Advance on compensation after an unsound prognosis

District Court of the Northern Netherlands, 9 April 2014, ECLI:NL:RBNNE:2014:1936

In a beautifully substantiated summary judgment of the District Court of the Northern Netherlands of 9 April 2014, ECLI:NL:RBNNE:2014:1936, the question was whether an advance should be paid for the damage assessment procedure.

By judgment of 15 January 2014, ECLI:NL:RBNNE:2014:173, the District Court of the Northern Netherlands had already nullified the franchise agreement between the parties on the grounds of error because the franchisor had provided an unrealistic forecast of the results of which it knew, or at least should have known, that contained serious errors. In addition, the court established that this action by the franchisor was unlawful and that the franchisor is liable for damages to the franchisee. An appeal has been lodged against this judgment.

The franchisee claims to have suffered considerable damage as a result of the wrongful act of the franchisor and is requesting an advance on the compensation in preliminary relief proceedings – in anticipation of the damage assessment procedure. The franchisee is said to be in serious financial difficulties and therefore has a sufficiently urgent interest in the requested interim relief. For example, the bank balance is said to be negative, the mortgage payments of the owner-occupied home have been left unpaid, the savings have been used up and a debt has arisen with the stamrecht BV of 

€40,000. In the latter case, if this debt is not yet repaid, income tax will be levied on this amount.

For the time being, the franchisee estimates the damage on the purchase costs of the inventory of the store, the losses incurred, rental costs and the forecast amounts (wages, at least benefits), in total more than € 300,000. In the context of summary proceedings, the franchisee limits itself to a claim for an advance of € 80,000.

The franchisor defends itself with, among other things, arguments that challenge the decision of the court of first instance of the proceedings on the merits. Furthermore, reference is made to the considerable risk that, if an advance would have to be paid and the judgment of 15 January 2014 would not be upheld on appeal, the advance paid by the franchisor would be extremely difficult to repay. One of the other arguments is that the franchisee has received services from the franchisee, and therefore also owes a fee for this. Examples include products delivered, services and use of the franchisor’s intellectual rights.

Referring to case law of the Supreme Court, the preliminary relief judge reviews the positions of the parties. The point of departure is that claims for payment of sums of money in summary proceedings should be assessed with restraint, but are not impossible. The required urgent interest is present now that the franchisee is apparently in financial distress and has not hesitated to institute summary proceedings. Although there is a considerable risk of restitution, the claim of the franchisee can only be allowed, according to the preliminary relief judge, if and insofar as it can be judged with a high degree of probability that the claimed payment of an advance in proceedings on the merits will be converted into an actual allocation of that amount. High requirements must therefore be set for the plausibility of the claim in these interlocutory proceedings. The complexity of the case and the plausibility of the franchisee’s claim are also discussed. The preliminary relief judge rules that the franchisee’s claim is admissible.

The substantive defenses against the judgment of 15 January 2014 have been disregarded by the preliminary relief judge. There is no apparent error in the judgment of 15 January 2014, so that the preliminary relief judge leaves the substantive assessment to the judges on the merits.

Now that the franchisee is admissible in summary proceedings and it has been established in the main proceedings by judgment of 15 January 2014 that the franchisor is liable for damage, the question arises of how high the damage is and whether an advance can be awarded. The preliminary relief judge ruled provisionally that the investments should be set at slightly more than € 80,000 and that these were not due with the nullification of the franchise agreement. The franchisor has insufficiently substantiated what amounts can be claimed from the franchisee with regard to, for example, products and services supplied. That defense is therefore rejected. The preliminary relief judge does, however, consider the argument valid that there is a restitution risk when an advance payment is awarded. The preliminary relief judge limits the advance payment to an amount of € 40,000.

It is striking that this amount fits nicely with the debt of the franchisee’s stamrecht BV. The franchisee can use the allocated advance to avert the risk of an income tax assessment in respect of that amount. In this way, the further increase in the adverse consequences of the unsatisfactory prognosis for the franchisee is also limited.

Incidentally, in the proceedings on the merits that led to the judgment of January 15, 2014, the franchisee could already have claimed an advance on the damage (by means of a change of claim), in anticipation of the definitive amount of the damage to be determined in a damage statement procedure. This could possibly have prevented the lawsuit.

Mr AW Dolphin  – Franchise attorney

Ludwig & Van Dam Franchise attorneys,franchise legal advice.

Do you want to respond? Mail to dolphijn@ludwigvandam.nl