Franchise agreement clauses and significant imbalance

Decision of the Paris Commercial Court, dated October 13, 2020, n°RG 2017005123

The clauses qualified as unbalanced within the meaning of the aforementioned article L442-1, I-2 are in particular those relating to:

• applicable law (Dutch law) and competent courts (arbitration clause stipulating arbitration in New York);
• the possibility of unilateral termination by the Franchisor from two annual delays in payment by the franchisee, including for minute amounts or in the event of the franchisee's insolvency;
• the duration of the contract which cannot exceed the maximum duration of 10 years of the exclusivity clause in a franchise contract.

The Court also sanctions Subway with a fine of 500,000 euros – equivalent to 3.5% of its turnover with franchisees for serious and manifest disturbance to economic public order.

The court's decision is important for all franchise networks and franchise contract drafters in that it provides a new assessment grid for clauses characterizing a significant imbalance of rights and obligations.