Compliance with the contractual notice and obligation of good faith during the termination – Court of Cassation, Commercial Chamber, 8 October 2013, appeal no. 12-22.952 Fiat France

In a judgement delivered on 8 October 2013, the Court of Cassation complements its case law on the termination of business relations. In this case, the company S (franchisee) and the company F (franchisor) are linked by three exclusive franchise contracts for an indefinite term. The company F terminates the contract in March 2001, with 24 months' notice. The company S alleges wrongful termination, particularly on account of the investments made in 1998 and the negotiations on the sale of business assets that were underway when the termination took place. The trial court considered that the contract was wrongfully terminated. The franchisor then filed an appeal.

In this case, after finding that, at the time that the franchisor notified of the termination, it was aware (since it was aware from the very beginning) of negotiations between the franchisee and the buyer, the franchisor could not therefore be ignorant of the difficult situation in which it was placing the franchisee by terminating the contracts.

As a result, the High Court upheld the decision of the trial court which ruled that "by terminating the contracts, the franchisor had deliberately impeded the franchisee's reorganisation and, despite observing the contractual notice, the franchisor did not properly fulfil its obligation of good faith."

Two main lessons can be drawn from this decision by the Court of Cassation.

First, the Court has no desire to impose a positive obligation on the franchisor to aid or assist in its departing franchisee's reorganisation. However, it imposes a negative obligation of not hindering the franchisee's reorganisation by deliberately depriving it of the freedom to take advantage of the existing competition to negotiate a reasonable price to sell its business.

Moreover, this decision allows franchisees to obtain compensation for the harm they suffer as a result of such a breach of contractual good faith and not for the loss of distributor agreements resulting from the termination.