When a dispute occurs between franchisor and franchisee, it is extremely common for the latter to claim the franchise agreement was void, alleging the Pre-contractual Information Document (DIP) would be incomplete or misleading.
However, to obtain cancellation of the franchise agreement it is not enough for the franchisee to demonstrate that the DIP does not comply with articles L.330-3 and R.330-1 of the French Commercial Code. It is necessary that the franchisee provides evidences the shortcomings of the DIP have vitiated the franchisee’s consent.
While this is no easy task, the consequences of cancelling the franchise agreement can be significant for a franchisor.
The principle is that voidness entails the retroactive cancellation of the franchise agreement, which means that the franchisor and franchisee must be returned to the state they were in before the franchise agreement was concluded.
In other words, the risk for the franchisor is to be forced to pay back to the franchisee all the sums paid under the franchise agreement, in particular the entry fee and franchise royalties.
However, in a decision dated June 15, 2023, the Douai Court of Appeal offered the franchisor a way out: the franchisor is not obliged to return the sums paid by the franchisee if it can demonstrate that it has actually provided services in return.In this case, the Court of Appeal rejected the claims for reimbursement of the franchise fee and royalties, stating that :
- In return for the entry fee: the franchisor communicated its know-how to the franchisee, provided services before and at the launch of the franchisee’s business, and granted the franchisee the right to exploit its concept in a given territory.
- In return for franchise fees: the franchisee benefited from the right to use a method specific to the franchisor’s concept, and from the franchisor’s assistance during the term of the franchise agreement.
This court case is a reminder of the importance for the franchisor to archive all evidence of the elements and services provided to the franchisee, such as: communication of know-how manuals, assistance in finding premises, help in launching the business, visits, telephone calls, advice, checks, etc.
