The franchisee does not have a claim for indemnity in analogy to sec. 89b HGB (German Commercial Code) if the business in which he is active constitutes an anonymous high-volume business.

Facts of the case

In the concrete case, the Federal Supreme Court had to decide on an indemnity claim of an entrepreneur who as a franchisee operated two baking shops of a large chain which is active throughout Germany. The franchisee sold the pastries in his own name and for his own account. He was not expressly obliged under the contract to transfer the customer base at the end of the contract or to transfer customer data to the franchisor. However, he was obliged to return the business premises after the end of the contract.

The decision of the Federal Supreme Court

In this case, the Federal Supreme Court rejected that there would be a claim for an indemnity. Even though the Court has not excluded indemnity claims for franchisees as a matter of principle so far, in any event, it has negated a claim for indemnity in the cases that were ruled on up to now. Generally speaking, only a commercial agent is entitled to an indemnity pursuant to sec. 89 b HGB. There is no statutory regulation for other kinds of distribution activities. In specific exceptional cases - particularly for authorized dealers - the Federal Supreme Court affirmed a claim for indemnity nonetheless; however, it set high barriers in this regard. Only if the distributor was integrated into the principal’s sales organization in a manner comparable to a commercial agent and if he was obliged to transfer his customer base to the principal, a claim for an indemnity may be considered at all.

If and in particular how these criteria are supposed to also apply in franchise relationships is still not conclusively clarified. However, the Federal Supreme Court has now at least expressly decided on one question which had previously been left open.

So far, it was unclear whether in a franchise, a claim for an indemnity should only be required in the event of an obligation to cede the customer base. After all, business models are often geared to anonymous high-volume business in this field. A customer, for instance, who often frequents a fast food restaurant (other than, for example, a customer of a car dealer in the event of buying a vehicle) will typically not leave any customer data at all. Against this background, it was discussed whether or not it would be sufficient if the customer base is at least merely factually transferred to the franchisor, since the franchisor could continue to use the location and with that the regular customers with another franchisee. The Federal Supreme Court has now answered this question and expressly negated it.

Conclusion

Even if the Federal Supreme Court still leaves the fundamental option of a claim for an indemnity also in franchise systems open, in practice, in particular in franchise systems with anonymous passing trade, a claim for an indemnity will only be possible in very few exceptional cases.

As a general rule, the franchisee’s option to operate an own business at the same location outside of the franchise system will be a rather theoretical one, themoreso if the franchisee has to return the business premises to the franchisor upon contract termination.

Fortunately, however, this decision brings legal clarity for the franchisor, at least for franchise systems which mainly strive on anonymous high-volume business. In most cases, a claim for an indemnity of the franchisee will be excluded following this Federal Supreme Court decision. With that, the Federal Supreme Court continues its conservative case law concerning franchisees’ claims for indemnity.

(Federal Supreme Court –BGH-, decision of 5 February 2015 VII ZR 109/13)

Sarah Grigo, Attorney (Hamburg)