Cassation brief — Collorafi

13-9.103-02000833 SCP A BOUZIDI Anocar su Conseil dEne et a la Cour ds Cassaion Succeneur dela SCP RYZIGER- BOUEUH 125. Doulevard Maicsherbes 73017 PARIS Tal : 01 49 66 38 00 Fax : 01.462298 43 COUR DE CASSATION CHAMBRES CIVILES SUPPLEMENTARY BRIEF ON BEHALF OF: 1. Monsieur Bernard COLLORAFI 2. SARL LES PINS 3. S.A. SEBOL 4. SARL B & 0 Having as Advocate at the Court of Cassation: SCP. A BOUZIDI AGAINST: The company MC DONALD'S FRANCE Having as Advocate at the Court of Cassation: SCP DELAPORTE & BRIARD IN SUPPORT OF THE APPEAL no. X 00-14 447 13- 9-1 0060-041839 1- FACTS t.1. Monsieur Bemard COLLORAFI opened a restaurant under the MAC DONALD'S sign, in the CARREFOUR arcade in ANTIBES on 3 August 1987 and on 31 August 1987, he concluded with the company MAC DONALD'S a lease-management agreement (*location-gérance*) to operate this restaurant in the same premises. On the same day, the appellant assigned to the company SEBOL, which he incorporated and of which he held almost all the shares, under a contract drawn up and imposed by the company MAC DONALD'S, all the rights and obligations arising from the contract concluded with the company MAC DONALD'S These contracts were signed after the appellant had resigned from his duties as branch manager in a bank in MOUGINS and done an unpaid internship at his own expense in a MAC DONALD'S restaurant for 9 months. The appellant was the 1géms franchisee of the MAC DONALD'S network and the 45tm MAC DONALD'S restaurant in FRANCE, thus placing his trust in a network, at a time when it was still very largely unknown in FRANCE, the network consisting only of 700 MAC DONALD'S restaurants and 200 franchises. The contract provided that the company MAC DONALD S, licensee of the North American company MAC DONALD'S Corp, gave in lease-management to Monsieur COLLORAH the restaurant business located in the CARREFOUR arcade, comprising the rights conferred by the licence to operate the restaurant according to the MAC DONALD'S system and all benefits at the end of the licence, the use of the trade names, signs, trademarks, patents, goodwill and the customers attached to it, whereas no customers existed, the enjoyment of the drinks licence relating to the restaurant where applicable, the right to occupy the restaurant premises, to use all installations, equipment or fittings installed or placed in the restaurant. It is important to specify that it was the lessee-manager who had made the investments amounting to 6,477,000 F, contrary to what was stated in the contract. The contract specified that an order authorising the conclusion of a lease-management agreement (*location-gérance*) by derogation from the provisions of article 4 of the law of 20 March 1956, the lessee-manager undertaking to comply with the obligations incumbent on the lessor company arising from any contract as described. Fax received from: +33_0146229843 22/11/8889:34 Fg: 4_ The appellant was to pay a security deposit of 100,000 F excl. VAT, an initial payment of 120,000 F excl. VAT, a monthly minimum fee of 150,000 F, as well as a basic fee of 12% excl. VAT and a service fee of 5% excl. VAT on turnover. It was in consideration of the laudatory brochure distributed by the company MAC DONALD'S and of a personalised document entitled "statement of profits and losses", that the appellants committed themselves, this document forecasting net sales of 12,500,000 F in the first year, 19 M.F. in the third year with a negative net income in the first year of 433,750 F but a profit of 1,233,810 F for the third year. Thanks to the relentless work of the appellant who had invested 6,474,000 F in the company SEBOL, the turnover of 19 M.F. was practically reached in the third year. The first two years were loss-making by 2,555,000 F; from 1989, the operation was profitable by 311,000 F; in the following years the profits were greater than 1 M.F. Given the losses generated in the first two years, it was only at the end of the 6th year that the appellant was able to start paying himself a dividend. It is important to specify that the results of the appellant's operation were those indicated, notwithstanding the sustained opening of restaurants by the MAC DONALD'S group, at MANDELIEU in 1990, at GRASSE in December 1993, at CAGNES in July 1994 and November 1995 as well as the opening of a competing restaurant, under the QUICK sign, a few hundred metres away in July 1995. The appellant was never the subject of any unfavourable remark on his management, his accounts being examined monthly by the company MAC DONALD'S which always congratulated him. In 1996, although the economic situation was beginning to become difficult and the results had been worse since 1994, the appellant learned that the company MAC DONALD'S had the intention, with a view to countering the QUICK restaurant, opened a few hundred metres away, of setting up a second restaurant a few hundred metres from the CARREFOUR shopping centre where the company SEBOL was located, a restaurant which was located in the primary attraction area of the business of the company SEBOL. Monsieur COLLORAFI was urgently requested to open this restaurant, and, in order to avoid the installation of a franchisee who would have competed with him, thereby recovering part of his investment, the appellant had to take charge of this new restaurant and for this purpose set up the company B & O in the form of an EURL, contributing to this company his current account in the company SEBOL and the dividends distributed, i.e. a sum of 800,000 F, the appellant making an investment effort of 3,909,000 F. Fax received from: +35 0170461913---- The appellant signed, on 9 October 1996, a lease-management agreement (*location-gérance*) with the company MAC DONALD'S and on the same day, as for the first opening, a deed of assignment to the EURL B & O was concluded. From the opening of this restaurant the appellant expressed his fears about the impact of this opening on the restaurant operated by the company SEBOL. No impact study was carried out by the company MAC DONALD'S and its consultant, the company R.D. Consultants: on the other hand, the appellant was told of a turnover of 20 M.F. with a cash flow of 452,000 F in the first year and 8,913,000 F over 10 years, i.e. 891,000 F per year. Since the forecasts for the company SESOL had come true, the appellant trusted the MAC DONALD'S group, and being unable to do otherwise, committed himself as has been seen, even though the financial conditions were harsher. The appellant had to accept a management fee of 20%, i.e. the maximum amount, a service fee of 5%, an advertising participation fee of 4%, with a monthly fee of 235,000 F excl. VAT reduced under an amendment of 10 June 1997 to 180,000 F excl. VAT and 17% fee for the year 1997, this rate to be revised upwards later. The turnover of the company SEBOL for 1996 fell by 33%, i.e. 18,300,000 F and by more than 50% for 1997, standing at barely 11,500,000 F. Thus, although in appearance the combined turnover of the companies is roughly identical to that achieved by the company SEBOL alone, the total costs have been increasing, since the two restaurants employed 87 people where the company SEBOL employed only 55 people. On the other hand, the impact was quite positive for the company MAC DONALD'S, which, through the fees, received 395,000 F excl. VAT monthly, instead of the 150,000 F it received previously.. After