Regarding to a dispute related convenience franchise case, the Supreme Court ruled in favor to the franchisee on June 12th, 2007. It followed to the ruling on June 11th 2007, but the point at issue was different from the previous case. Focused issue was the extension and degree of explanation obligation by franchiser.
Case
The plaintiff was a convenience store franchisee, who formed an agreement with defendant franchiser in 1995 and became a Seven-Eleven franchise. While total profit is determined by subtracting purchase costs from total sales in usual, the defendant, however, asked his franchisees to exclude perishable goods discarded and losses from shop lifting from the purchase price. The basis of the claimant’s petition is not clear, because the ruling is not yet published in the web-site of the court. Assuming from the report of press,[1] he might insist that he did not take a explanation whether the cost of perishable goods discarded was deducted his profit or the defendant practice was unfair in virtue of reaching their best-before dates when the defendant decided.The plaintiff claimed reimbursement of paid partial royalties, about 34 million yen, to the defendant whereas he paid out of the about 386 million yen in total royalties from 1995 to 2003.
Original rulings
The Tokyo District Court rejected the claimant’s claim, but the Tokyo High Court ordered the defendant to pay back about 22.43 million yen in royalties, saying the obligee was not given an adequate explanation when he signed the franchise agreement with the obligor.
Top court ruling
The Supreme Court’s No. 2 Petty Bench approved the plaintiff’s claim regarding to the method of calculating royalties whereas approved the legitimacy of the defendant’s royalty calculations and returned the case to the Tokyo High Court, stated that further deliberation was necessary to determine whether sufficient explanation was given to the plaintiff at the time the royalties’ agreement was signed.Presuming the result of the original ruling, the Tokyo Appeal court might accept the plaintiff’s claim as same as his previous decision.
Consideration
The point of issue is whether the information duty based on good faith is imposed to the defendant or not and how the defendant must perform it, if the duty is accepted.This contract is formed between businesses to business. However, a small sized business like the plaintiff is materially inferior to the defendant in knowledge, information and bargaining power. Probably it is likely considered as consumer to business contract. Therefore, the defendant is necessary to inform adequate and enough information to the plaintiff in good faith, referring actual level of plaintiff’s knowledge, experience and so forth. In that situation, what basis of the benchmark is suitable considering the degree and extension of explanation duty performed by the defendant? Taking account of particularity of this case, where the plaintiff is not so different from a consumer in knowledge and experience, the benchmark is based on the existence individual in actual case. At least, recent tendency of lower court decisions might accept this conclusion. On contrary, in EU countries, the benchmark is supposed average consumer or reasonable person.Is it average business in general or existence body in individual cases?
Influence of the ruling
Other major convenience store chains use a similar calculation method to Seven-Eleven, and a number of similar cases have been filed across our country. If the high court determines the franchisee did not receive an adequate explanation, it could affect litigation involving other convenience store operators.
[1] http://www.yomiuri.co.jp/dy/national/20070612TDY02008.htm
