Franchisor Ordered to Compensate Franchisee for Non-Renewal of
a Franchise Agreement
12 September 2008
A French court ruling which ordered a franchisor
to compensate the franchisee, where the franchisor did not renew
the franchise agreement, could have serious ramifications for
franchisors in France and those considering franchising there.
The French Supreme Court (Cour de
cassation) held that a franchisor (Telecom company SFR) which
did not renew a franchise agreement was obliged to compensate the
franchisee for the loss of the franchisee’s customer base.
This decision builds upon a previous ruling by the
Supreme Court, which ruled that a franchisor owns the national
customer base, while the franchisee owns the local customer base.
Both rulings serve to highlight a contradiction between the
traditional view of the franchise relationship and how the French
courts have applied French law.
French law views franchisees as independent
businesses who therefore must have their own customer base. If they
did not, they would have no “fonds de commerce” and inter
alia, could not benefit from the protective rules of commercial
leases. However, such a rationale is clearly at odds with the idea
that customers are customers of the brand (and therefore the
franchisor) and not the local business, a concept that
post-termination restrictions in franchise agreements seek to
protect.
The French courts have taken the approach that
post-termination restrictions can deprive a franchisee of its local
customer base. The fact that this ruling has not been retained for
publication in the Bulletin of the Supreme Court indicates that the
Supreme Court does not want to draw attention to it. However, some
commentators are construing the ruling as potentially signalling a
major change in direction in the way French courts view franchising
and distribution agreements.
Franchisors will therefore need to carefully
consider the drafting of their renewal and post-termination
provisions when granting franchise rights in France.
For more information please contact Mark Abell, Chris Wormald, Babette Marzheuser-Wood or Mario Celaya.