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31 May 2011
The analogous application of Section 89b of the Commercial Code (compensation claim of a commercial agent after ending of the contract) to franchisees continues to be a practically significant issue in the context of the analogous application of commercial agency law to franchises.
The first condition for such an analogy is the integration of the franchisee into the sales organisation of the franchisor in a manner similar to that of a commercial agent.(1) This update considers the second condition for the analogous application of the compensation claim – that is, the contractual obligation to transfer the customer base.
In a judgment of June 29 2010 the Monchengladbach Regional Court (3 O 324/09) held that a franchisee has no claim to compensation under Section 89b of the Commercial Code, analogously applied, if it is not contractually obliged after the end of the contract to transfer the customer base to the franchisor. The de facto retention of the customer base by the franchisor is not adequate to establish an analogy. The ruling has been welcomed by franchisors across Germany.
According to the established case law of the Federal Court of Justice, a distributor may be entitled to compensation on the principles of commercial agency analogously to Section 89b of the Commercial Code if it is integrated, like a commercial agent, into the sales organisation of the company and is contractually obliged to transfer the customer base to the company after the ending of the contract.(2)
Due to the similarity between distributors and franchisees – both are independent entrepreneurs acting in their own name and for their own account – the case of a franchisee is dependent on whether:
With regard to the obligation to transfer the customer base, it is sometimes argued that the analogous application of Section 89b of the Commercial Code should be adequately established if the customer base of the franchisee de facto remains with the franchisor after the end of the contract. Some courts see this de facto continuity of the customer base, in particular in cases of anonymous mass transactions, as adequate.(4) The Monchengladbach court diverged from this position, and with good reason.
The defendant franchisor operated a wholesale bakery chain in which it sold bakery products, snacks and other goods. The plaintiff was a franchisee in the defendant's system and ran a bakery in a pedestrian area in Berlin-Spandau.
The franchise agreement between the parties contained typical provisions, including a purchasing obligation. There was no contractual obligation according to which the plaintiff had to transfer the customer base to the defendant after the ending of the contract.
The plaintiff alleged that 70% of all customers taken over by the defendant without compensation had been acquired by him, and that the defendant thereby benefited from an opportunity to generate profit. Due to his close integration in the sales organisation of the defendant, the plaintiff argued that his role was comparable to that of a commercial agent and that he therefore had a right to compensation according to Section 89b of the code, analogously applied.
The plaintiff argued that a contractual obligation to transfer the customer base was not necessary in anonymous mass transactions, but that the mere de facto continuity of the transfer of the customer base was adequate.
The court dismissed the claim, ruling that the plaintiff had no claim for compensation against the defendant under commercial agency law according to Section 89 of the Commercial Code, analogously applied.
According to established Federal Court of Justice case law on distributors, for this claim to succeed it would be necessary for the plaintiff to be permanently integrated into the sales organisation of the defendant and be subject to duties similar to those of a commercial agent to promote the sales of the defendant continuously, and for the contract not to be merely a seller-purchaser contract. In addition, a contractual obligation to transfer the customer base at the end of the agreement to the defendant had to exist.
The court was not obliged to decide whether the plaintiff was permanently integrated into the sales organisation of the defendant or whether he was subject to typical commercial agency bonds, since in any event the necessary contractual obligation of the plaintiff to transfer the customer base to the defendant at the end of the contract, necessary for the analogous application of Section 89b, was absent.
The court chose not to accept the argument that in anonymous mass transactions, a contractual provision is not crucial, but that the de facto continuity of the customer base is adequate. An analogous application of Section 89b would be justified only in situations where an entity which was comparable to a commercial agency existed. This was not the situation in the case before the court due to the absence of a contractual provision on the transfer of the customer base.
It is in the nature of a commercial agency that the commercial agent acts in the name of the company and creates the customer base for it. A franchisee, on the other hand, is legally independent and acts in his or her own name. The customer base which he or she builds up is therefore attributable only to him or her. Only the obligation to transfer the customer base justifies a compensation claim, since otherwise franchisees could continue to use the relevant customer base even after the end of the contract (with reference to BGH NJW 1996, 2159).
This ruling is to be welcomed. It is right that in franchise law the de facto retention by the franchisor of a customer base built up by the franchisee is not adequate to justify the analogous application of Section 89b of the Commercial Code.
This is not merely a formal objection that the franchisee as an independent entrepreneur, acting in his own name and for his own account, primarily builds up a customer base for his own business. A situation comparable to that of a commercial agent exists only in the case of a contractual provision to transfer the customer base, since without this the franchisee – unlike a commercial agent – is free to continue to use the customer base which he or she has built up.
The mere de facto possibility of the franchisor being able to use the customer base does not, in the absence of a legal obligation to transfer, constitute a relevant advantage for which compensation can be demanded. This opinion is confirmed by the judgments of the Federal Court of Justice on distributor law. So far, the court has granted distributors' claims analogously to Section 89b of the Commercial Code only where an express contractual obligation to transfer the customer base existed.
It therefore follows that in many franchising cases, a compensation claim by the analogous application of Section 89b is excluded due to the absence of a contractual obligation to transfer the customer base. It is to be welcomed that this awareness has at last reached the lower courts.
The compensation claim under the analogous application of Section 89b of the code can therefore be avoided by appropriate contractual drafting.
For further information on this topic please contact Karsten Metzlaff or Karl Rauser at Noerr LLP by telephone (+49 30 20 94 20 00), fax (+49 30 20 94 20 94) or email (email@example.com or firstname.lastname@example.org).
(1) For further details see "Strict integration of franchisee does not render agreement immoral".
(2) See BGH ZIP 2000, 138.
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