this first unilateral decision, imposing the opening of a second restaurant, and although aware of the results of the two businesses operated by the appellant showing a deterioration of the situation, the company MAC DONALD'S planned the opening of two restaurants, one at ANTIBES Ouest the other at VALLAURIS, the opening of the latter having been carefully concealed from the appellant; the company MAC DONALD'S intended to entrust these two restaurants to the franchisee of CANNES, a former vice-president of the company MAC DONALD'S FRANCE, and to set up a joint venture with him, the building permits applied for by the company MAC DONALD'S having been obtained and the constructions being under way. Fax received from: +33_8146229843 218g: 5. Here again, the appellant, whose situation continued to deteriorate and in view of the substantial investments he had made, did not intend to be deprived of the fruits of his activity: he was compelled to ask that these two restaurants be allocated to him, which was initially refused and finally accepted, the appellant being granted the right to operate the ANTIBES Ouest restaurant, while the franchisee of CANNES was granted that of VALLAURIS, nevertheless located in the catchment area of the restaurant operated by the company SEBOL. In the document given to the appellant, a turnover of 13 M.F. was stated for the first year, for an average turnover of 14,235,000 F in the following years, with a cash flow of 426,000 F for the first year and 957,000 F on average thereafter. The contract was even harsher than the first, the proportional fee being 15% with a monthly minimum of 100,000 F, a service fee of 5% and a participation fee being fixed at 4.5%. In other words, the appellant had to pay for the three restaurants a monthly sum of 495,000 F excl. VAT to the company MAC DONALD'S, i.e. 5,940,000 F per year. In view of the declining results, the appellant did not cease, from 16 December 1996, to alert the company MAC DONALD'S to the negative effect caused by these openings, requesting compensation, the principle of which was accepted, but, seeing no change, the appellant had to remind the company MAC DONALD'S of its commitments: as its only answer he received a dismissal of his request and, subsequently, a modest reduction of the fee owed by the company B & O. Once again, Monsieur COLLORAFI's counsel had to write to the company MAC DONALD'S, but, again, without reply. 1.2. It is in these circumstances that by deed dated 26 June 1997, the companies SEBOL, B & O and LES PINS as well as Monsieur COLLORAFI summoned the company MAC DONALD'S before the Commercial Court of PARIS in order to have it ordered to pay them various sums. By judgment dated 18 May 1988, the Commercial Court of PARIS rejected all the claims brought before it by the appellants and, recording the termination by operation of law on 2 January 1998 of the lease-management agreements (*location-gérance*) and licence agreements concluded between the company MAC DONALD'S and the appellants, by the effect of the termination clause inserted in the contracts, ordered the eviction of the appellants from the fast-food businesses located in the shopping arcade of the CARREFOUR store in ANTIBES, route de Grasse in ANTIBES, and route de Cannes in ANTIBES JUAN LES PIN, ordering the appellants to hand over to the owner of the business, the company MAC DONALD'S, the keys, the list Fax received from: +33_8146229843 Pg: 7- of staff, the employment contracts, the operating accounts up to the day of the abandonment, on pain of a joint penalty payment between Monsieur COLLORAFI and the company SEBOIL for the restaurant operated by the latter of 32,000 F per day, of Monsieur COLLORAFI and the company B & O for the restaurant operated by the latter of 37,000 F per day and Monsieur COLLORAFI and the company LES PINS, for the restaurant operated by the latter of 26,350 F per day after 10 working days from the service of the judgment. The court ordered the appellants jointly and severally to pay to the company MAC DONALD'S, the company SEBOL and Monsieur COLLORAFI the sums of 1,867,247.54 F in unpaid fees plus statutory interest, and 16,000 F as occupation indemnity per day from 2 January 1998, the company B & O and the appellant to pay the sum of 153,548.87 F plus statutory interest as well as an occupation indemnity of 24,000 F per day from the same date, and finally the company LES PINS and the appellant to pay the sums of 504,474.42 F plus late-payment interest at the bank base rate increased by 3 points for each instalment from the date on which it should have been paid and that of 16,000 F of occupation indemnity per day. The court ordered capitalisation and ordered the appellants jointly to pay to the company MAC DONALD'S the sum of 50,000 F pursuant to article 700 of the new Code of Civil Procedure. The appellants appealed against this judgment. By judgment dated 9 December 1998, the Court of Appeal declared inadmissible the appellants' claim seeking the requalification of the lease-management agreements (*location-gérance*) into commercial leases possibly supplemented by a trademark licence agreement as a sign, as well as the appellants' claim seeking the declaration of nullity of the contracts for non-application of the law of 20 March 1956, or for fraud, mistake or lack of consideration. Before ruling on the merits, the Court of Appeal appointed two experts with the task, having taken note of the amicable reports GANDUR and DUMONTIER (company SEPT) and of the documents they deem useful to have communicated to them by the parties, of answering the questions put by the Court concerning both the period prior to 1 July 1997 and the period after it. The appointed experts carried out their task and filed their report on 15 October 1999. 22/11/8 09:34 Pg: .8 _ 1.3. The appellants filed submissions at the opening of the report and asked the Court of Appeal to find that the company MAC DONALD'S had not performed its contractual obligations and had failed to perform in good faith the obligations arising from the contracts signed with the appellants, that the appellants were entitled to raise the defence of non-performance, that consequently it be held that the company MAC DONALD'S was solely responsible for the non-payment of the fees in 1997 and could not rely on this ground to terminate the contracts by operation of law. The appellants asked the Court of Appeal to order the company MAC DONALD'S to pay to the company SEBOL the sum of 9,600,000 F as well as that of 1,540,868 F for its losses, to the company B & O the sum of 22,200,000 F as well as that of 2,743,103 F for losses and to the company LES PINS the sum of 13,250,000 F as well as that of 567,568 F for losses plus statutory interest from the date of termination. By judgment dated 8 March 2000, the Paris Court of Appeal reversed the judgment under appeal except in its principle of ordering the appellants and Monsieur COLLORAFI to pay the fees due before 2 January 1998. Ruling anew, the Court of Appeal held that the termination of the contracts binding the appellants and the company MAC DONALD'S was wrongful, that it could only take place at the end of a period of 18 months from 1 July 1997 in the event of failure of the measures that the company MAC DONALD'S was under an obligation to implement, in order to move towards a return to a profitable situation for the appellant companies.. The Court held