Franchisor Responsibility and/vs Franchisee Duties

Short and quick reminder of the facts: a franchise agreement is signed in anticipation of the operation of a clothing store. Two years later, the franchisee, encountering financial difficulties, expressed his criticisms and concerns about the network’s pricing policy, calling on the franchisor to remedy these difficulties. Shortly thereafter, the franchisee notifies the head of the network of the termination of the contract for faulty non-performance.

The franchisee decides to refer the franchisor to the Commercial Court of Paris in order to seek compensation for its damages, invoking the nullity of the franchise agreement for fraudulent reluctance and its termination for fault.

The Commercial Court dismisses the franchisee from all the claims, with the exception of the damages sought in response to the franchisor’s breach related to the prior definition of the store development work.

The Court of Appeal of Paris confirms – in essence – the essence of the judgment rendered at first instance, dismissing the fraudulent reluctance, while it nevertheless retains various breaches of the franchisor such as the lack of delivery of pre-contractual Information Document.

The Court of Appeal also returned to the profitability of the shop, considering that the “operating deficit is not attributable to the franchisor but following the commercial policy of the franchisee”.

Thus, the Paris Court of Appeal appears determined to highlight, more than the responsibility of the franchisor, the duties of the franchisee as an independent merchant.
Let us first return to the pre-contractual phase of the contract: although the head of the network has not communicated any Precontractual Information Document, in accordance with the obligation provided for in Article L330-3 of the Commercial Code, the Court of Appeal explains that the “franchisee does not demonstrate how its consent was vitiated, nor the fault of the franchisor, nor intentional reluctance or gross errors of the pre-contractual phase”. Consequently, the cancellation of the contract cannot be pronounced, in accordance with settled case law on the subject.

In addition, the Court of Appeal of Paris, in the continuity of the development of the Commercial Court evokes to exclude any fault of the franchisor’s that many exchanges have taken place between the two entities, both on the cost of the work related to the development of the shop and on the staff necessary for the operation of the said shop. The franchisee must not limit himself to a passive role, it is up to him to inform himself and to evaluate, to take up the facts of the case, “the costs of work and to draw up provisional accounts”.

Let us now focus on the execution of the contract: if the Court of Appeal notes and confirms the various breaches of the franchisor during the execution of the contract, in particular related to the definition of the development work and the execution of said work, forcing, in particular, the franchisee to postpone the date of opening of the shop and causing additional costs, it considers that the breaches, although proven, “do not constitute a reason for termination”. Indeed, the Court of Appeal considers that the breaches referred to cannot constitute “a reason for termination several years after the completion of the work”.

Finally, the Paris Court of Appeal dismissed the franchisee’s claim based on the franchisor’s unfair behaviour related in particular to delivery delays or a failure to respect the agreed margin. The Court of Appeal considers that the franchisee has not provided evidence of these breaches and that the deficit referred to by the franchisee to establish its claim was within the scope of the franchisee’s commercial policy.

Ultimately, the Paris Court of Appeal, in the light of the facts of the case, highlights a central element of the franchise agreement, the independence of the franchisee.

COURT OF APPEAL OF PARIS