The abrupt breakdown of talks was not due to a loss of confidence in the prospective franchisee, but rather to the latter's refusal to change the location of the reserved area.
Court of Appeal of Nîmes, 4th Commercial Chamber, December 1, 2021, No. 19/04575
In a ruling dated December 1, 2021, the Court of Appeal of Nîmes upheld the conviction of a franchisor on the grounds of the abrupt termination of negotiations, within the framework of area reservation contracts not followed by the conclusion of a franchise agreement.
In this case, a franchisor had entered into two successive reservation contracts with a candidate, each with a respective duration of six months.
At the end of these contracts, an area covering several municipalities around the city of Nîmes had been reserved for the benefit of the candidate.
During the pre-contractual period, i.e., for more than one (1) year, the following actions were taken:
- the signing of a Pre-contractual Information Document (DIP) ;
- the completion of structural work for the establishment of a point of sale, based on plans validated by the franchisor and modified at the latter's request;
- The candidate was informed of the franchise agreement to be signed and of a signing date of May 2018, with the store opening planned for August.
However, this franchise agreement was never to be concluded, as the franchisor received from one of its franchisees a plan to establish a point of sale in one of the areas reserved by the candidate.
After having unsuccessfully proposed to the latter to move part of this area in order to allow its franchisee to open a second point of sale, the franchisor notified the candidate of the "impossibility" of opening the expected point of sale.
After a formal notice that went unheeded, the candidate held the franchisor liable for breach of commitments made in the area reservation contracts, as well as in the franchise contract and its addendum, which had not been regularized.
The Commercial Court of Nîmes having partially accepted these requests, the candidate and the civil company formed for the purpose of operating the point of sale appealed the judgment issued on December 4, 2019.
The franchisor, for its part, argued that the failure to sign the franchise agreement was linked to the candidate's behavior, with whom it had encountered difficulties during negotiations, and which had led to a "loss of confidence" justifying the failure to sign the franchise agreement.
He further pointed out that he was not obliged to sign the franchise contract, relying in particular on a clause in the reservation contracts authorizing him not to follow up on the request for integration into the franchise network, subject to the return of the sum paid by the reservation holder.
These arguments were not followed by the Court of Appeal of Nîmes, which, in its judgment of December 1st, considered that the franchisor company had shown particular bad faith by ending negotiations two months before the opening of the store, when it had sent the candidate the franchise contract and its annex for signature, and when it had not justified any legitimate reason and when this abrupt termination implicitly responded to the refusal by the respondent to proceed with a change of zone.
Thus, the Court held that the abrupt breakdown of negotiations did not originate from a loss of confidence in the prospective franchisee, but rather from the latter's refusal to change the location of the reserved area.
This decision is interesting for more than one reason.
It emerges, in fact, that :
- The conclusion of a zone reservation contract binds the franchisor, the reserved zones cannot be unilaterally challenged.
- The unjustified refusal to conclude a franchise agreement following a zone reservation agreement, at an advanced stage of negotiations, may constitute an abusive termination of talks.
- The company formed by the candidate may be deemed eligible to claim compensation for its damages.
- The compensation sought can, however, only be granted for damages arising exclusively from the wrongful termination of negotiations. Thus, the compensable damages do not include the loss of opportunity to contract with third parties, nor the costs of investment and fitting out the premises (architect's fees, equipment purchases, etc.), as these are considered "general works useful for operating a store and not specific to the proposed franchise.".
No doubt this decision will be something to keep in mind for franchisors and (future) franchisees, with regard to contracts governing the period prior to the signing of franchise agreements.
Laurence Kouassi – Lawyer, Besser Donat – Intern
