AUSTRIA
- Implementation of the Representative Actions Directive in Austria: Implications for Franchisees and Franchisors
FRANCE
- Franchising: the Doubin law, all the Doubin, but more than the Doubin law
- Principal/agent relationship: absent a territorial exclusivity granted to the agent, the principal still has a duty to act fairly
GERMANY
- From Karlsruhe to Luxembourg: The permissibility of price parity clauses
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- The competition and consumer protection authority intervenes in the labour market abuses
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- Obligation of Stock Repurchase upon Termination of Distribution Contracts
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- What's changed as regards unfair commercial practices: the DMCCA 2024 versus the CPR 2008?
FRANCE
Franchising: the Doubin law, all the Doubin, but more than the Doubin law
Cass. Com., 26 June 2024, No. 23-14.085
Article L.330-3 of the French Commercial Code requires franchisors to provide all prospective franchisees with a pre-contractual disclosure document containing truthful information (listed in article R.330-1 of the same code), enabling them to make an informed decision when entering into the franchise agreement with the franchisor.
This document must be provided by the franchisor at least 20 days before the execution of the franchise agreement by the franchisee.
In the case under review, a franchisee had gone into receivership four years after having signed the agreement with the franchisor. He sued the franchisor to obtain the annulment of the franchise agreement and, alternatively, its termination for breach by the franchisor.
The franchisor had provided the disclosure document in time, and even well in advance, since the document had been communicated 8 months before the agreement was signed.
On the date it was delivered, the disclosure document contained all the information required by article R.330-1 of the Commercial Code.
However, between the delivery of the disclosure document and the execution of the franchise agreement, several franchisees had gone bankrupt, without the franchisor informing the prospective franchisee of the same.
The Court of Appeal rejected the franchisee's claims, pointing out that on the date the disclosure document had been delivered, it complied with the provisions of articles L.330-3 and R.330-1 of the Commercial Code.
However, the Court of Cassation did not see things this way, and overturned the decision, ruling that the Court of Appeal should have examined whether the franchisor had intentionally remained silent about the existence of the insolvency proceedings, and whether this information would have deterred the franchisee from signing the franchise agreement if he had received it.
This ruling, which is grounded on the former article 1116 of the Civil Code relating to deceptive conduct, thus imposes two obligations on the franchisor, in addition to those set out in articles L.330-3 and R.330-1 of the Commercial Code:
- Firstly, the franchisor must inform the prospective franchisee of information that is not included in the list of information required by articles L.330-3 and R.330-1, if it is likely to have a material impact on the prospective franchisee's decision to sign the agreement;
- Secondly, if the disclosure document was submitted long before the expected signing date of the agreement, the franchisor must update the information provided to the prospective franchisee.
In view of the reform of contract law, the franchisee may now rely on article 1112-1 of the Civil Code, which states that “the party who knows information having a decisive importance for the consent of the other party must inform him or her, if the latter is legitimately unaware of this information or trusts his co-contractor”.
Unlike article L.330-3 and R.330-1 of the Commercial Code, article 1112-1 of the Civil Code is not an overriding mandatory rule and applies only if the parties have chosen French law to govern their agreement.
To avoid any risk, franchisors who have chosen French law to govern the agreement should therefore disclose any material information likely to influence the decision of prospective franchisees, including any information that they become aware of after the pre-contractual disclosure document has been delivered.
Principal/agent relationship: absent a territorial exclusivity granted to the agent, the principal still has a duty to act fairly
Cass. Com., 5 June 2024, No. 22-20.930
In February 2014, La Française des Jeux (FDJ) entered into an agency agreement with the operator of a tobacco shop to sell FDJ scratch-card games.
A few months later, in November 2015, FDJ signed an agency agreement with another operator (this time a hotel-restaurant), located just 15 meters away from the first agent.
The first agent then sued FDJ for breach of its obligation of good faith and fair dealing.
In a ruling rendered on 16 June 2022, the Versailles Court of Appeal held that FDJ had indeed breached its obligations and ordered FDJ to compensate the agent for his pretium doloris.
FDJ then appealed the decision before the Court of Cassation.
FDJ emphasized that, by virtue of the principles of freedom of contract and freedom of trade and industry:
- It was entitled to appoint a second agent anywhere, since the first contract did not confer any exclusivity on the first agent, and even expressly stipulated that “the retailer acknowledges that the present agency agreement does not grant any territorial exclusivity to it, since La Française des Jeux remains free to determine the location of its sales outlets”;
- It was not required to justify its decision to contract with another agent in the same catchment area, since the contract expressly authorized it to do so.
However, the Court of Cassation rejected FDJ's appeal and concurred with the Court of Appeal that FDJ had breached its obligation of good faith.
It held that, even if the two points of sale were in competition for only a portion of their clientele, the risk of this clientele being transferred as a result of the appointment of the second agent could not be ignored, and that FDJ's justification for this second contract “due to the commercial dynamism of the town” was not sufficiently relevant to legitimize a new retail outlet just 15 meters away from the first.
The Court of Cassation considered that the Court of Appeal had correctly checked whether the FDJ's exercise of its contractual prerogative was, or not, in conformity with its obligation to behave fairly under the agreement with the first agent (see: Cass. Com., 10 July 2007, No 06-14.768).
This decision is in line with established case law on agency (Cass. Com, 25 February 2003, No. 99-20.147), which actually also applies to relations between suppliers and distributors.
However, the decision is severe because, in this case, the first agent had apparently not provided proof of a causal link between the appointment of the second agent and the drop in its sales of FDJ products. On the contrary, it even appeared that it was the general drop in the first agent’s turnover that had led to a drop in the sales of FDJ products!
Consequently, since it was not possible to indemnify the first agent for a proven financial damage, the Court of Cassation confirmed the Court of Appeal's decision for having sentenced the FDJ to pay damages to the first agent for its pretium doloris.
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