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Wednesday, February 12, 2014Regulation

The contract in business relations

© L'Observatoire des Cosmétiques

Regulation 1223/2009 introduced the notion of Responsible Person, with several types of obligations at stake. A provision that accentuates the contractualization of commercial relations between all players in the cosmetics industry, the contract in business relations appearing in this context as a safe and mandatory legal tool. Lighting with Cyril Chauvin, Lawyer at the Court.

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EC Regulation 1223/2009 defines the concept of"responsible person". of a cosmetic product such as the one that must guarantee its conformity and safety. Several obligations established by this Regulation have been imposed on it to strengthen the quality of production and consumer protection.

The notion of"responsible person"

The"responsible person" therefore has a major role in the possible risks generated by the marketing of a cosmetic product in the European Community. This specific role has been assigned by the Community Regulation: - the manufacturer who markets the cosmetic product directly in the European Community under his name or trademark; - the first importer of the cosmetic product who markets it under the name or trademark of a manufacturer located outside the European Community; - the distributor of the cosmetic product (who is neither a manufacturer nor an importer) who places it for the first time on the market of the European Community, under its name or trademark ; - distributors (who are neither manufacturers nor importers) who modify a cosmetic product already placed on the market in such a way that its compliance with the applicable requirements is likely to be affected.

The emphasis on these safety risks, the emergence of new"responsible person" obligations and the growing power of control of the competent authorities at national and European level have accentuated the contractualisation of commercial relations between all the players in the cosmetics industry. The role of the contract makes it possible to limit as far as possible the liability of each of these players, whether they are manufacturers, importers, distributors, suppliers, subcontractors or safety evaluators.

The emergence of the contractualization of commercial relations

The Community Regulation requires a manufacturer established outside the Community who has a cosmetic product manufactured in the European Community to conclude a mandate contract with a person established in the Community in order to transfer to that person the role of responsible person and the related obligations.

This mandatory contractualization is not without consequences for the entire supply chain of cosmetic products and other players in this industrial sector.

The Community Regulation also provides for an option for manufacturers or first importers of a cosmetic product established in the European Community to mandate a third party to transfer the role of responsible person to that person. In practice, this open possibility of contractualising commercial relations applies according to the size of the manufacturer's or first importer's company, its financial strength and its technical knowledge of the cosmetic product.

The Community Regulation does not specify whether or not the distributor who is the responsible person may transfer this responsibility to a third party established in the Community. In the absence of precision in this respect and in view of the distributor's new obligations provided for in the Regulation (Article 6: due diligence in verifying the proper labelling, power to suspend the placing on the market, withdrawal or recall of products in the absence of necessary corrective measures, obligation to cooperate in the event of a health risk with the person responsible and the competent national authorities of the Member States, responsibility for storage or transport), we can reasonably consider that this transfer of responsibility is not prohibited to them provided that the mandate is in writing, precise and in conformity with the law.

In addition, the Safety Assessor is specifically designated as responsible for Part B of Schedule 1 Regulations (Section 10). This imposes on the assessor the obligation (of means) to establish a conclusion of the assessment, label warnings and instructions for use and explanations of the scientific reasoning leading to the conclusion of the assessment. Thus, before a cosmetic product is placed on the market, the person responsible must ensure that the safety of the cosmetic product is assessed on the basis of the appropriate information and that a report on the safety of the cosmetic product is drawn up in accordance with this Annex I. Mandates to transfer the status of"responsible person" to him could legitimately be proposed in order to entrust him also with certain (performance) obligations laid down in Part A of Annex I to the Regulation: quantitative and qualitative formulation of the cosmetic product, physical/chemical characteristics and stability of the cosmetic product, microbiological quality, impurities, traces and information concerning the packaging material, normal and reasonably foreseeable use of the product and the toxicological profile of the substances…

Finally, the Regulation makes the standard EN NF ISO 22716, describing Cosmetic Good Manufacturing Practices ("GMP") indispensable in order to prove the conformity of products with the objectives of Article 1 of the Regulation (the proper functioning of the European internal market and a high level of human health protection). However, article 12.1 of this standard requires"that a written contract or agreement be established, mutually confirmed and controlled between the principal and the subcontractor". Thus, commercial relations between the principal and his subcontractor must be contractualized.

The mandate transferring the capacity of"responsible person" to an agent

The authorised representative must agree in writing to become the"person responsible" for the conformity and safety of the cosmetic product manufactured by a third party. The obligations of the agent must therefore be clearly described in the body of the contract or in its annexes in order to avoid any uncertainty as to the scope of the agent's commitment. It is therefore crucial to ensure that this mandate reflects the free and informed consent of the mandatary and sets out all the obligations that the mandatary undertakes to respect.

It is also strongly discouraged to include in the mandate a standard clause stating that"the agent agrees to become the person responsible on behalf of the principal for the marketing of all the products that the latter manufactures or will manufacture during the year". This standard clause could be annulled by a judge in the event of a dispute brought before him.

It is therefore appropriate to provide in the mandate that the authorised representative acknowledges having read all the articles of the Community Regulation annexed to the contract and that it is in full knowledge of the facts that he accepts to assume all the obligations of the person responsible provided for by this Regulation for a precise duration and precisely defined products.

