 March 2024[23], which suggests that it is immediately applicable to all contracts concluded from 1 April 2023.
[1] Law No. 2018-938 of 30 October 2018 for balanced trade relations in the agricultural and food sector and healthy, sustainable food accessible to all.
[2] Law No. 2021-1357 of 18 October 2021 aimed at protecting farmers’ remuneration.
[3] Law No. 2023-221 of 30 March 2023 aimed at strengthening the balance in trade relations between suppliers and distributors, OJ, 31 March 2023, text No. 1; G. Chantepie, “EGALIM 3”: le droit des relations commerciales réformé à tâtons, Dalloz Actualité, 5 and 6 Apr. 2023; M. Picard with M. Cadoux, S. Leboulenger and N. Monier, La loi ” Descrozaille ” divise les professionnels, LSA, 6 Apr. 2023, 6s. ; C. Hovnanian, Quels sont les enjeux des négociations commerciales ? JCP Ed. E, 2023, Echos de la pratique, 330; M. du Gardin and B. Ruy, Loi Egalim 3: protection du fournisseur sous l’égide du politique et de l’administration, LSA, 17 March 2023.
[4] Bill No. 575 aimed at securing the supply of consumer goods to French people.
[5] Bill No. 479 aimed at securing the supply of consumer products to French people and ensuring the future of products made in France.
[6] Article 9, II of Law No. 2023-221 of 30 March 2023.
[7] Article 2, 4° of Law No. 2023-221 of 30 March 2023.
[8] Article 2, 4° of Law No. 2023-221 of 30 March 2023.
[9] Article 7.1, 6° of Law No. 2023-221 of 30 March 2023.
[10] Article 2.1, 3° of Law No. 2023-221 of 30 March 2023.
[11] Article 1 of Law No. 2023-221 of 30 March 2023.
[12] Article 1 of Law No. 2023-221 of 30 March 2023 – Article L. 444-1 of the French Commercial Code.
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[13] Article 1 of Law No. 2023-221 of 30 March 2023 – Article L. 444-1 of the French Commercial Code.
[14] CJEU, 22 Dec. 2022, Case C-98/22, Eurelec Trading SCRL and Scabel SA; Contrats Conc. Consom., March 2023, comm. 43, p. 51, obs. N. Mathey ; Letre dist., Jan. 2023, 8, obs. J.-M. Vertut; JCP Ed. G, 2023, comm. 143, 230, obs. C. Nourissat; Europe, Feb. 2023, com. 90, 39, obs. L. Idot; Rev. Lamy Concurrence, Feb. 2023, 35, obs. M. Combet; Gaz. Pal. 28 Feb. 2023, obs. H. Meur.
[15] For a similar judgement, see Court of Cassation, 1st Civil Division, 6 July 2016, No. 15-21.811 ; Paris, division 1, ch. 1, 15 Sept. 2015, No. 15/07435.
[16] Article 12, 1° of Law No. 2023-221 of 30 March 2023 – Article L. 441-17,1, paragraph 2 of the French Commercial Code
[17] Article 14 of Law No. 2023-221 of 30 March 2023 – Article L. 441-1 of the French Commercial Code.
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[18] See point 1.1. of this article.
[19] See point I, 2. of this article.
[20] Article 3 of Law No. 2023-221 of 30 March 2023 – Article L. 441-4, III of the French Commercial Code.
[21] Article 15 of Law No. 2023-221 of 30 March 2023 – Article L. 441 -1 -1,1,3° of the French Commercial Code.
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[22] Article 16 of Law No. 2023-221 of 30 March 2023 – Article L. 441-7, I, paragraph 2 of the French Commercial Code.
[23] Article 7, II of Law No. 2023-221 of 30 March 2023.
Joseph Vogel, IDI Country Expert for distribution in France
