Drop in orders and delisting: partial termination of commercial relationships

A large-scale retailer (grande distribution) or an industrial ordering party cuts its volumes by half in three months, stops listing a range, or spaces out its orders without ever sending a termination letter. Officially, the relationship continues. In practice, the supplier's turnover collapses. Many SMEs absorb the blow in silence, convinced that, in the absence of a formal termination, no remedy exists. That is wrong. French law penalises the sudden termination of an established commercial relationship even where it is only partial. This article explains how a drop in orders can engage the ordering party's liability, how to recognise it, how to prove it and how to obtain compensation.

Partial termination: a notion that many suppliers overlook

The basis of the litigation is Article L. 442-1, II of the French Commercial Code, resulting from Ordinance No. 2019-359 of 24 April 2019, which recast Title IV of Book IV of the French Commercial Code. That provision took over, under a new number, the former Article L. 442-6, I, 5°.

"Any person carrying on production, distribution or service activities who suddenly terminates, even partially, an established commercial relationship, without written notice that takes into account the duration of the commercial relationship and complies with the minimum notice period determined, by reference to trade practice, by inter-trade agreements, incurs liability and must compensate the loss caused."

Two words carry most of the supplier's protection: "even partially". The legislature expressly contemplated the situation where the partner does not cut the link but empties it of substance. The Commercial Chamber of the Cour de cassation has long applied this provision to significant drops in volume that were not announced and not justified by a legitimate cause. The general regime of sudden termination of established commercial relationships, from its conditions to compensation, is set out in our article on Article L. 442-1.

In other words, a partial termination of a commercial relationship requires neither a written termination nor an end to deliveries. It is characterised by a sudden and substantial reduction in the flow of business, imposed without sufficient notice. The ordering party that thought it could avoid all risk by letting the relationship "fade away" rather than ending it head-on is mistaken: the law looks at economic reality, not at the legal label.

What partial termination is not

Two frequent confusions must be set aside at the outset. Partial termination is not a mere cyclical decline linked to the market: if final demand falls for all suppliers in a sector, the reduction in orders cannot be attributed to a unilateral decision of the ordering party. Nor is it the consequence of a breach by the supplier: repeated quality defects, late deliveries or a serious failure to perform the contract justify a reduction, or even an immediate termination without notice.

The partial termination that is penalised is one that results from a discretionary choice of the partner, sharply reducing the flow of business, without any reason drawn from the supplier's conduct and without a reasonable period of adaptation.

How to recognise a drop in orders that qualifies as sudden termination

The practical difficulty is real: not every variation in orders gives rise to compensation. A commercial relationship has its ups and downs, volumes fluctuate, and a customer may reduce its purchases without committing a fault. Characterising a drop in orders as sudden termination requires several criteria to be met, which the courts assess in concrete terms.

An established commercial relationship

First criterion: the relationship must be established, that is, continuing, stable and regular, with sufficient intensity for the supplier to have legitimately expected a degree of continuity. A succession of unconnected one-off contracts is not enough. By contrast, a series of regular orders over several years, even without a written framework agreement, characterises an established relationship. The case law accepts that a mere regular flow of business, without any written agreement, may constitute an established relationship provided it is sufficiently long-standing and stable.

A point that is often overlooked: an established relationship is assessed as a whole, including where the counterparty has changed corporate form or where the flow of business has been transferred on a sale of a business (cession de fonds) or a restructuring.

A significant drop and not a mere easing

Second criterion: the reduction must be substantial. A marginal drop in volumes does not characterise a partial termination. The courts look for a clear reduction that upsets the economic balance of the relationship. There is no statutory numerical threshold, but the analysis looks at the scale of the fall measured against the usual turnover achieved with that partner, at its suddenness and at its lasting character.

A drop may also result from a partial delisting: the distributor stops ordering a product family, removes a range from its shelves or concentrates its purchases on a competitor. The supplier continues to deliver other items, but its flow of business collapses in the delisted segment.

