Franchising- Germany

Background

A commercial agent may claim reasonable financial compensation from the enterprise for which it acted following termination of the commercial agency contract (Section 89b of the Commercial Code). Depending on the duration of the contractual relationship, tens of thousands of euros may be involved. The prerequisites for a claim for compensation are that the enterprise can continue to use the established clientele solicited by the commercial agent and that payment of compensation is equitable.

The situation of a franchisee upon termination of its contract is, in principle, comparable to that of a commercial agent. For this reason, there is initial agreement that a similar compensation claim can accrue to a franchisee against the franchisor. The first prerequisite in this respect is integration of the franchisee into the sales organization of the franchisor, like a commercial agent. As a rule, the second prerequisite is that the franchisee must be obliged by contract to transfer its established clientele to the franchisor upon termination of the contract. Judgments of the regional courts of Berlin and Hanau have been made according to this rule. In many cases franchise agreements do not include such a clause. Compensation payments to franchisees are therefore relatively rare in practice.

However, the Regional Court of Frankfurt am Main has held that the matter does not depend on an express contractual obligation to transfer the established clientele. Were this legal view to prevail, it is likely that more franchisors would have to pay compensation than has been the case so far. The Federal Court of Justice has not yet ruled on this issue with regard to franchise agreements, and to date no higher regional court has rendered a decision on this matter. This means that the legal situation has not yet been clarified in practice.

Therefore, it is particularly significant that the Austrian counterpart to the Federal Court of Justice, the Supreme Court of Justice, has issued an opinion on this question. It would not be the first time that such an opinion has exercised an influence on legal developments in Germany.

Facts

The plaintiff operated as a franchisee a large filling station in Vienna, which also included a service station shop. According to the franchise agreement, the franchisee was under an obligation to sell and store fuel in the name and for the account of the franchisor. All other goods (for the service station shop) were to be sold by the franchisee in her own name and for her own account - that is, as an independent retailer. The franchisee had no influence on the purchase price of the goods or on other terms of purchase. Furthermore, the quantities and prices of so-called 'essential items' (eg, cigarettes and certain beverages) were controlled by the franchisor.

After the franchisor had terminated the agreement the franchisee claimed compensation. At final instance before the Austrian Supreme Court, the dispute between the parties was whether the franchisee was entitled to claim compensation in analogous application of the law of commercial agency (Section 24 of the Austrian Act on Commercial Agents), which derives from the EU Commercial Agents Directive as well as Section 89b of the German Commercial Code. The parties were also in dispute with regard to the sale of goods in the service station shop.

Decision

In its judgment of August 30 2006(1) the court affirmed a compensation claim accruing to the franchisee on the basis of her business activities in the shop. According to the grounds of the decision handed down by the Austrian Supreme Court, the matter centred on whether the franchisee was closely integrated into the sales organization of the franchisor. This prerequisite was deemed to be satisfied in the present case because the franchisee was:

• bound by exclusive supply contracts;
• restricted in her freedom to set prices;
• unable to negotiate purchase prices with the suppliers; and
• not involved in 'refunds' (annual quantity bonuses).

With reference to German case law the court also examined whether, in addition to close integration into the franchisor's sales organization, there had to be a formal (ie, contractual) obligation imposed on the franchisee to transfer her established clientele. The court stressed that in the situation at issue a formal obligation to transfer the established clientele was unnecessary.

Comment

The judgment rendered by the Austrian Supreme Court diverges from the majority legal opinion adopted so far in Germany; the decision is consistent with the position of the Regional Court of Frankfurt am Main. The regional court has held that the matter does not depend on a contractual obligation to transfer the established clientele, but rather on whether a franchisor is able to avail itself immediately of the benefits deriving from the established clientele solicited (irrespective of whether this takes place through a new franchisee). The decision rendered by the regional court related to the operation of a bakery where, owing to the prevailing anonymity, there were no customer lists which could be handed over.

The view that the matter does not depend on a contractual obligation to transfer established clientele is ultimately unconvincing. The relatively strict requirements under which a commercial agent receives compensation from the enterprise after termination of its contract must also apply in substance to franchisees. By operation of the law a commercial agent has to communicate the customer data to the enterprise. This enables the enterprise to continue using existing customer contacts. Similarly, a franchisor must be in a position to approach former customers directly - for example, to carry out marketing campaigns. As a rule, a franchisor can do so only if there is a contractual obligation on the franchisee to transfer the established clientele.

ILO