that the contracts had continued to be valid until 30 December 1998. The Court of Appeal ordered the company SEBOL and Monsieur COLLORAFI to pay to the company MAC DONALD'S the sums of 1,867,244.84 F as unpaid fees prior to 2 January 1998 plus statutory interest, 1,272,000 F as fees from 2 January 1998 to 9 June 1998. The Court of Appeal ordered the company B & O and the appellant jointly and severally to pay to the company MAC DONALD'S the sums of 1,533,548.87 F as fees unpaid at 2 January 1998 plus late-payment interest at the bank base rate increased by 3 points per instalment and 1,113,000 F as fees from 2 January to 9 June 1998. Fax received from: +33_8146229813 22/11/00 _ 89:34 Pg: 9 - The Court of Appeal ordered the company LES PINS and Monsieur OLLORAFi jointly and severally to pay to the company MAC DONALD'S the sums of 504,474.42 F as unpaid fees prior to 2 January 1998 plus late-payment interest at the bank base rate increased by 3 points and 1,272,000 F for the period from 2 January to 9 June 1998. For the period after 9 June, the Court of Appeal held that no fee was owed by the appellants, who were evicted from the premises and who, showing very substantial losses on 10 June 1998, cannot claim to invoke harm arising from the loss of the chance to make profits had they operated during that period. The Court of Appeal ordered the company MAC DONALD'S to pay to Monsieur COLLORAFI the sum of 240,330 F as damages in compensation for his loss of the chance of a salaried income.. The Court of Appeal ordered the capitalisation of interest and, as regards tangible fixed assets, the Court of Appeal ordered the company MAC DONALD'S to pay the appellants the sum of 4,528,333 F plus statutory interest from 13 December 1999. The Court of Appeal ordered the company MAC DONALD'S to pay to Monsieur COLLORAFI the sum of 100,000 F in compensation for his non-pecuniary loss. This is the judgment under appeal. 2- DISCUSSION: 1.1. FIRST GROUND OF CASSATION. THE APPEAL CRITICISES THE JUDGMENT UNDER APPEAL for having ordered various payments to the detriment of the appellants and for having held that they had not suffered any harm for the period after 9 June 1998, limiting the harm of Monsieur COLLORAFI to the sum of 240,330 F: ON THE GROUNDS THAT the experts have, with precision, dismantled the mechanism which led the companies SEBOL and B & O to the lack of cash and, even more seriously, to the absence of profitability in 1997; that they concluded that the companies were well managed by Monsieur COLLORAFI; that the company MAC DONALD'S claims Fax received from 39019b20 in vain that he would have done better to create a holding company rather than a GIE on the ground that this would have allowed him to lighten the financial costs; that indeed the experts, who do not repeat their remark in their conclusions, wondered about this but without showing the possible effects in the present case, it being observed that the company MAC DONALD'S strongly advises its managers against creating a holding company; that the experts consider, in reply to the Court's first question, that even if an additional cash amount of 3,323,000 F could have been obtained from keeping the dividends in the company and from the saving resulting from a halving of Monsieur COLLORAFI's salaries, this sum would have been insufficient to cover the fees of the three companies at 31 December 1997, which were 3,905,270 F; that, more seriously, the experts state that at the rate of the losses recorded by the SEBOL and B & O group for the first 6 months of 1997, this additional cash would not have allowed Monsieur COLLORAFI to face the later losses either and that considerably more than the measures mentioned would have been required for these companies to durably regain their break-even point; that faced with this situation the company MAC DONALD'S, after numerous and pressing complaints from Monsieur COLLORAFI, finally consented to the amendment of 19 June 1997 which contained an adjustment of the fees of the company B & O for the year 1997 only, which went from 20% to 17% with a minimum going from 235,000 F excl. VAT to 180,000 F; that a first observation is called for: it is incomprehensible that, given the economic war, the company MAC DONALD'S asked for a rate of 20% whereas that of the company SEBOL was 12%; that the second remark is that the company MAC DONALD'S made up for its gesture since from 1 January 1998 the basic fee went from 235,000 F excl. VAT to 245,000 F excl. VAT; that the company MAC DONALD'S FRANCE, which had the company's accounts communicated to it at least once a month, could not have failed to foresee that on 30 June 1997, the amendment having been signed on the preceding 10 June, the loss of the company B & O would be about 955,000 F, that of SEBOL 850,000 F and that of ANTIBES Ouest, opened in May 1997, about 90,000 F; that it therefore knew from the outset that the temporary reduction of 3 points in the fee rate of the company B & O was out of all proportion to the remedies necessary for the survival of the companies SEBOL and B & O; that indeed, the experts estimated that the impact of the amendment led to a reduction of the fees of the company B & O of only 265,656 F, i.e. a fee of 1,181,736 F instead of 1,447,392 F; that as to what the company MAC DONALD'S FRANCE should have done immediately in June- July 1997, the Court considers that firstly it should, instead of sending almost constantly dilatory replies to Monsieur COLLORAFI while making use of a tutelement pout être partentrial, in any case questionable since the problems raised put at stake the professional future of a lessee-manager, such a situation should have prevented a manager of a large company from playing on such a register, and this, if he moreover has personal ties with his interlocutors, should have, during July 1997 at the latest, by reason of the losses known at that time at 31 June, proposed to Monsieur COLLORAFI, not a one-off measure such as the very small reduction of 3 points in the 1997 fee rate for the company B & O but an overall plan valid until 31 December 1998: reduction of the fees for this period by application of a very low and unusual rate (since according to the experts it was necessary to go below 12% for the companies SEBOL and B & O to return to profitability, because at 12 % the lowest rate normally applied, there would only have been a saving of 008,000 F in 1997; that the possible application of a very low rate outside the range of 12 to 18% for the contracts saigh: licence is moreover envisaged in article 2-1 of the VILI "the lease-management agreement (*location-gérance*) a a dans le documom imiré « informarion précontractuelle » : « the rate of fee determined according to the respective investments of the company MAC DONALD'S FRANCE, in order to guarantee a fair return on investment for both parties could consequently be taken outside this range": that in the present case, the return on Fax received from dela +35_014046023 investment was no longer assured for the companies SEBOL and B & O; secondly this plan of 18 months would certainly have led the company MAC DONALD'S to advise Monsieur COLLORAFI to give up part of his salary and to agree to a reduction of the financial costs of these companies, a recommendation that this company could all the more easily give since, in order to comply with the franchise charter, it itself directly manages more than 10% of