Abruptness, that is, the absence of sufficient notice

Third criterion, the most important: the abruptness. It is not the drop in itself that is wrongful, but its abrupt character, in other words the absence of written notice allowing the supplier to reorganise, find other outlets and adapt its production capacity or workforce. An ordering party may perfectly well reduce or stop its orders; it must simply announce this early enough and in writing.

The length of reasonable notice depends mainly on the length of the relationship, but also on the supplier's state of economic dependence, the specificity of the products, dedicated investments and the difficulty of finding equivalent outlets. The longer the relationship and the more dependent the supplier, the longer the notice must be. On the reading of the criteria used to assess these factors, see our analysis of the calculation of the sufficient notice period.

The 2019 Ordinance introduced a protective ceiling for the party that terminates: its liability cannot be engaged for insufficient notice provided it gave eighteen months' notice. This ceiling sets an upper limit, but it does not mean that eighteen months are always due: in most relationships, reasonable notice is well below that.

Large-scale retail: partial delisting as a negotiating weapon

The large-scale retail sector accounts for a significant share of this litigation, because of the structural imbalance of power between purchasing groups and suppliers. The threat of supplier delisting, total or partial, operates there as a lever in the annual price negotiations.

The concrete mechanism

Take an agri-food SME that has supplied several items to a retail chain for about ten years. In the commercial negotiations, the chain demands a price reduction that the supplier refuses. In retaliation, the purchasing group stops ordering two of the five items, gradually removes the products from regional ranges and reduces the volumes of the items it keeps. No termination letter is sent. The supplier nonetheless sees its turnover with the chain melt away within a few months.

This configuration perfectly illustrates partial termination. The delisting of certain items, combined with the reduction of volumes on the others, amounts to a substantial and sudden reduction in the flow of business. If it occurs without written notice appropriate to the length of the relationship, it engages the chain's liability under Article L. 442-1, II.

The interplay with restrictive competition practices

Delisting raises an additional issue in large-scale retail: it may be combined with other prohibited practices, in particular attempting to obtain an advantage without consideration or imposing a significant imbalance, which are also penalised by Article L. 442-1 of the French Commercial Code. Where delisting is brandished to force the supplier to accept an unjustified price condition, the supplier may rely on several complementary grounds.

A distinction must nevertheless be drawn between lawful delisting and sudden delisting. A distributor remains free in its choice of range: it may decide to stop listing a product. What is penalised is not the commercial decision, but its implementation without notice where it forms part of an established relationship. A chain that wishes to discontinue a range must therefore notify its decision in writing and allow the supplier a period of adaptation proportionate to the length of the flow of business.

Industrial subcontracting: the gradual reduction of volumes

The second main area for partial termination is subcontracting, in particular in the automotive, aerospace, metalworking and electronics sectors. The relationship of dependence is often even more marked there than in distribution, because the subcontractor has frequently invested in tooling, lines or skills dedicated to a single ordering party.

Economic dependence aggravates the loss

Take the case of a precision machining subcontractor that has made a preponderant share of its business with a single ordering party for many years. The ordering party decides to move part of its production to a foreign site or to a lower-priced competitor. It does not end the relationship: it continues to place a few residual orders, but divides the volumes by two or three over a short period.

In that situation, the subcontractor's economic dependence is an aggravating factor. It lengthens the reasonable notice period, because the supplier, structurally tied to that customer, cannot quickly find substitute outlets. The specific investments made for that ordering party, dedicated machines, certifications and recruitment, reinforce further the requirement of notice and feed into the assessment of the loss.

The trap of "order by order" relationships

Industrial ordering parties often invoke the absence of a framework agreement and the logic of open orders to dispute the existence of an established relationship. The argument is regularly rejected: a regular succession of orders, even without any contractual commitment on volume, characterises an established commercial relationship provided it shows sufficient stability and intensity. A subcontractor that has delivered every month for years, on the basis of forecasts supplied by the ordering party, enjoys the statutory protection, regardless of whether there is a written document fixing the volumes.

