(Cour de Cassation, Commercial Chamber, 23 October 2012, nos. 11-21.978 and 11-25.175)

The loss of goodwill resulting from the termination of a retail distribution contract may not give rise to the application of unjust enrichment rules.

In both of these cases, the suppliers had terminated retail distribution contracts and the retailers thus excluded had claimed compensation for the loss of goodwill, citing unjust enrichment pursuant to Article 1371 of the French Civil Code.

The Cour de Cassation rejected the claims in two identical recitals which held that: "…the rules covering unjust enrichment can not be invoked when the alleged enrichment and impoverishment are caused by the execution or termination of the agreement entered into by the parties."

In practice, bringing an action based on unjust enrichment presupposes both an enrichment and an impoverishment, a causal link between the two and the absence of any grounds justifying the transfer of value, i.e. the absence of legal title (legal, contractual or judicial). In the cases at hand, the impoverishment resulting from the loss of goodwill originates from the termination of the contract and eventually the enforcement of a post-contractual non-competition clause.

In the case at hand, the Cour diverges from its previous judgement of 9 October 2007, in which it censured the appeal judges, considering that their decision breached Article 1371 of the French Civil Code, as it "concluded, at the same time, that the franchisee could avail itself of its own goodwill, and that termination of the contract containing a non-competition clause was at the franchisor's initiative, resulting in the former franchisee being deprived of the said goodwill, thereby suffering a loss."

The new reasoning of the Cour de Cassation shuts the door on any termination compensation for loss of goodwill based on unjust enrichment. It should be noted in this respect that enrichment should result in the transfer of goodwill to the supplier, which seems incompatible with the situation where the goodwill is owned by the retailer.