First judgement regarding encroachment in Spain

Last July 22nd 2015, the Court of Appeal of Castellon (Spain) confirmed –in one of the first judgments regarding encroachment in Europe- a Judgment from the Mercantile Judge of Castellon dated 20th March 2015 (that denied a claim of a McDonald’s franchisee against franchisor) and declared that some conducts that could have been declared encroachment in USA are valid and fair under Spanish legislation. In the claim a Spanish Mc Donald´s franchisee with 3 restaurants in ... Last July 22nd 2015, the Court of Appeal of Castellon (Spain) confirmed –in one of the first judgments regarding encroachment in Europe- a Judgment from the Mercantile Judge of Castellon dated 20th March 2015 (that denied a claim of a McDonald’s franchisee against franchisor) and declared that some conducts that could have been declared encroachment in USA are valid and fair under Spanish legislation. In the claim a Spanish Mc Donald´s franchisee with 3 restaurants in Valencia filed a lawsuit against McDonald´s Corporation and its licensee in Spain –“McDonald’s Sistemas de España”- in order to declare that the lack of territorial exclusivity in McDonald’s franchise agreements is null and void. In consequence the defendant asked franchisor a compensation for losses aroused from McDonald’s franchised Restaurants opened in his territory of influence. In addition the franchisee claimed the right to extend the franchise agreement during 20 years more or alternatively asked franchisor to compensate him for the goodwill (notice that in McDonald’s system, franchisor is usually the owner of the premises, he returning to franchise the Restaurant at the end of the franchise agreement). Finally, based on the fact that some years ago McDonald’s published a Mc Donald´s White Book that described some internal policies, the franchisee asked the Judge to declare that those policies were binding for franchisor. Those criteria describe which requirements franchisees shall fulfill to opt to sign a new franchise agreement at the end of the present/current one, or to opt to have a new Restaurant. At that point the reasonable of the claim was that Mc Donald´s White Book creates a stopple or expectative to have the right to sign a new agreement or, if not, he should be compensated. The Court (as well as the mercantile Judge), taking into consideration that the franchise agreement has no specific regulation under the Spanish Law, declares that the agreement should be regulated according to the parties’ will, unless it is against imperative laws and public order. It also declares that consumers’ laws do not apply. Once the Judgment analyzed all circumstances of the case, it concluded that the franchise agreement clearly states that there is not any territorial exclusivity, that it does not include any right to renew nor extend the agreement, that franchisee renounces to any compensation at the end of the agreement, and that all those clauses are valid under the Spanish legislation. Furthermore the Court declared that a) the White Book does not grant any right to the franchisee b) the lack of territorial exclusivity is not unfair because franchisor can organize its system freely and franchisee was duly disclosed before signing the franchise agreement, and thus, the franchisee has not any right to a compensation if franchisor opens a restaurant near another existing Restaurant, and c) That there is not any right of compensation for the goodwill because in franchise agreements clients are essentially attracted by the trademark. One of the main discussions in the appeal was the juridical nature of the White Book. In one hand, franchisee alleged that as far as franchisor bases its decisions on the White Book, he creates a stopple or expectative in franchisees. He also alleged that franchisor’s policies have -in some way- contractual nature because the franchise agreement says that policies are part of the “system” and franchisees should apply them. In the other hand franchisor alleged that the text of the White Book clearly states that it refers to unilateral policies referred to questions outside from the franchise agreement such as requirements considered to opt to sign a franchise agreement at the end of the present/current one or for another Restaurant. He also alleged that the text of the White Book says that franchisor may change it unilaterally, that it is not compulsory, and that it does not modify nor be a part of the franchise agreement. Finally he alleged that the aim of the book is only to put noir sur blanc some practices that in good faith franchisor is currently applying. The Court of Appeal accepted all franchisor’s arguments and that the White Book allows franchisees to know the requirement they must fulfill to opt to sign a new franchise agreement, but the Court recognizes that even if a franchisee fulfills all requirements, franchisor is not obliged to grant him a new franchise agreement, because this is a part of his business freedom. This judgment is the first and most complete case law in Spain and probably in Europe regarding encroachment, and the non-binding franchisor’s internal policies.