the restaurants and therefore knows their management methods perfectly: thirdly this plan should have provided for what would happen at the end of 18 months (1 July 1997 - 31 December 1998) in view of the results of the recovery measures taken, which were to be envisaged under a dual aspect, the replenishment of cash and the generation of a profit margin to ensure a fair return on investment; that the legal analysis thus made by the Court of the failure of the company MAC DONALD'S to comply with its obligations under the lease-management agreement (*location-gérance*) is in line with the financial observations of the experts who write on page 64 of their report, after noting that the overall net result of the three restaurants was in 1997 a deficit of 2,700,000 F and that in 1998 it was 1,400,000 F, that this analysis highlights the fact that in a context of improving profitability of the restaurants, efforts on the part of the parties (adjustment of the fees and financial advice from MAC DONALD'S to better control fixed costs, awaiting an improvement of the situation of these restaurants with, on the part of Monsieur COLLORAFI, acceptance of a temporary loss of remuneration, could have enabled the companies to get through the difficult patch caused by the opening of a QUICK restaurant in July 1995 and by the strategic reply of MAC DONALD'S (opening of ANTIBES Nord in 1996); that the Court considered that it was for the company MAC DONALD'S to propose to Monsieur COLLORAFI a reduction of his salary within an overall proposal over 18 months; that in these circumstances the orders to pay invoking the termination clause were therefore issued in bad faith by the company MAC DONALD'S FRANCE; that the termination by operation of law of the contracts could not follow; AND ON THE GROUNDS THAT on the harm arising from the wrongful nature of the terminations, the only obligation in the performance of which the company MAC DONALD'S failed, consisting in presenting to Monsieur COLLORAFI an 18-month plan with sacrifices on both sides, did not entail a guarantee of the restoration of the financial situation of the companies but had the purpose of loyally leaving a chance to Monsieur COLLORAFI and his companies to move towards that goal; that the harm suffered by Monsieur COLLORAFI as a result of this absence of an observation period is very limited; that he cannot invoke the loss of the chance to operate his companies profitably until their term since the measures which the company MAC DONALD'S should have proposed appear with hindsight ineffective: that indeed the three companies of Monsieur COLLORAFI have been, from his forced departure from the premises on 10 June 1998, managed by a 100% subsidiary of the company MAC DONALD'S FRANCE; that at 31 December 1998, i.e. at the end of the 18-month period of the plan which the company MAC DONALD'S FRANCE should have proposed, despite drastic savings in administrative costs and reduction in the number of salaried managers, which the plan would not have failed to provide for, the company SEROL still shows a loss-making result of 132,042 F, the company B & O that of 412,107 F, an increase of 136% compared with the result of the second quarter of 1997, and the company LES PINS is profitable by only 129,728 F; that in total the pre-tax result of the three companies is a deficit of 414,421 F instead of 549,951 F at 31 December 1998; that Monsieur COLLORAFI therefore lost no chance of seeing his companies become profitable again within the 18 months following 1 July 1997: Fax received from : +33_8146229843 22/11/00 09:34 Pg: 12 _ WHEREAS FIRSTLY the appellants, asserting the fault of the company MAC DONALD'S in the wrongful termination of the contracts, invited the Court of Appeal to find that Monsieur COLLORAFI and the appellant companies lost their investments valued at 11 M.F, that they must repay the bank loan of 3 M.F, bear the losses suffered for the sum of 5,210,000 F, lost the return on investment for the company PINS in the sum of 13,244,734 F, the company MAC DONALD'S having recovered all the assets of the three companies; that in holding that Monsieur COLLORAFI cannot invoke the loss of the chance to operate his companies profitably until their term since the measures which the company MAC DONALD'S should have proposed appear with hindsight ineffective, the Court of Appeal, which did not rule on the claims for compensation of the harm suffered by the appellant companies, violated article 455 of the new Code of Civil Procedure: WHEREAS SECONDLY the appellants sought compensation for the harm constituted notably by the losses suffered during the years 1996 to 1998 respectively for each of the appellant companies: that in stating that Monsieur COLLORAFI lost no chance of seeing his companies become profitable again within the 18 months following 15 July 1997, without explaining itself on the harm relating to the losses suffered by each of the appellant companies, the Court of Appeal deprived its decision of a legal basis with regard to articles 1147 of the Civil Code: WHEREAS THIRDLY the appellants sought compensation for the harm constituted by the investments made, which were valued at 11 M.F., the bank loan of 3 M.F. which had to continue to be repaid, the impossibility of benefiting from the return on investment owing to the wrongful termination of the contracts; that in asserting that the only obligation in the performance of which the company MAC DONALD'S failed consisted in presenting to Monsieur COLLORAFI an 18-month plan with sacrifices on both sides, which did not entail a guarantee of the restoration of the profitable situation of the companies but had the purpose of loyally leaving a chance to Monsieur COLLORAFI and his companies to move towards that goal, then noted that the situation had improved, the pre-tax result of the three companies being a deficit of 414,421 F instead of 549,951 F, that the overall result was a deficit of 1.4 M.F. instead of 2.7 M.F., the Court of Appeal which affirms the absence of harm on the ground that the measures that should have been taken prove with hindsight ineffective, without indicating in what way these measures, which would have allowed a clear improvement of the situation as it noted, were ineffective, did not legally justify its decision with regard to articles 1147 et seq. of the Civil Code; WHEREAS FOURTHLY Monsieur COLLORAFI asserted that the fault committed by the company MAC DONALD'S was at the origin of the loss of his salary of 480,000 F plus charges over the 19 remaining years of the contracts, i.e. a total sum of 11,610,000 F; that in holding that the harm suffered by Monsieur COLLORAFI as a result of this absence of an observation period is very limited, that he cannot invoke the loss of the chance to operate his companies profitably until their term since the measures which the company MAC DONALD'S should have proposed appear with hindsight Fax received from: +33_8146229843 22/11/0a 87:74 Pg: 13- ineffective, that in total the pre-tax result of the three companies is a deficit of 414, 421 F and of 549,950 F at 31 December 1998, that Monsieur COLLORAFI therefore lost no chance of seeing his companies become profitable again within the 18 months, the Court of Appeal, which is content to compensate the appellant for the loss of his salary from 10 June to 31 December 1998, without specifying in what way these elements allowed it to hold that Monsieur COLLORAFI, who was an employee, would not have continued to receive his salary had his employer and he himself not been evicted following the termination of the contracts by the company MAC DONALD'S, did not legally justify its decision with regard to articles 1147 et seq. of the Civil Code; WHEREAS FINALLY the appellants asserted that the fault committed by the company MAC DONALD'S had caused the loss of the salary of the wife of Monsieur COLLORAFI, i.e. the sum of 250,000 F including charges, i.e. harm of 4,500,000 F over the 19 remaining years of the contracts; that in not ruling on this ground the Court of Appeal violated article 455 of the new Code of Civil Procedure. 