The mandate must also take into account any shortcomings of the authorised representative in his task and in particular cases of non-compliance detected and notified which must be the subject of prompt corrective measures: compliance by the manufacturer, withdrawal or recall of a product by the manufacturer and/or his distributor (Article 25 of the Regulation). In this case, the mandate contract should be adapted according to whether the authorised representative is an economic operator involved in the marketing of the products and having direct access to the products placed on the market by the manufacturer. Otherwise, it would be difficult to hold the agent fully responsible for this non-compliance and the related sanctions.

Provisions should also be made for the termination of the mandate, the remuneration of the agent, the applicable law and the competent courts in the event of disputes.

The quest for a necessary contractual balance

The cosmetic product's safety mission is in fact the essential obligation of the manufacturer or importer of the cosmetic product. Transferring this essential obligation to a third party by written mandate could possibly be invalidated by a judge if it is established that the contract is unbalanced insofar as the principal has tried, by means of this contract, to impose its rules on its agent and to exonerate itself from any liability in the event of litigation.

Thus, when drafting the mandate, it should be ensured that the particularities of each relationship and each contractor are taken into account and that each party undertakes to sign the mandate in full knowledge of the facts. The principal must therefore first ensure that his contracting partner has the necessary skills and experience adapted to such a transfer of responsibility. Conversely, the agent could plan to limit the scope of the transfer of responsibility to specific tasks not presenting major difficulties and in particular those relating to: - Cosmetic Good Manufacturing Practices (GMP); - product notifications (Article 13); - the prohibition of substances classified as CMR (Article 15); - notification of nanomaterials (Article 16), - the prohibition of animal testing (Article 18); - labelling rules (Article 19).

For more delicate tasks, it is recommended to include in the contract a procedure for the transmission of information and to specify that the authorised representative will assume his task only on the information supplied to him by a specific person (the manufacturer, his subcontractor, the importer in Europe).

This limitation is all the more important as the authorised representative could in practice have real difficulties in carrying out his task concerning the assessment of product safety (Article 10 of the Regulation), the constitution and conservation of the product information file (Article 11) or obligations in the fields of prohibited and restricted substances (Article 14) or traces of prohibited substances tolerated as appropriate (Article 17). All these obligations require precise data on a cosmetic product.

As the person responsible, the representative must therefore ensure that this information and data are communicated to him precisely and within strict deadlines, failing which he will be held liable. In practice, however, raw material suppliers, subcontractors or manufacturers established outside the European Community consider certain data or information to be sensitive and confidential. In so doing, they refuse or delay transmitting them to persons with whom they have no direct contractual or economic ties.

The inclusion of a procedure for the transmission of information to the responsible person in the written mandate provided for by the Community Regulation will then encourage the principal on whom the role of responsible person initially rests (manufacturer, importer or distributor) to conclude a contract with suppliers of raw materials and ingredients aimed at obliging the latter to provide all the necessary information to the information file within strict deadlines or risk being imposed penalties or the payment of damages.

Similarly, the application of the standard EN NF ISO 22716, describing Cosmetic Good Manufacturing Practices ("GMP"), requiring the conclusion of a written contract between the principal and the subcontractor for the manufacture of a cosmetic product (content and packaging) will also enable the principal manufacturer to compel his subcontractor to provide all the information necessary for the information file.

In order to balance this obligation of communication, it is necessary to reassure the subcontractor (or the raw materials supplier) by inserting in the contract a clause of confidentiality of their data so that they are transmitted only to defined persons and within a precise framework (constitution of the information file, requests from the competent authorities).

In addition, the authorised representative will have to define precisely the scope of his mission with regard to claims concerning the product placed on the market by the manufacturer (Article 20). The person responsible is in principle solely responsible for these allegations. However, their use is a delicate exercise oscillating between a strict respect for truth and a certain linguistic-commercial emphasis. It is therefore advisable, in order to balance the responsibilities, for the authorised representative to confine his task to a purely advisory role towards the manufacturer rather than a total assumption of responsibility in this area which will have the effect of increasing his caution to the detriment of the commercial interests of the manufacturer or importer. Thus, the manufacturer wishing to take more risks will accept to relieve his authorised representative of any responsibility for this mission and to entrust him with an advisory role.

As regards the safety assessment of the product, as an authorised representative subject to an obligation of result under Part A of Annex I, the assessor will have every interest in imposing on the manufacturer, the first importer or the distributor certain contractual guarantees relating in particular to the transfer of information essential to his mission, the limited duration of the results of his analyses and the lapse of the results in the event of any subsequent change to the product. It would also be advisable for the evaluator to define in the mandate contract his obligations relating to Annex I, Part B, as obligations of means and not of result.

Concerning the usual changes in the cosmetics sector

In France, most players in the cosmetics industry are not used to systematically drafting a contract. However, since 11 July 2013, the date of full application of the Community Regulation, a simple exchange of invoices between the manufacturer (or the first importer in the European Community) is no longer sufficient, because it does not allow each party to know its mission, its reciprocal commitments and their limits.

Only the drafting of a precisely drafted contract will in future ensure security and balance in commercial relations between the players. This contractualisation is all the more necessary when the person who places a cosmetic product on the market has no specific knowledge of cosmetic products and usually confines himself to checking that the labelling is in French. The implementation of such a contract could then require the person responsible to intervene alongside him in the event of a dispute or control by the competent authorities.


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