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03 April 2012
Whether supplier rebates received by the headquarters of a franchise system are passed on to members is a subject of practical importance in franchising and comparable distribution systems. A franchisor, in the course of central purchasing for its system, is likely to receive favourable purchasing conditions from suppliers, such as discounts, bonuses, commission or kick-backs (supplier rebates) which are calculated, for example, according to purchase volume.
According to judgments of the Federal Court of Justice, such as the Praktiker decision,(1) a franchisor is not obliged by law to pass on these benefits to franchisees, except in cases where such an obligation has a contractual basis within the franchise agreement.
In a number of parallel proceedings,(2) the Dusseldorf Higher Regional Court considered the legal question of whether a franchisee has a right to information about the use of supplier rebates. The court affirmed this in principle – but only if the franchisee's right to rebates is based on and clearly stated within the franchise agreement itself.
The franchisor sold IT distribution systems through franchisees. The business was based on a franchise agreement. In the preamble to this agreement, it was stated that:
"[The developed distribution concept] provides financially capable individual traders who join the system with a clear contribution to strengthen their market position compared to other market players by joint purchasing, central marketing, uniform presentation and know-how transfer."
The agreement also stated that the franchisor was in charge of coordinating and conducting central purchasing and purchasing negotiations.
The purchase of goods by the franchisees was conducted in accordance with the agreement. The franchisor negotiated wholesale prices with suppliers at which the franchisees purchased goods from those suppliers. In pre-contract negotiations the franchisor explained to potential franchisees that it had agreed a commission of a certain percentage of their turnover with manufacturers and suppliers. In some cases, the franchisor compelled the suppliers to pay a higher rate of commission; in other cases it received less or even no commission at all.
The right to information on the use of supplier rebates
The Dusseldorf Higher Regional Court found that the franchisor was not obliged, according to Section 242 of the Civil Code, to provide franchisees with information about the use of supplier rebates. Section 242 establishes an obligation to provide information only if the legal relationship between the parties already includes that the entitled party, without fault on its part, has no knowledge of the existence or scope of its right, and that the obliged party could provide the information with ease in order to eliminate this lack of knowledge.
If there is an agreement between the parties, it is adequate that the claim intended to be made with the assistance of the requested information exists with overwhelming probability. In the case of statutory rights, it must be submitted that the claim exists in principle.
Accordingly, a franchisor is obliged to provide information to a franchisee about supplier rebates only if the franchisee requires this information in order to ascertain and make its claim to payment from the franchisor. The franchisee's right against the franchisor for payment of such rebates is not provided by statute – in particular not in the Civil Code – but must have its basis in the franchise agreement concluded between the parties.
In the present case, the court saw no indications in the agreement or the franchisor's declarations during pre-contract negotiations which could form the basis of a contractual obligation to pass on supplier rebates for purchase advantages. Also, no obligation to distribute purchase advantages could be derived from the contract preamble.
The statement that individual market positions could be strengthened by joint purchasing implies only that the franchisee receives favourable purchase conditions by being party to central negotiations and bulk buying. The franchisor's statement in the contract negotiations that it intended to receive a commission did not give rise to any right on the franchisee's part to the distribution of commission exceeding that amount. The statement was purely for the franchisee's information without establishing any legal right.
Exclusion of the right to information by forfeiture
The Dusseldorf Higher Regional Court highlighted that the right to information about the use of supplier rebates can be excluded if the right has not been exercised for many years, since making this claim subsequently could, under certain circumstances, breach good faith. In addition to the passage of time, however, there must be a certain element of circumstance. The franchisor (as the obliged party) must have relied on and be entitled in the franchisee's conduct (as the entitled party) to rely on the latter no longer exercising this right. Due to this situation of confidence, the lateness of the claim must be seen as a hardship irreconcilable with good faith.
The Dusseldorf Higher Regional Court followed the above-mentioned judgment of the Federal Court of Justice; the crucial criteria from the Praktiker judgment have not changed thereby. The franchisee has a right to information about the use of supplier rebates only if – as already decided by the Federal Court of Justice – the passing on of such rebates to the franchisee is provided for in the franchise agreement.
Therefore, the court saw no reason to give leave to appeal to the Federal Court of Justice against the decision because, in its view, the main questions in dispute in the case had already been adequately clarified in the Federal Court of Justice's Praktiker judgment.
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).
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