2.1.1. On the first limb. Such is the case of the contracting party who takes the initiative of breaking the contract by invoking grounds which, ultimately, prove unfounded; in such a case the unilaterally decided termination of the contract is wrongful and engages the liability of its author, who is thenceforth bound to make good all the consequences of his act. Termination indeed presupposes proof of a non-performance attributable to the other party, a non-performance which may be total or partial, in the latter case it must be decisive (Com. 2 July 1996 B IV no. 198; R.T.D. Civ. 1997.130, obs. MESTRE; J.C.P. 1996 I 3983, no. 14 et seq. by JAMIN). Once it is found that the termination was wrongful, by application of article 1149 of the Civil Code, the contracting party who is the victim of this abusive termination may ask for compensation for his harm, that is, both the lucrum cessans and the damnum emergens; both compensation for the lost gain and for the loss suffered: "thus fall within the harm, not only everything of which the creditor has found himself deprived by the non-performance - non-performance in the strict sense or defective performance - but also all the effects induced by this non-performance..." (FLOUR, AUBERT, FLOUR and SAVAUX, op. cit. no. 216). Fax received from: 135_0116229813 22/11/88 49:34 Fy: 14 - 2.1.1.2. In the present case, the appellants had asserted the liability of the company MAC DONALD'S in the termination and sought compensation for the harm suffered: * It is worth stressing that Monsieur COLLORAFI - lost all his investments amounting to 11 M.F. - must repay the loan of 3 M.F. - must pay to the company MAC DONALD S the sum of 12,500,000 F - must bear the losses for the overall sum of 5,210,000 F - lost his salary of 490,000 F plus charges over the 19 remaining years of the contracts: 11,610,000 F - his wife also lost her salary, i.e. 250,000 F including charges: · 500,000 F - lost his return on investments for SEBOL: 9,576,354 F - for B & O 22,198,563 F - for LES PINS 13,244,734 F - saw his life broken and lost all chances of professional success whereas during the same time, the company MAC DONALD'S which was making in FRANCE a profit of 500,000,000 F recovered free of charge the assets of COLLORAFI, after having taken from the accounts of the latter 43 M.F. of fees, very largely amortising its own investments (final submissions after the expert report of 13 December 1999, p. 68) It was moreover shown that the harm suffered by the companies SEBOL, B & O and LES PINS was valued at the sum of 45,019,651 F (submissions p. 71 to 75). The appellants invited the Court of Appeal to find that: - the harm suffered by each of the companies, as a result of the wrongful termination of the contracts by the company MAC DONALD'S on 2 January 1998 is equal to the capitalisation of the losses of gross self-financing margin over the remaining term of the contracts normally still to run: namely: Fan regu de. 30 e14068013 22/11e8 Pg: 15 - Company SEBOL: 9,576,354 F Company B & O: 22,198,363 F Company LES PINS: 13,244,734 F" (p. 74). It was asked to add to the said sums the losses suffered by the companies SEBOL for the years 1997 and 1998, B & O for the years 1996, 1997 and 1998 and for LES PINS the years 1997 and 1998, i.e. respectively 1,549,868 F + 350,000 F (CARRYBACK) 2,743,103 F and 567,568 F (p. 75). The Court of Appeal, in the present case, found that the termination attributable to the company MAC DONALD'S was wrongful and engaged its liability. As regards the harm for which compensation was sought, the Court of Appeal held that the only obligation in the performance of which the company MAC DONALD'S failed, consisting in presenting to Monsieur COLLORAFI an 18-month plan with sacrifices on both sides, did not entail a guarantee of the restoration of the profitable situation of the companies but had the purpose of loyally leaving a chance to Monsieur COLLORAFI and his companies to move towards that goal. As regards the harm for which compensation was sought, the Court of Appeal ruled only in respect of Monsieur COLLORAFI, the Court of Appeal having held "that Monsieur COLLORAFI suffered as a result of this absence of an observation period (a harm) very limited; that he cannot invoke the loss of the chance to operate his companies until their term profitably since the measures which the company MAC DONALD'S should have proposed appear with hindsight ineffective"; the Court of Appeal deciding, as a result, that the only harm for which Monsieur COLLORAFI could seek compensation was the loss of his salaries for the period from 10 June to 31 December 1998, adding that "Monsieur COLLORAFI therefore lost no chance of seeing his companies become profitable again within the 18 months following July 1997". The Court of Appeal did not at all examine, as it was invited to do, whether the appellant companies could rely on harm, the Court of Appeal having ruled only on the harm relied upon by Monsieur COLLORAFI and accordingly it violated article 455 of the new Code of Civil Procedure. 2.1.2. On the second limb. Fax received from: t30_014b222093 22/11/0H 09:34 Pg: The Court of Appeal stated that the harm suffered by Monsieur COLLORAFI as a result of this absence of an observation period is very limited, that he cannot invoke the loss of the chance to operate his companies profitably until their term since the measures which the company MAC DONALD'S should have proposed appear with hindsight ineffective, that Monsieur COLLORAFI therefore lost no chance of seeing within the 18 months following 1 July 1997 his companies become profitable again. But the Court of Appeal did not examine, as it was invited to do, whether the appellant companies could not rely on harm relating to the losses suffered during the years 1997, 1998 for the company SEBOL, 1996, 1997 and 1998 for the company B & O and 1997 and 1998 for the company LES PINS, the appellant companies having sought the ordering of the company MAC DONALD'S to pay them respectively the sums of In stating indeed that Monsieur COLLORAFI therefore lost no chance of seeing his companies become profitable again within the 18 months following 1 July 1997, the Court of Appeal, which does not explain itself on the harm relating to the losses suffered, deprived its decision of a legal basis with regard to articles 1147 et seq. of the Civil Code. 2.1.3. On the third limb. The appellants had detailed the harm suffered as a consequence of the abusive termination of the contracts by the company MAC DONALD'S: loss of the investments valued at 11 million francs, the obligation to continue repaying the loan of 3 million francs and the loss of the return on investment in particular. The Court of Appeal found that at the end of the 18-month plan which the company MAC DONALD'S should have put in place, the pre-tax result of the three companies remained a deficit of 414,421 F instead of 549,951 F. An improvement of the situation was thus noted, the overall net result being a deficit in 1997 of 2.7 million francs and in 1998 of 1,400,000 million francs The Court of Appeal nevertheless held that no loss of a chance could be compensated since the measures which MAC DONALD'S should have proposed appear with hindsight ineffective. Yet since it noted the improvement of the situation, the Court of Appeal should have indicated in what way the measures that should have been taken appeared with hindsight ineffective. 