In Greece, there is no case law concerning a franchisor's post-contractual obligations towards its franchisees. Consequently, it is unclear how franchisees should dispose of any remaining stock after the termination of a franchise agreement. The existence of remaining stock may cause problems for both franchisees and franchisors and result in damage. In a recent case before the Court of Athens, the court ruled on the issue for the first time.
The franchising agreement had expired after five years, as specified in the franchisor's original agreement, and was not renewed. As part of the agreement the franchisee had been obliged to retain a certain quantity of the franchisor's stock in its store. As a result, following the termination of the franchise agreement, the franchisee had a substantial stock of merchandise which it could no longer dispose of. The stock was marked with the franchisor's trademark and was therefore useless to the franchisee. Furthermore, the franchisee had leased storage space exclusively for the storage of this merchandise.
The former franchisee filed an action against the franchisor for the value of the unwanted stock, in addition to the costs of leasing the storage space, plus interest.
One month after the expiration of the agreement, the franchisor asked for and obtained provisional measures from the court against the franchisee to prohibit it from using the franchisor's trademark, including sale of any of its products and stock marked with the trademark, stating that franchisee had no further right to use the franchisor's trademark in any way. However, the franchisee still held the excess stock in its store. The franchisee informed the franchisor several times regarding the remaining stock and its value. It invited the franchisor to take back the stock and provide compensation, as following the franchisor's actions, the franchisee was no longer able to use or sell the stock. The franchisor ignored the franchisee's calls and notifications. The franchisee therefore filed a claim against the franchisor for compensation for the remaining stock.
In its decision, the court put forward the following points. After the termination of a franchising agreement it is possible that a franchisee will still have excess stock, as well as spare parts or components of the products, dependant on the type of products and the type of franchising. This typically occurs because the franchisee is contractually and expressly obliged to maintain stock of those products and their spare parts or components in order to be able to support their sales.
The principle of good faith should govern all stages of a franchising agreement, resulting in a post-contractual obligation for the franchisor to assume both the excess stock and any spare parts.
Under this good faith principle, the franchisor is obliged to take into consideration the reasonable and justified interests of the franchisee. The latter is usually unable to dispose of its stock of franchise products after the termination of the franchising agreement, since the target consumers of the market in which it was commercially active are aware that the franchisee is no longer a member of the franchising network.
The franchisor must terminate its long-term contractual relationship with its franchisee in a way that protects the franchisee from disadvantages, such as an inability to gain remuneration for the remaining stock. Moreover, where there is a non-compete obligation after the termination of the franchising agreement, the franchisee will not even have the right to sell the stock. It is not in the franchisor's interests to leave it to the ex-franchisee to sell the remaining franchise products, since the reputation and credibility of the franchising network may be affected.
During the hearing it was proved that the franchisee had incurred additional expenses while conserving the remaining stock, including the rent of the premises where that stock was stored. After the termination of a franchising agreement, the franchisee is entitled to ask the franchisor for a sum of compensation that consists of the necessary damages incurred in storing the stock of products and the value of the remaining franchise products.
The court accepted the franchisee's claim and ordered the franchisor to compensate the franchisee both for its remaining stock and for expenses incurred due to its efforts to store that stock in a safe place until its return to the franchisor.
For further information on this topic please contact Andy Kalogeropoulou at S Yanakakis A Kalogeropoulou Law Offices by telephone (+30 210 6985 001), fax (+30 210 6985 004) or email ([email protected]).