Supreme Court ruling on the nullity of a franchise agreement when the franchiser imposes a fixed price for the product.

The Supreme Court has issued Ruling No. 587/2021 dated July 28, 2021, which analyses and assesses a case of nullity of a franchise contract due to the imposition of a fixed price by the franchiser in relation to the products, which is considered a restrictive conduct of competition.

The judgement cites precedents of European regulations and case law dealing with this issue, according to which fixing a minimum selling price is considered a serious restriction of competition. However, it is considered valid to fix a maximum price (provided that it gives a profit margin to the franchisee) or a recommended price.

It is not clear whether this consideration of serious restriction of competition by the imposition of a fixed price could be adjusted according to whether such price guarantees a profit margin to the franchisee, but in any case, it is indeed clear that the consequence of considering this fact as a serious restriction of competition entails the absolute nullity of the contract.

Second, the judgment analyses whether the effect of such nullity should be the ordinary effect of reciprocal restitution of the initial benefits, or the extraordinary effect that one of the contractual parties must indemnify the other, not receiving its initial benefits. This extraordinary effect is given when the nullity is considered to have a turpis causa, which means that there has been a harmful purpose on the part of the franchisor that causes the cause of the contract to be considered immoral.

The judgement indicates that in the case of nullity due to restriction of competition, such as the imposition of a fixed price by the franchisor, the extraordinary effect due to the turpis causa can be applied, but the attitude of the franchisee must be assessed, and if the franchisee has accepted and collaborated with its acts in the restrictive action, which did occur in the specific case of these proceedings, then the ordinary effect of restitution of the initial benefits must be applied.

It is worth noting that this is a complex matter open to wide debate, as reflected by the fact that in this specific case the Court of First Instance considered that there had been no nullity, that the Provincial Court upheld the appeal and completely amended the assessment considering that there had been nullity with turpis causa, and that the Supreme Court partially upheld the appeal and partially modified the appeal judgement by considering that in this case there was no turpis causa although there was nullity.

Consequently, it is clear from this judgement that we are dealing with a complex matter that must be analysed case by case, and in which it is very important to properly assess the risks when setting the conditions of the franchise contract, and specifically the price of the products.

Antoni Faixó
Dispute Resolution Area