4100--92:34 Pg: 17 - There is indeed a contradiction between this assertion and the finding of this very significant improvement of the situation. That is to say that the Court of Appeal deprived its decision of a legal basis with regard to articles 1147 et seq. of the Civil Code. 2.1.4. On the fourth limb. Monsieur COLLORAFI, as has been seen, asserted the personal harm that he had suffered, which consisted in the loss of his salary in the amount of 480,000 F per year plus charges, i.e. over the 19 remaining years of the contracts a total sum of 11,610,000 F. Ruling on this ground, the Court of Appeal held that the harm the appellant could rely on was having unduly lost his salary from 10 June to 31 December 1998, which was after tax 430,000 F per year, and consequently it awarded him compensation of 240,330 F. The Court of Appeal indeed held that Monsieur COLLORAFI could not have lost a chance of seeing his companies become profitable again within the 18 months following 1 July and that he cannot invoke the loss of the chance to operate his companies profitably until their term. The Court of Appeal however does note that Monsieur COLLORAFI was an employee and, as a result, it could not limit the amount of the damages awarded as it did without specifying in what way Monsieur COLLORAFI, an employee, would not have been able to continue to receive his salaries unless finding a termination attributable to him. Yet the very opposite is true since the Court of Appeal found that the termination was attributable to the company MAC DONALD'S. Consequently, the employee having an open-ended contract, the Court of Appeal should have drawn all the consequences of this characterisation with regard to the harm. That is to say that on this count the judgment incurs censure. 98-0-7026-833- 2.1.5. On the last limb. Finally it must be noted that the Court of Appeal left aside the ground by which it was invited to find that the appellant's wife had also lost her salary, i.e. 250,000 F including charges, i.e. 4.5 MF for the 19 remaining years of the contracts. The Court of Appeal indeed does not rule on this ground and accordingly it violated article 455 of the new Code of Civil Procedure, 1.2. SECOND GROUND OF CASSATION THE APPEAL CRITICISES THE JUDGMENT UNDER APPEAL for having ordered various payments to the detriment of the appellants and for having held that they had not suffered any harm for the period after 9 June 1996, limiting the harm of Monsieur COLLORAFI to the sum of 240,330 F: ON THE GROUNDS THAT the appellant companies reproach the company MAC DONALD'S with having proceeded to their forced eviction although it was aware of the commencement of the summary proceedings (*référé*) brought before the First President of the Court of Appeal for the purpose of suspending provisional enforcement; that this eviction, carried out in totally unlawful conditions, caused very great harm, both to the three companies and to Monsieur COLLORAFI; that the four appellants value their harm at 2 M.F. for each of them; that the appellants maintain that the company MAC DONALD'S is guilty of violating article 31 of the decree of 31 July 1992 which prescribes the suspension of proceedings until the summary-proceedings (*référé*) order is delivered; that this text only concerns the referral to the First President for the purpose of staying the enforcement of the measures ordered by the enforcement judge: that the enforcement judge by order of 9 June 1998 rejected the request for a grace period: that no appeal was lodged against this decision: that the fact that the First President of the Court of Appeal was seised on the basis of article 524 of the new Code of Civil Procedure to halt the provisional enforcement of the heads of the judgment under appeal before the eviction, even though the date of the referral is not mentioned in the order itself, was not a legal obstacle to the implementation of the eviction measures; that it follows that, given the respective legal situation of the parties at the time, the company MAC DONALD'S did not commit the fault of which it is accused; that the appellants will be dismissed on this head of their claim: WHEREAS even if provisionally authorised, the enforcement of a decision subject to appeal takes place only at the risk and peril of the person who pursues it, who must make good, in the event the decision is reversed, the harm caused without there being any need to establish fault on his part: that having found that the termination was attributable exclusively to the company MAC DONALD'S FRANCE which had benefited from the judgment with provisional enforcement, Fax received from: +30_014066933 which it pursued by forced enforcement by proceeding to the eviction of the appellants, the Court of Appeal which is content to note that the company MAC DONALD'S did not commit a fault in proceeding to this enforcement in order to reject the claims for compensation of the harm caused by the enforcement of this decision subject to appeal ruled on inoperative grounds and deprived its decision of a legal basis with regard to articles 514 et seq. of the Civil Code 2.2.1. As the Supreme Court recalls, "even if provisionally authorised, the enforcement of a court decision subject to appeal takes place only at the risk and peril of the person who pursues it, who must make good, in the event the decision is reversed, the harm which may have been caused by this enforcement: the Court of Appeal which noted that the PARIS couple were suffering financial harm as a result of the provisional enforcement of the judgment rightly held, without being required to find a fault against the company LEPARC MASSON, that the latter could seek compensation (Civ. 3rd, 1 July 1998, Procédures 1998.240, note PERROT). As the eminent commentator noted, "the expression 'at his risk and peril' is therefore not a mere stylistic formula: it has a very precise technical connotation which places the problem within the framework of no-fault liability. And that is normal. We forget too easily that provisional enforcement is a conditional enforcement which derogates from the suspensive effect of appeal... let him bear the risks, never forgetting that if the judgment must be reversed, he will not be able to plead his lack of fault to escape the compensation of the damaging consequences of a hasty enforcement" (ref. cited; add, Civ. 3rd, 16 December 1998 J.C.P. 1999 IV 1257). The trial courts need only examine whether the enforcement of a court decision with provisional enforcement caused harm to the party who lost before the first judges but won on appeal; they cannot reject the ground put before them by relying solely on the fact that no fault would have been committed, Such a