The MSA is the perfect example of an industrial partnership between two companies, whose continuity and stability are essential issues for both partners.

It may involve the installation of dedicated production lines and making costly investments for the subcontractor. It can also depend on regulatory approvals obtained after several months, which represent a significant challenge for the subcontractor’s turnover. The termination or transfer of this contract, with its substantial economic and industrial implications, is inevitably a complex matter, one that the parties cannot overlook when signing the contract.

This raises the question of how best to manage the duration, termination and transfer of these contracts legally, precisely in relation to the economic and industrial context in which the parties operate.

In practice, over and above the purely legal issues linked to the drafting of contractual clauses, there are the unavoidable questions of how to take account of contextual factors and the role of the judge, who can sometimes sanction a breach of contract, in French law as in other jurisdictions, even if the contractual clauses have been respected.

Similarly, the question of transferring the MSA raises issues that need to be anticipated. It sometimes happens that the client decides to transfer its products one by one, instead of considering a global transfer of the product portfolio, which can cause the subcontractor enormous problems in reorganizing its manufacturing process.

It also happens that one of the two parties to a subcontract manufacturing contract is bought out by a competitor of the other party, which poses obvious strategic problems.

In this situation, the best approach is of course to anticipate issues of contract termination and transfer, and to understand the associated risks, so as to be able to manage these issues while avoiding any risk of litigation.

Here are a few tips based on current practice, but also taking into account the evolution of case law on these issues.

The first thing to do when these questions arise, and your sales team pulls out the contract to read it before giving notice of termination, is to check the applicable law.

The question of applicable law is often (mistakenly) raised at the very end of contract negotiations, but it is essential to determine which law will govern the contract in the event of a breach.