Arbitration clause in franchise agreement sometimes inconvenient
On 20 July 2016, the District Court of Gelderland, ECLI:NL:RBGEL:2016:4868, ruled on the validity of an agreement in a franchise agreement, whereby disputes would be settled by means of arbitration instead of by the “ordinary” court. This ruling shows that when opting for an arbitration clause in a franchise agreement, there are sometimes negative practical consequences that may not have been thought through in advance.
A franchisee has sued a franchisor for breach of obligations under the franchise agreement. In addition to the franchisor, the direct director and the indirect director of the franchisor have also been summoned. They are charged with liability on the basis of an independent unlawful act, or directors’ liability.
The franchisor opposes the jurisdiction of the ordinary court and points out that the franchise agreement stipulates that disputes are settled by means of arbitration. The court considers that the franchise agreement contains an arbitration clause and that the franchisor is therefore only bound by the arbitration clause with regard to those disputes. There is no arbitration clause with regard to the liability of the direct and indirect director. The main rule applies to this. This, despite the fact that the arbitration clause pertains to disputes “as a result of” the franchise agreement.
The conclusion is that with regard to the dispute against the franchisor, the court has no jurisdiction and the court can rule with regard to the direct and indirect director. This may lead to the unforeseen event that the disputes are, as it were, split and the factual bases may be the same, but the judgment of the court and the judgment of the arbitrator may differ.
When drawing up an arbitration clause, it is worth taking into account any related or analogous disputes that could not be brought before the same arbitral tribunal at the same time. In the present case, the court ruled that the arbitration clause cannot be broken, because splitting the case would lead to inefficient litigation.
mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl .
Other messages
Post non-competition ban on services and sales franchise
When a franchise agreement ends, many franchisees encounter a prohibition in the franchise agreement to perform similar work for a period of time thereafter
The concept of the Franchise Act: impact for franchisors and franchisees – dated February 5, 2019 – mr. AW Dolphin
Ludwig & Van Dam Advocaten believes that if the draft of the Franchise Act actually becomes law, a lot will change for franchisors and franchisees.
Buy franchise business and the laid off sick employee from 7 years ago
The question is whether a Bruna franchisee, when selling the franchise company to Bruna, should have stated that seven years ago an employee had left employment sick.
Court prohibits Domino’s unilateral area reduction when extending franchise agreements – dated January 28, 2019 – mr. RCWL Albers
On January 9, 2019, the District Court of Rotterdam rendered a judgment in a lawsuit initiated by the Association of Domino's Pizza Franchisees and all its members (almost all Domino's franchisees).
Lien of the franchisee
Can a prospective franchisee invoke a right of retention to reclaim an entry fee if a franchise agreement is not concluded after the pre-agreement has been concluded?
Supermarket letter – 24
Draft Bill Law Franchise