ground, indeed, is perfectly inoperative with regard to the claim put before them. 2.2.2. In the present case, the Court of Appeal found the wrongful termination attributable to the company MAC DONALD'S and it found that this company, notwithstanding the appeal lodged by the appellants, had immediately pursued the forced enforcement of the judgment delivered in its favour. To reject the claim put before it by the appellants, after having noted that the enforcement judge seised by the appellants had rejected their request for a grace period, that no appeal was lodged against this decision and that the fact that the First President Fax received from: 135_0145227093 of the Court of Appeal was seised to halt the provisional enforcement of the heads of the judgment under appeal before the eviction was not a legal obstacle to the implementation of the eviction measures, the Court of Appeal decided "it follows that, given the respective legal situation of the parties at the time, the company MAC DONALD'S did not commit the fault of which it is accused". The question was not that of a fault of the company MAC DONALD'S this being no-fault liability, the question was whether, as the appellants asserted, this hasty enforcement of the judgment with provisional enforcement, notwithstanding appeal, had not caused them harm. On this point the judgment is silent, the Court of Appeal having ruled on an inoperative ground, thereby depriving its decision of any legal basis. 2.3. THIRD GROUND OF CASSATION THE APPEAL CRITICISES THE JUDGMENT UNDER APPEAL for having ordered various payments to the detriment of the appellants and for having held that they had not suffered any harm for the period after 9 June 1998, limiting the harm of Monsieur COLLORAFI to the sum of 240,330 F; ON THE GROUNDS THAT the experts have, with precision, dismantled the mechanism which led the companies SEBOL and B & O to the lack of cash and, even more seriously, to the absence of profitability in 1997; that they concluded that the companies were well managed by Monsieur COLLORAFI; that the company MAC DONALD'S claims in vain that he would have done better to create a holding company rather than a GIE on the ground that this would have allowed him to lighten the financial costs; that indeed the experts, who do not repeat their remark in their conclusions, wondered about this but without showing the possible effects in the present case, it being observed that the company MAC DONALD'S strongly advises its managers against creating a holding company; that the experts consider, in reply to the Court's first question, that even if an additional cash amount of 3,323,000 F could have been obtained from keeping the dividends in the company and from the saving resulting from a halving of Monsieur COLLORAFI's salaries, this sum would have been insufficient to cover the fees of the three companies at 31 December 1997, which were 3,905,270 F; that, more seriously, the experts state that at the rate of the losses recorded by the SEBOL and B & O group for the first 6 months of 1997, this additional cash would not have allowed Monsieur COLLORAFI to face the later losses either and that considerably more than the measures mentioned would have been required for these companies to durably regain their break-even point; that faced with this situation the company MAC DONALD'S, after numerous and pressing complaints from Monsieur COLL ORAFI finally consented to the amendment of 10 June 1997 which contained an adjustment of the fees of the company B & O for the year 1997 only, which went from 20% to 17% Pg:_21 - ence a minimum going from 235,000 F excl. VAT to 180,000 F; that a first observation is called for: it is incomprehensible that, given the economic war, the company MAC DONALD'S asked for a rate of 20% whereas that of the company SEBOL was 12%; that the second remark is that the company MAC DONALD'S made up for its gesture since from 1 January 1998 the basic fee went from 235,000 F excl. VAT to 245,000 F excl. VAT; that the company MAC DONALD'S FRANCE, which had the company's accounts communicated to it at least once a month, could not have failed to foresee that on 30 June 1997, the amendment having been signed on the preceding 10 June, the loss of the company B & O would be about 955,000 F, that of SEBOL $50,000 F and that of ANTIBES Quest, opened in May 1997, about 90,000 F; that it therefore knew from the outset that the temporary reduction of 3 points in the fee rate of the company B & O was out of all proportion to the remedies necessary for the survival of the companies SEBOL and B & O; that indeed, the experts estimated that the impact of the amendment led to a reduction of the fees of the company B &: O of only 265,656 F, i.e. a fee of 1,181,736 F instead of 1,447,392 F: that as to what the company MAC DONALD'S FRANCE should have done immediately in June- July 1997, the Court considers that firstly it should, instead of sending almost constantly dilatory replies to Monsieur COLLORAFI (while making use of a familiar form of address perhaps partnerlike, in any case questionable since the problems raised put at stake the professional future of a lessee-manager, such a situation should have prevented a manager of a large company from playing on such a register, and this, if he moreover has personal ties with his interlocutors, should have, during July 1997 at the latest, by reason of the losses known at that time at 31 June, proposed to Monsieur COLLORAFI, not a one-off measure such as the very small reduction of 3 points in the 1997 fee rate for the company B &: O but an overall plan valid until 31 December 1998: reduction of the fees for this period by application of a very low and unusual rate (since according to the experts it was necessary to go below 12% for the companies SEBOL and B & O to return to profitability, because at 12 % the lowest rate normally applied, there would only have been a saving of 608,000 F in 1997: that the possible application of a very low rate outside the range of 12 to 18% for the straight licence contracts is moreover envisaged in article 2-1 of the VIDe the lease-management agreement (*location-gérance*) a u dans le documen trirule « informiarion précontractuelle » : o le rose de fee rate determined according to the respective investments of the company MAC DONALD'S FRANCE, in order to guarantee a fair return on investment for both parties, could consequently be taken outside this range": that in the present case, the return on investment was no longer assured for the companies SEBOL and B & O: secondly this plan of 18 months would certainly have led the company MAC DONALD'S to advise Monsieur COLLORAFI to give up part of his salary and to agree to a reduction of the financial costs of these companies, a recommendation that this company could all the more easily give since, in order to comply with the franchise charter, it itself directly manages more than 10% of the restaurants and therefore knows their management methods perfectly; thirdly this plan should have provided for what would happen at the end of 18 months (1 July 1997 - 31 December 1998) in view of the results of the recovery measures taken, which were to be envisaged under a dual aspect, the replenishment of cash and the generation of a profit margin to ensure a fair return on investment: that the legal analysis thus made by the Court of the failure of the company MAC DONALD'S to comply with