Franchise contract clauses and significant imbalance

Decision of the Paris Commercial Court, dated October 13, 2020, No. RG 2017005123

Clauses deemed unbalanced within the meaning of Article L442-1, I-2 cited above include, in particular, those relating to:

• to the applicable law (Dutch law) and to the competent jurisdictions (arbitration clause stipulating arbitration in New York);
• to the possibility of unilateral termination by the Franchisor after two annual payment delays by the franchisee, including for minute amounts or in the event of the franchisee's insolvency;
• to 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 fined Subway 500,000 euros – equivalent to 3.5% of its turnover with franchisees – for serious and manifest disruption to economic public order.

The court's decision is important for all franchise networks and franchise contract drafters because it provides a new framework for assessing clauses that characterize a significant imbalance of rights and obligations.