What the supplier must prove

Characterising a partial termination rests on precise evidential work. The supplier that brings the claim bears the burden of demonstrating the reality of the established relationship and the abruptness of the drop. Several elements must be assembled and documented.

• The length and regularity of the relationship: order history, invoices, delivery notes, commercial exchanges over several financial years.
• The numerical evolution of the flow of business: a table setting out the turnover achieved with the partner, month by month or financial year by financial year, showing the break in trend.
• The absence of written notice: a demonstration that the drop was not preceded by a formal notification allowing a period of adaptation.
• The absence of a legitimate cause: the absence of any breach by the supplier (quality, deadlines, price) capable of justifying the reduction.

Building a table of the evolution of turnover by item and by financial year is decisive: it shows visually the tipping point and the scale of the fall. Email exchanges in which the ordering party announces, even orally and then confirms, its decision to reduce are also valuable in establishing the unilateral and non-cyclical nature of the drop.

The exonerating causes invoked by the ordering party

The defendant has several classic defences. It may invoke an external cause: a general market decline, a fall in final demand, force majeure. It may invoke a fault of the supplier: recurring quality defects, delays, failures to perform. Finally, it may dispute the established nature of the relationship or the substantial scale of the drop.

The economic climate is the most frequent argument. It is admissible only if the drop is genuinely suffered and not chosen: an ordering party facing a collapse of its own outlets may legitimately pass that drop on to its suppliers, provided it does not discriminatorily shift orders to other partners. Conversely, if the ordering party cuts back one supplier in order to favour another, the economic climate does not exonerate it.

Compensation: how the loss is calculated

The compensation principle is specific to this litigation. The compensable loss is not the total loss of the flow of business: it is the loss of margin suffered during the notice period that should have been observed. In other words, what is compensated is not the end of the relationship in itself, but the absence of sufficient notice.

The calculation adopted by the courts consists, in practice, of assessing the margin on variable costs that the supplier would have earned during the missing notice period, applied to the portion of the flow of business that was removed. The margin on variable costs (marge sur coûts variables), and not gross margin or turnover, is the usual reference, because it reflects the net gain lost, once the costs that would have disappeared with the drop in activity have been deducted. The distinction between gross margin and margin on variable costs, and the justification of each term of the calculation, are set out in our article on quantifying the loss caused by sudden termination.

To this principal loss may be added ancillary losses where they are demonstrated: reorganisation costs, redundancies made necessary, unamortised dedicated investments, specific stock that has become unsaleable. Each of these items must be precisely justified.

The competent court

Litigation on sudden termination falls within specialised courts. A limited number of commercial courts (tribunaux de commerce) have jurisdiction at first instance, and the Paris Court of Appeal has exclusive jurisdiction to hear appeals in this field. This centralisation aims to unify the case law on technical and sensitive questions. The supplier must take care to bring the claim before the competent specialised court, failing which it will be inadmissible.

How to react to a suspicious drop in orders

The worst reaction for a supplier is passive waiting. The longer it delays, the weaker the demonstration of abruptness becomes, because a drop endured without reaction for a long time may be interpreted as an accepted development of the relationship. Several reflexes are needed from the first signs.

First, document in real time. As soon as an abnormal drop is noticed, the order history must be consolidated, the earlier volumes fixed and all exchanges retained. This body of evidence will be decisive.

Next, write to the partner. A letter asking for the reasons for the drop and seeking confirmation of the ordering party's intentions serves two functions: it fixes the date on which the supplier became aware of the termination, and it forces the partner to take a position, often in writing, which feeds the case.