its obligations under the lease-management agreement (*location-gérance*) is in line with the financial observations of the experts who write on page 64 of their report after noting that the overall net result of the three restaurants was in 1997 a deficit of 2,700,000 F and that in 1998 it was 1,400,000 F. that this analysis highlights the fact that in a context of improving profitability of the restaurants, efforts on the part of the parties (adjustment of the fees and financial advice from MAC DONALD'S to better control fixed Fax received from: *30_8146229813 costs, awaiting an improvement of the situation of these restaurants with, on the part of Monsieur COLLORAFI, acceptance of a temporary loss of remuneration, could have enabled the companies to get through the difficult patch caused by the opening of a QUICK restaurant in July 1995 and by the strategic reply of MAC DONALD'S (opening of ANTIBES Nord in 1996): that the Court considered that it was for the company MAC DONALD'S to propose to Monsieur COLTORAFI a reduction of his salary within an overall proposal over 18 months: that in these circumstances the orders to pay invoking the termination clause were therefore issued in bad faith by the company MAC DONALD'S FRANCE; that the termination by operation of law of the contracts could not follow; AND ON THE GROUNDS THAT on the harm arising from the wrongful nature of the terminations, the only obligation in the performance of which the company MAC DONALD'S failed, consisting in presenting to Monsieur COLLORAFI an 18-month plan with sacrifices on both sides, did not entail a guarantee of the restoration of the financial situation of the companies but had the purpose of loyally leaving a chance to Monsieur COLLORAFI and his companies to move towards that goal; that the harm suffered by Monsieur COLLORAFI as a result of this absence of an observation period is very limited; that he cannot invoke the loss of the chance to operate his companies profitably until their term since the measures which the company MAC DONALD'S should have proposed appear with hindsight ineffective: that indeed the three companies of Monsieur COLLORAFI have been, from his forced departure from the premises on 10 June 1998, managed by a 100% subsidiary of the company MAC DONALD'S FRANCE: that at 31 December 1998, i.e. at the end of the 18-month period of the plan which the company MAC DONALD'S FRANCE should have proposed, despite drastic savings in administrative costs and reduction in the number of salaried managers, which the plan would not have failed to provide for, the company SEBOL still shows a loss-making result of 132,042 F, the company B & O that of 412,107 F, an increase of 136% compared with the result of the second quarter of 1997, and the company LES PINS is profitable by only 129,728 F; that in total the pre-tax result of the three companies is a deficit of 414,421 F instead of 549,951 F at 31 December 1998: that Monsieur COLLORAFI therefore lost no chance of seeing his companies become profitable again within the 18 months following 1 July 1997: WHEREAS the appellant asserted the non-pecuniary harm caused to him by the abusive termination of the contracts, having been one of the pioneer franchisees showered with praise by the company MAC DONALD'S, which then, although it had not filed submissions before the court, and had not yet asked the competent judge for termination of the contract, signed with one of its subsidiaries a lease-management agreement (*location-gérance*) (not hesitating) to publish it in a legal notices newspaper as well as the notice of the termination which had not yet been pronounced by the court. To complete the strategy of eviction and denigration of Monsieur COLLORAFI he is pointed at before the entire network by a circular dated 14 January 1998, whereas the next day, the summary-proceedings judge (*juge des référés*) refuses to endorse the show of force of MAC DONALD'S and very legitimately refers the matter to the trial judges" (submissions after the expert report, p. 76): that in holding that non-pecuniary harm was rightly invoked, Monsieur COLLORAFI having felt very badly the fact that after having been congratulated for years for his professional qualities which were such that his restaurant was a showcase establishment, in order to decide to award the appellant the sum of 100,000 F as damages and interest: without examining whether the fact of publishing within the network a circular denigrating the appellant did not constitute a distinct harm, the appellant maintaining that as a result he had lost all Fax received from: +33_8146229843 22/11/88_09:34 P9:_23 - chance of professional success (p. 68) the Court of Appeal deprived its decision of a legal basis with regard to articles 1382 et seq. of the Civil Code. Among the harm he invoked, Monsieur COLLORAFI asserted that he had seen his life broken and that he had lost all chance of professional success (p. 68). Monsieur COLLORAFI invited the Court of Appeal to find the personal harm that he had suffered, the company MAC DONALD'S having: "although it had not filed submissions before the court, had not yet asked the competent judge for termination of the contract, signed with one of its subsidiaries a lease-management agreement (*location-gérance*) and published it in a newspaper of legal notices as well as the notice of the termination which has not yet been pronounced by the court! "to complete the strategy of eviction and denigration of Monsieur COLLORAFI, he is pointed at before the entire network by a circular dated 14 January 1998, whereas the next day, the summary-proceedings judge (*juge des référés*) refuses to endorse the show of force of MAC DONALD'S and very legitimately refers the matter to the trial judges. One cannot treat in this way an independent trader who has punctually paid his fees for 10 years to the tune of 42,226,000 F" (submissions, p. 76). The appellant therefore asserted the harm that had been caused to him notably by this circular in which he was pointed at, forming part of a strategy of denigration, the appellant adding moreover that he had lost all chance of professional success. Yet while the Court of Appeal admitted the existence of non-pecuniary harm grounded on the fact that the appellant felt very badly the fact that after having been congratulated for years for his professional qualities which were such that his restaurant is a showcase establishment, the company MAC DONALD'S brutally set against him the letter of the lease-management agreement (*location-gérance*) instead of its spirit, it must be noted that the Court of Appeal did not examine, as it was invited to do, whether the appellant had not suffered a distinct non-pecuniary harm arising from the fact that he had been pointed at before the entire network in a circular of 14 January 1998. On this count the Court of Appeal deprived its decision of a legal basis with regard to article 1382 of the Civil Code. 220/11/0809:34 #g:_24 - FOR THESE REASONS and any others to be deduced or supplied if need be of the Court's own motion, THE APPELLANTS CONCLUDE that it may please the Court of Cassation to SET ASIDE AND ANNUL the decision under appeal with all the consequences of law. Exhibits: 1. certified copy of the judgment of 9 December 1998 2. judgment of the Commercial Court of PARIS of 18 May 1998 3. appellant's final submissions after the expert report of 13 December 1999.