EU automotive block exemption regulation does not prevail over French rules on abrupt termination

07 September 2016

Thomas Oster

In a decision of July 2016, the French Supreme court (Cour de Cassation) held that the provisions of the EU block exemption regulation on automotive distribution (Commission Regulation (EC) No 1400/2002, hereafter the “EU automotive regulation”) cannot be relied upon by car manufacturers to avoid granting to their French distributors a reasonable termination notice period taking into account the duration of their past commercial relationship, as required by Article L.442-6 I 5° of the French commercial code prohibiting abrupt termination.

In the case at hand, BMW had terminated its distribution contract with a French distributor with a 6 month termination notice period, in accordance with the provisions of the distribution agreement. Article 3 § 5 of the EU automotive regulation provides that automotive distribution agreements are exempted if either (i) the agreement is concluded for a period of at least 5 years and provides for a non-renewal notice period of at least 6 months or (ii) the agreement is concluded for an indefinite period with a termination notice period of at least two years (reduced to one year in case of appropriate compensation or reorganisation of the car manufacturer’s network). BMW had chosen the first option and had sent a non-renewal notice 6 months prior to the expiry of the 5 year term.

The distributor claimed damages on the grounds that the termination notice period should have been longer pursuant to the French rules on abrupt termination given that the distribution relationship with BMW dated back to 1964. BMW claimed that the French rules on abrupt termination calling for a termination notice period of more than 6 months for a 5 year term contract are incompatible with the EU automotive regulation and that the latter should prevail. The French Supreme Court rejected this argument, indicating that the EU automotive regulation merely sets out the requirements which, if met, lead to an exemption under Article 101 of the Treaty on the Functioning of the European Union but does not impose any obligation directly affecting the content of the agreement. The French Supreme Court points out that the EU automotive Regulation provides that the non-renewal period must be of “at least” 6 months and that it does not prevent EU Member States from adopting specific national provisions extending the duration of the non-renewal notice period.

Car manufacturers must therefore be aware that the termination or non-renewal clauses contained in their distribution agreements can be held unenforceable vis-à-vis French distributors, even if such clauses comply with the EU automotive regulation.

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