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Abrupt termination and absence of an established business relationship: a franchisor may be held liable for the abruptness of its chain members

15/02/2017

In this case, the liability of the franchisor was found due to the abruptness of one of its members, which seems to contradict the principle of autonomy of legal entities.

This case involved the Planet Sushi franchise chain. The franchisor, the company Groupe Planet Sushi (GPS), conducts a Japanese cuisine food service and delivery business. For this purpose, it relies either on subsidiaries or franchisees.

Starting in 2008, GPS entered into discussions with the company Blue Oceans Venture (BOV), which was to supply the franchise chain's members with services related to the follow-up of suppliers, deliveries and payments. As of 2011, the chain's restaurants stopped placing orders with this provider.

GPS and its subsidiaries then went to court for termination of the contracts between them and the provider, and while the provider brought an action against GPS on the grounds of the abrupt termination of the established business relationship with the chain's subsidiaries and franchisees (article L.442-6, I, 5° of the French commercial code).

In a judgement dated 28 October 2014, the Court of Appeal of Paris upheld the claims of the provider and ruled that the abruptness of the termination was indeed attributable to the GPS franchisor, who then brought an action in front of the French Supreme Court. Relying on the principle set out in a decision of 7 October 2014 (Cass. com., 7 October 2014, No. 13-20.390) according to which an established business relationship requires commercial transactions entered into directly by the parties, the franchisor argued that it could not be held liable as only the subsidiaries and franchisees had business relations with the provider.

The Court of Cassation dismissed this argument, stating that the Court of Appeal rightfully found the franchisor liable on the grounds of Article L. 442-6 I 5° of the Commercial Code, as it had deduced from the circumstances of the case that, "The subsidiaries and franchisees had no autonomy in terms of deciding whether to enter into business relations with BOV and thereafter into terminating said relations" (Cass. com., 5 July 2016, No. 14-27.030).

While this solution may seem surprising at first, it is easy to understand in light of prior case law.

In fact, in principle, given the autonomy of legal entities, in particular of franchisees who are independent commercial entities, the existence of the business relationship, the liability of the termination, the examination of reasonable notice and the evaluation of the prejudice must be the subject of a distinct analysis for each legal entity involved, unless special circumstances exist.

Case law had already accepted some mitigation to the principle of autonomy of legal entities for scenarios such as the existence of a concerted action (on this point, see Cass. com, 6 October 2015, No. 14-19.499), of a wrongful interference or of a misleading appearance (“apparence trompeuse”) that blurs the "party to the relationship" concept.

In our case, the Court of Cassation also considered the circumstances of the case, which had been sovereignly examined by the Court of Appeal, in dismissing the franchisor's appeal.

The Court of Appeal had found that the franchisor had participated in the termination of the business relationship as it had "given instructions […] to the entire chain to cease placing orders", "informed the suppliers that the franchise chain no longer worked with [the provider]" and "as of this date, the franchised restaurants have not placed any order with the provider". Furthermore, the Court of Appeal held that the "franchisees were obliged to purchase 80% of their goods from suppliers listed by GPS", which information - one must admit - allowed the Court of Cassation to rule that, "The franchisees were in no way autonomous in making the decision to enter into business relations with BOV" and to terminate any relationship with said provider.

As the Court of Appeal found that an indirect business relationship existed between the franchisor and the provider and ruled that termination had been enforced without notice, the conditions under which Article 442-6 I 5° could apply had indeed been fulfilled.

Authors

Elisabeth Flaicher-Maneval
Elisabeth Flaicher-Maneval
Counsel
Paris
Milena Oliva