On 11 October 2019, the Committee of Experts of the Spanish Franchisor Association, of which I am honoured to be the Chairman, launched its third edition of the “Spanish Case Law Observatory”. This report aims to be a thorough study (in both quality and quantity) of the franchise litigation in Spain. The study comprises the years between 2010 and 2018. During this period, the Supreme Court and the High Courts together have produced 388 judgments.
According to the figures below, the number of resolutions given by the High Courts is quite stable, with 39 to 46 judgements per year with the exception of 2015 (33 judgements) and 2018 (57 judgements). Bearing in mind that there were approximately 56,733 franchised outlets in Spain in 2018, the figures also show that within franchising there is a reduced proportion of litigation. In fact, the percentage of judgments in proportion to the number of franchised outlets is, on average, 0.09%.
During the years from 2010 to 2018, the High Courts ruled on 379 occasions about franchise matters.
The number of judgments remains quite stable during 2010 to 2017. There is a small reduction in years 2015 to 2017 and an increase in 2018 (56 judgements). Most of the cases (62.26%) were brought by the franchisor against the franchisee, and the franchisors won most of the judgments (66.75%) as well.
Notice that the number of franchised outlets between 2010 and 2018 has increased by 14,320 (33.74%) whereas the number of judgments remains quite stable.
Among all franchise sectors, food and beverage and fashion are the most litigious, but the percentage of judgments in proportion to franchised outlets is still only 0.09%.
Regarding the Supreme Court, between 2010 and 2018 it has ruled 9 times on franchise matters, which means that the judicial problems raised in these franchise cases were interesting to the Supreme Court.
The analysis of the Franchise Case Law presents six main areas of litigation: a) nullity of the franchise agreement due to lack of the consent of the franchisee; b) nullity of the agreement due to the lack of object; c) breach by the franchisee due to non-payment of royalties; d) breach by the franchisee due to infringement of the post contractual non-competition clauses; e) breach by the franchisee due to commercialisation of products or unauthorised suppliers; and f) non- compliance by the franchisor for failing to provide technical assistance.
At the end of the report, there is a summary of the key 31 rulings in this 9 year period. Some of these rulings refer to the consequences of a lack of, or misleading, disclosure information (especially regarding the turnover of the prospective franchise), the consequences of price fixing and the liability of the franchisor in relation to malpractices of the franchisee (in cosmetic surgery and dentistry).
In conclusion, Spain is a country where there is little litigation in proportion to the number of franchised outlets and where the legislation protects the franchisor’s interests. Looking at the judgments, we can conclude that even if most of the proceedings are commenced by a franchisor asking for unpaid royalties, the franchisee usually counterclaims questioning the validity of the franchise agreement. Therefore, the better the franchise agreement is, the higher the likelihood that the claim will succeed.