GENERAL TERMS AND CONDITIONS IN A FRANCHISE CONTRACT: AN EXAMPLE IN SPANISH CASE LAW
If an oversight in a contract is potentially damaging, this can prove even worse in a franchise situation. Because the same template is generally used for the entire network of franchisees, the oversight might potentially be reproduced a number of times equivalent to the number of franchisees – and it is perfectly plausible for a franchisor to have more than 500 franchisees spread across the relevant territory.
The fact that the same template is generally used for the entire network of franchises is sometimes used as an argument to obtain the annulment of a clause that has turned out to be contrary to the interests of the franchisee. However, the Spanish courts have established that this cannot be invoked as a reason per se to render an agreement a nullity, and does not release the adherent party (the franchisee) from duly complying with its onus of the proof when a conflict arises and the corresponding action is filed before the courts. The judgment of 20 March 2015 issued by the Commercial Court of Castellón is a good example of this. This judgment referred to the dispute between Servicio de Restauración de Costa, SL and McDonald's Sistemas de España Inc, Sucursal en España.
The aforementioned Servicio de Restauración de Costa, SL signed three franchise agreements with McDonald's, which were not later renewed. Servicio de Restauración de Costa, SL filed a claim before the Commercial Court in Castellón asking for the declaration of the nullity of certain clauses in the corresponding agreements on the basis of those clauses being mere general terms and conditions that had been unilaterally established by the franchisor and were contrary to the unfair competition regulations. The plaintiff also asked the Court to declare its right to renew the franchise agreements or, on a subsidiary basis, to be indemnified for the damage suffered because of the lack of renewal of those agreements. The plaintiff also asked the Court to declare its right to establish new franchised business within the territory. One of the arguments used to ask for the renewal of the franchise agreements was that the pre-contractual documentation that was handed to the franchisee before entering into the three franchise agreements included a 'White Book', in which the options to establish new franchised business and to agree a new term to the agreements were foreseen.
When addressing the alleged nullity of the clauses mentioned by the plaintiff, the Court established that their general character and their lack of individual negotiation was not a reason to declare their nullity per se. In this regard, the Court referred to the case law of the Spanish Supreme Court and, in particular, to its judgment of 9 May 2013, wherein it was said that such 'mass agreements' represent a common tool in the current legal situation, with this type of agreement justified by the need to speed up negotiations and provide legal certainty to the parties during their transactional agreements.
Notwithstanding that, the Court mentioned the need to establish certain controls that every general condition needs to pass to be considered valid. These are the 'transparency control' (which would include a control on the 'incorporation and transparency' of every single clause in the agreement, and the 'real comprehensibility' of the clauses in the agreement when entered into with a consumer) and the 'content control' (which would affect those clauses that are null and void according to the applicable regulations, and those others that are abusive when the adherent party is a consumer).
In the case submitted to the Commercial Court in Castellón, the adherent party was not a consumer. As a result, only the incorporation and transparency control and the content control could be applied when assessing the nullity of the clauses invoked by the plaintiff. The plaintiff, however, relying only on the iura novit curia principle, failed to comply with his onus of the proof and did not devote any effort to explaining why the alleged clauses were contrary to the unfair competition regulations. Only the clause in the contract determining the court's jurisdiction was found to be null since it contravened an imperative principle (the courts mentioned in the agreements were not the courts of the franchisee's domicile).
With regard to the requested declaration of the franchisee's right to renew the franchise agreements, the Court indicated that the provisions in the White Book could not be interpreted as being part of the franchise agreements. The White Book reflected only the protocol with which the franchised business had to comply, and was a document that had been unilaterally drafted by McDonald's. Moreover, the White Book expressly established that its content was simply a complement to the franchise policies and had an informative purpose only. Nothing in the White Book could be understood to modify any of the clauses agreed upon by the parties in the corresponding franchise agreements.
It turned out that the franchise agreements established no right of renewal. On the contrary, the agreements included a clause stating that the franchisor made no promises regarding possible renewals. The reference to the new term was only mentioned in the White Book. Moreover, the intention of the franchisor not to renew the franchise agreements had been clear well before termination. As a result of that and despite the assertions made by the plaintiff, the Court rejected the plaintiff's claim and found that the inclusion of the clause regarding possible renewals was not abusive at all. Bearing in mind the intuit personae character of franchise agreements, the franchisor could quite legitimately establish such a general clause in the agreements.
The Court applied the same reasoning when deciding about the right to establish additional franchised business: this possibility was not foreseen in the agreements. On the contrary, the franchise agreements mentioned the possibility of other parties settling franchised business in the territory. In this regard, the Court said that, even if exclusivity was common when entering into a franchise agreement, it was not a requirement of these types of agreement. As a result, the plaintiff was not entitled to claim any damages.
As can be seen, therefore, the validity of general terms and conditions in a franchise agreement need to be assessed from the outset. Their general nature is no reason to invoke the agreement's nullity and does not release the franchisee from the burden of proof in the event that a conflict arises.
1 Pablo Berenguer is counsel at Bird & Bird (International) LLP. The information in this chapter was accurate as at January 2018.