Finally, do not confuse a drop with a definitive termination. As long as the relationship subsists, negotiation remains possible, including to obtain notice, compensation or a negotiated exit. A formal notice (mise en demeure), and then if necessary legal proceedings, should be started only once the strategy is settled and the loss assessed.

One last point of vigilance concerns limitation. An action in liability for sudden termination is time-barred under the ordinary limitation period applicable to commercial actions, running from the manifestation of the damage. In the case of partial termination, the starting point is delicate because the drop is sometimes spread over time. It is prudent not to let years pass after the first observation of the fall.

Conclusion

Partial termination is the blind spot of supplier relationships. Many SMEs believe that, in the absence of a termination letter, they have no remedy against a customer that halves its orders or delists a range overnight. The law says exactly the opposite: Article L. 442-1, II of the French Commercial Code penalises the sudden termination, even if partial, of an established relationship, and large-scale retail and industrial subcontracting are the fields where these situations arise most often.

The message for a supplier is clear: a sudden and substantial drop in orders, not announced in writing and not justified by the economic climate or by a breach by the supplier, gives rise to compensation, calculated on the margin lost during the notice that should have been observed. The ordering party does not escape liability by avoiding a formal termination: it is economic reality that counts.

The decisive reflex fits in one sentence: from the first abnormal drop, build your body of evidence without delay, a numerical table of the evolution of the flow of business by item and by financial year, and write to your partner to date and document the termination. Have this situation analysed by a French lawyer experienced in litigation on restrictive practices before limitation or inaction weakens your rights.

Frequently asked questions

Can a drop in orders without a termination letter be penalised?

Yes. Article L. 442-1, II of the French Commercial Code expressly refers to the termination, "even partially", of an established commercial relationship. A sudden and substantial reduction in the flow of business, without written notice appropriate to the length of the relationship, engages the ordering party's liability, regardless of any termination letter. It is the economic reality of the drop that is assessed, not its formality.

At what percentage does a drop in orders become a partial termination?

There is no statutory numerical threshold. The courts assess in concrete terms whether the drop is substantial in light of the usual turnover achieved with the partner, its suddenness and its duration. A reduction that upsets the economic balance of the relationship and is not justified by the economic climate or by a breach by the supplier may be characterised as a partial termination, whatever the exact percentage.

What notice period must an ordering party observe?

The length of reasonable notice depends above all on the length of the relationship, but also on the supplier's economic dependence, the specificity of the products and dedicated investments. The longer the relationship and the more dependent the supplier, the longer the notice must be. Since Ordinance No. 2019-359 of 24 April 2019, the liability of the terminating party cannot be engaged for insufficient notice if it gave eighteen months' notice, which is the statutory ceiling.

Is the delisting of a range by a distributor always wrongful?

No. A distributor remains free in its choice of range and may decide to stop listing a product. What is penalised is not the commercial decision itself, but its implementation without written notice where it forms part of an established relationship. The chain must notify its decision and allow a period of adaptation proportionate to the length of the flow of business.

How is compensation calculated in the case of partial termination?

The compensable loss is not the total loss of turnover, but the loss of margin suffered during the notice period that should have been observed. The courts generally use the lost margin on variable costs, applied to the portion of the flow of business that was removed. Justified ancillary losses (unamortised dedicated investments, reorganisation, specific stock) may be added.

Is a relationship without a written contract protected?

Yes. Protection does not require a framework agreement. A regular succession of orders, even without any written commitment on volume, characterises an established commercial relationship provided it shows sufficient stability and intensity over time. A subcontractor that has delivered regularly for several years, on the basis of forecasts supplied by the ordering party, enjoys the statutory protection.

Which court should be seised of a claim for sudden termination?

The litigation falls within specialised courts. Only a limited number of commercial courts have jurisdiction at first instance, and the Paris Court of Appeal has exclusive jurisdiction over appeals in matters of restrictive competition practices. Bringing the claim before a non-specialised court exposes it to inadmissibility, so jurisdiction must be checked before acting.