No compensation claim of franchisee analogous to Section 89b of the German Commercial Code in the event of de facto customer continuity
In the case of franchise agreements which essentially concern anonymous high-volume business, a mere de facto continuity of the customer base (i.e. that the customer base acquired by the franchisee actually remains with the franchisor) after termination of the contract does not justify a corresponding application of the compensation claim provision tailored to sales agents (Section 89b of the German Commercial Code (Handelsgesetzbuch – HGB)). Accordingly, the franchisee does not have any corresponding claim for compensation from the franchisor. This was ruled by the German Federal Court of Justice (Bundesgerichtshof – BGH) in a recently published judgement (judgement of 5 February 2015 - VII ZR 109/13). The insolvency administrator of a franchisee who operated two bakeries belonging to a bakery franchise system had taken legal action to obtain compensation.
The BGH stated that a franchisee acting on his own behalf and for his own account would – unlike a sales agent – primarily acquire his own business and not third-party business. Nor was this altered by the fact that customers did not normally perceive the franchisor under the franchisee’s own name, but under that of the franchisor. An essentially anonymous customer base acquired from a franchisee was not automatically usable for the franchisor after termination of the contract. The franchisor’s actual opportunity to use such a customer base after termination of the contract was then limited particularly if it was possible for the franchisee to continue to operate a business at the same location – for example under his own name – and he made use of this possibility. Nor was the corresponding application of Section 89b HGB to franchise agreements relating to anonymous high-volume business justifiable with the consideration that the requirement of an obligation to transfer the customer base did not make sense for such a business. Even if this were the case, this would not alter the fact that in the event of the mere de facto continuation of the customer base, no sufficient similarity of interests with those of the sales agent existed.
Finally, also of practical significance is the BGH reference to the fact that the protection afforded by Section 89b HGB is not affected by any obligation of the franchisee to return the (leased) business premises after termination of the franchise agreement.
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Practice Group: Distribution & Franchise Systems, E-Commerce