The Court of Turin (the "Court") recently issued a decision ruling about the criteria required by the Italian law to lawfully terminate immediately a franchising agreement.
The case referred to two wellness centers, managed by two companies Francesco Curletto S.r.l. (the "Franchisor") and Bellezza e Benessere S.a.s. (the "Franchisee"), entering into a franchising agreement (the "Agreement").
After many years of commercial relationship, the Franchisee suddenly terminated the Agreement without just cause and, shortly after, the Franchisor discovered that the Franchisee was carrying out the same activity in cooperation with another company.
The Franchisor challenged the termination alleging that it was in breach of the Agreement, and therefore brought a claim before the Court, seeking damages from the Franchisee.
The Court upheld Franchisors' requests, founding that the Franchisee was in breach of the Agreement on the following grounds:
- The termination by the Franchisee was ineffective as the Agreement did not provide the right for the parties to terminate it unilaterally without just cause;
- The Franchisee did not pay royalties for three years before terminating the Agreement and did not perform such obligation upon Franchisor's request, after the termination;
- The Franchisee was operating in the same sector and carrying out the same activity of the Franchisor, in cooperation with another company, in violation of competition rules.
Furthermore, the Court stated that the company that was working in cooperation with the Franchisee could not be held liable for the contractual breach, as it was not aware of the content of the Agreement's obligations in force between the Franchisor and the Franchisee.
In our opinion, this decision is remarkable as it set forth some criteria that can help interpret and rule events relating to contractual breach in franchising agreements, which is a type of contract lacking of important judicial doctrine in Italy.