Breach of a brutal distribution contract
The ruling handed down by the French Supreme Court, Commercial Division, on April 13, 2023 (Appeal no. 22-13.666) concerns a dispute between M Motors Automobiles France (MMAF) and SWA, concerning a claim for compensation for loss of opportunity due to the termination of contractual relations between the two parties.
Compensation claimed for loss of opportunity to generate gross operating profit
Mitsubishi automobile distribution
MMAF distributes Mitsubishi vehicles in France via a network of authorized distributors.
A letter of intent signed in October 2015 between MMAF and SWA indicated an agreement on the representation of the Mitsubishi brand by SWA.
In August 2016, MMAF informed SWA that it no longer wished to proceed with its application due to significant delays.
SWA then took MMAF to court, claiming damages for the brutal termination of commercial relations, citing in particular a loss of opportunity to achieve gross operating profit.
Decision of the Metz Court of Appeal
The Court of Appeal ordered MMAF to pay SWA 138,800 euros for loss of opportunity to generate EBITDA.
This sum was based on an estimate of the contract’s three-year performance period, taking into account a two-year notice period and a one-year observation period before any potential termination.
Cour de cassation ruling: the principle of full compensation for damages
The Cour de cassation partially quashed the decision of the Court of Appeal on the following grounds:
“The Court’s response
Having regard to Article 1149 of the Civil Code, in its wording prior to that resulting from Order no. 2016-131 of February 10, 2016, and the principle of full reparation for loss :
6. Under the terms of this article, the damages due to the creditor are, in general, the loss he has made and the gain of which he has been deprived.
7. In condemning MMAF to pay SWA the sum of 138,800 euros for the loss of opportunity to achieve gross operating profit, the court held that the loss of opportunity could not be proven over just two years, since the contractual notice period was two years, and that at least one year of observation was necessary before the distributor could decide to terminate the contract on the grounds of the concessionaire’s poor results.
8. In so ruling, the Court of Appeal, which awarded SWA compensation on the basis of an erroneously established duration, violated the aforementioned text and principle.”
1. Violation of the principle of full compensation
The French Supreme Court has reiterated the principle that damages must correspond to the loss suffered, without exceeding the amount of the actual loss. In this case, the Court of Appeal had based its estimate on a three-year period, which exceeded the contractual notice period of 24 months.
The Cour de cassation ruled that this period was erroneous, and that it awarded SWA compensation in excess of what the contract allowed, thus violating the principle of full compensation.
2. Loss of opportunity
The Cour de cassation ruled that the compensation awarded should be recalculated, as it was based on an inappropriate contractual duration.
Conclusion
The Cour de cassation annulled the compensation of 138,800 euros awarded to SWA for loss of opportunity and referred the case back to the Nancy Court of Appeal for a reassessment of this compensation on the basis of correct criteria. It also ordered SWA to pay the costs and rejected its claim for compensation under article 700 of the French Code of Civil Procedure.
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