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13 November 2018
As part of the promotion of their networks, franchisors often edit websites displaying contact details and other relevant information regarding the franchise network outlets, whether they are owned by them or operated by franchisees. In a recent decision dated 3 July 2018, the Versailles Court of Appeal held that a franchisor had treated a franchisee's stores on its website unfairly compared with its own stores.
Foncia is a famous network of real estate agencies in France. Such agencies are either owned by Foncia or operated by franchisees. In the case at hand, a real estate agent had created four independent agencies near Paris. In 2008 he entered into two distinct franchise agreements with Foncia covering his four agencies for five and seven years, respectively.
As the expiry date of the franchise agreements was approaching, Foncia notified the franchisee that the franchise agreements would not be renewed beyond their respective term. Negotiations for the acquisition of the agencies by Foncia were initiated but failed.
The franchisee then sued Foncia before the Nanterre Commercial Court, alleging various breaches of the franchise agreements by Foncia, including the deliberate concealment of the franchisee's four agencies on the franchisor's website, creating confusion in the mind of the public.
On 21 April 2017 the Nanterre Commercial Court dismissed all of the franchisee's claims. The franchisee then appealed this decision.
Before the Versailles Court of Appeal, the franchisee argued that unlike the agencies owned by Foncia, his agencies were not mentioned in two specific sections on the Foncia website, namely the section dedicated to owners seeking to sell their properties and the section dedicated to owners seeking to lease their properties. They were mentioned only in the general section listing all of the agencies belonging to the Foncia chain. In addition, the location of one of his agencies was incorrect and the franchisee's agency in one town was quoted only once while the agency owned by Foncia in the same town was quoted twice. As a result, the franchisee argued that the franchisor had discriminated against his agencies.
Foncia responded that its sole obligation was to display the addresses of the franchisee's agencies on its website and that it had displayed them. It had no other obligation with respect to these two specific sections. It also reminded the franchisee that he had the right to create his own website.
On 3 July 2018 the Versailles Court of Appeal held that Foncia had been disloyal to its franchisee due to the way in which it had displayed the franchisee's agencies on its website.
The court noted that under the franchise agreements, Foncia not only agreed to "display on its website an explicit statement informing clients of the address of the franchisee's agency", but also undertook to supply know-how covering:
An efficient communication, reference values based on transparency, responsibility, professionalism, competitiveness, and solidarity, IT performing tools, an efficient website [www.foncia.com] enabling the franchisee to offer to the customers all or part of his properties for sale and for rent.
Therefore, the court considered that Foncia's website was undoubtedly neither "efficient", nor "performing" sufficiently. The franchisee's agencies were mentioned only in the general section, and not in the specific sections used by many customers to identify opportunities on the market. This could lead to the loss of customers who would contact only the agencies owned by Foncia referred to in these specific and essential sections.
Further, the court ruled that in view of Foncia's slogan for franchise candidates ("no differential treatment between the integrated network and the franchised network"), the franchisor's behaviour amounted to particular disloyalty in the franchisor/franchisee relationship.
Nonetheless, the court did not award damages to the franchisee as he failed to validly demonstrate any direct loss.
Although the court did not grant any damages to the franchisee in this case, it did find that the franchisor had breached its franchise agreements – an award of damages would have been likely had the franchisee successfully demonstrated that he had suffered a loss (eg, the loss of customers to the benefit of a Foncia-owned outlet).
In this respect, the court not only referred to the clause of the franchise agreement which included the franchisor's obligation to display the addresses of the franchisee's agencies on its website, but also referred to another clause relating to the know-how through "an efficient communication" and "a performing website". The court found that the franchisor had failed to act in accordance with such provisions.
Further, the court referred to Article 1134 of the French Civil Code (now Article 1104, following the reform of the French Civil Code in 2016) and found that the franchisor also breached this legal provision, which states that "contracts must be performed in good faith". This constitutes an implied general principle under French law which applies to any contract and gives judges the power to examine the manner with which a party performs or fails to perform its obligations. In the case at hand, the court considered that in presenting its own agencies and the franchisee's agencies in a different way on its website, the franchisor had treated the franchisee unfairly. Although this obligation does not constitute a contractual clause, the court highlighted the franchisor's slogan which emphasises the equal treatment between agencies owned by the franchisor and agencies operated by franchisees.
This decision should be carefully considered by franchisors in respect of their owned stores. Good faith implies that franchisors must not refer to franchisee stores in a disadvantageous way as compared to their own stores on their websites.
For further information on this topic please contact Raphael Mellerio or Bertrand Baheu-Derras at Aramis Law Firm by telephone (+33 1 53 30 7700) or email (email@example.com or firstname.lastname@example.org). The Aramis Law Firm website can be accessed at www.aramis-law.com.
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