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Summary

  • Precontractual information: the franchisee has to demonstrate that his consent was vitiated
  • Assessment of the duration of notice in the case of termination of a commercial relationship between several companies of the same group on the one hand and a third party on the other hand
  • The Cour de Cassation confirms that claims for damages for abrupt termination of an established business relationship can be settled by arbitration even when the dispute is domestic as opposed to international
  • Mediation procedure for consumer disputes: the list of referenced mediators is soon to be published

Precontractual information: the franchisee has to demonstrate that his consent was vitiated

Cass. Com., 15 September, 2015, n°14-15052

Pursuant to articles L.330-3 and R.330-1 of the French Commercial Code, the franchisor must, at least twenty days before entering into the franchise agreement or receiving the payment of any amount of money, provide the future franchisee with a pre-contract disclosure document containing information that is complete, true and accurate, allowing the latter to commit himself in full knowledge of the facts.

In a case recently ruled on by the Cour de Cassation, the parties had in May 2007 entered into a franchise agreement under which the franchisor had granted the franchisee the right to operate a restaurant under the brand “La Casa”.

Due to unpaid franchise fees, the franchisor terminated the agreement and brought legal action against the franchisee, holding the latter solely responsible. Unsurprisingly, the franchisee made a counterclaim in seeking the nullity of the agreement for vitiated consent.

He accused the franchisor notably of not having updated the pre-contract disclosure document that had been provided to him more than a year prior to conclusion of the agreement and based its argumentation mainly on the opening, subsequent to the execution of the agreement, of a competitor’s point of  sale in the catchment area, without him being informed.

The Court of Appeal and then the Cour de Cassation dismissed the claims of the franchisee.

The Cour de Cassation indeed noted that the franchisor had provided an additional document on the state of the local market, three months after the pre-contract disclosure document had been provided (and 9 months before signature of the agreement), which mentioned the attractiveness of the area for restaurant chains and the ultimate risk of market saturation.

Besides, the franchisor could not be accused of having deceived the franchisee in not pointing out to him before signature of the agreement, an event which occurred subsequent to said signature.

Finally, the Cour de Cassation noted that the franchisee did not specify which information (other than that relating to the opening of a competing restaurant) would have had to be updated, a lack of which had allegedly vitiated his consent.

This case highlights that it is up to the franchisee who alleges vitiated consent to be able to provide evidence of the same.

It does however raise the important point of the date of submission of the pre-contract disclosure document. When it is provided a considerable length of time before signature of the agreement, it is wise to update it shortly before (but at least 20 days before) signature of the agreement, if recent developments make it necessary.

Assessment of the duration of notice in the case of termination of a commercial relationship between several companies of the same group on the one hand and a third party on the other hand

Cass. Com., 6 October, 2015, n°14-19499

The Cour de Cassation underlined, in a decision dated 6 October, 2015, the importance of the principle of corporate autonomy as far as abrupt termination of established commercial relations is concerned.

In that case, two companies belonging to the Toyota group in turn terminated, without notice, the business relationship they had with the same supplier.

The latter brought legal action against the two companies, requesting damages for the harm suffered on the ground of the abrupt termination of an established commercial relationship.

After having noted that the two companies had “concomitantly, developed commercial relationships” with their supplier, then had “terminated them under identical conditions (…) without any notice and that they justified their terminations using similar reasons”, the Court of Appeal accepted that the consequences of these terminations on the supplier had necessarily been increased in so far as they are cumulative.

In this context, the Court of Appeal ruled that a notice period of one year should have been granted to the supplier and took into account the overall  turnover  generated  by  the two companies to the extent that they had maintained a “commercial relationship with the supplier over a same period, for identical products, with similar requirements in quantitative terms”.

The Cour de Cassation quashed the appeal decision by recalling that these two companies were indeed part of a same group but remained two autonomous companies which had maintained distinct commercial relationships with the supplier and that it had not been proved that they had acted in concert.

This last element is decisive: in order to take into account the overall turnover achieved with the companies of the same group, which may have an impact on the length of the notice period, it still needs to be demonstrated that the two companies acted in concert. Perhaps the second Court of Appeal to which the case will now be referred will consider that such was the case here.

The Cour de Cassation confirms that claims for damages for abrupt termination of an established business relationship can be settled by arbitration even when the dispute is domestic as opposed to international

Cass. Civ. 1st, 21 October 2015, No. 14-25080

The decision rendered by the Cour de Cassation on 21 October 2015 is about the possibility to submit a dispute relating to the abrupt termination of an established commercial relationship to arbitration.

In the case at hand, two companies, which were partners since 1993, had formalized their commercial relationship by a contract for the manufacture of private label products. The contract contained an arbitration clause for all “disputes that  may arise as to the validity, the interpretation, the execution, the breach, the interruption or termination of this contract.”

Subsequent to the partial delisting by the manufacturer, the latter initiated an arbitration procedure on the basis of the abrupt termination of an established commercial relationship.

The arbitral tribunal accepted jurisdiction to hear the request and sentenced the party responsible for the breach to compensate the victim of the abrupt termination

The distributor subsequently initiated an action to have the sentence annulled, but it was rejected by the Court of Appeal of Paris which considered that the arbitral tribunal indeed had jurisdiction to deal with a claim for compensation for the abrupt termination of an established commercial relationship.

An appeal against this decision is thus lodged with the Cour de cassation on the following grounds :

  • the arbitral tribunal has no jurisdiction given the tortious nature of the liability for abrupt termination, its public policy nature and the fact that the law refers this type of dispute to designated commercial courts as well as to the sole Court of Appeal of Paris;
  • the scope of the arbitration clause does not expressly cover litigation relating to the abrupt termination of a commercial relationship.

The Cour de Cassation confirmed the  decision  rendered by the Paris Court of Appeal by stating that a claim for compensation for the abrupt termination of an established commercial relationship was indeed a dispute that could be settled by arbitration.

Neither the public policy nature of article L.442-6 of the French Commercial Code, nor the exclusive jurisdiction of the commercial courts designated by Article D.442-3 of the same code exclude the jurisdiction of an arbitral tribunal to hear a compensation claim for abrupt termination.

Similarly, the Cour de Cassation considered that the terms of the arbitration clause were broad enough to also cover the dispute arising from the abrupt termination of an established commercial  relationship.

This decision confirms, for litigation of a purely internal nature, a solution already in use for international litigation (Cass. Civ. 1e, 8 July 2010, No. 09-67013), and once again reminds us of the importance given to arbitration in French law.