Article De Nationale Franchise Gids: “Settlement problems with franchisee who is a general partnership” – mr. JAJ Devilee – dated November 30, 2020

In a recent dispute (ECLI:NL:GHARL:2020:8319) two ex-spouses, one of which involved the ex-wife and the other the ex-husband being the director-major shareholder of a private company, both previously associated as partners of a general partnership and (in the past) associated with a franchisor, face each other in a tumultuous appeal procedure regarding the question whether the ex-wife has forfeited penalty payments against the private limited company.

Background

The man’s private limited company (hereinafter: the “private limited company”) and the ex-wife were both partners of a general partnership and jointly operated a cafe with their children on the basis of a franchise agreement in which all kinds of chocolate products were sold. At some point, the affectionate relationship between the husband and wife came to an end, which also heralded a termination of the business relationship between the parties. As a result, the parties have become involved in a number of legal proceedings.

Summary proceedings for submission of accounting documents

Apparently (only) the woman had the administration of the company, which would have put the man in a bind with his 2018 corporate income tax return. For that reason, the private company has instituted summary proceedings against the woman and demanded that the accounting documents of the general partnership be submitted to the private company under penalty of forfeiture of a penalty. For this reason, the ex-wife handed over a large number of documents in copies to the private limited company. The latter party was apparently not convinced that all the requested documents had been provided by the ex-wife and demanded the maximum penalty and threatened execution.

New lawsuit

The ex-wife strongly disagreed with the private company, because she believed that she had indeed complied with its claims. For this reason, the ex-wife has started new preliminary relief proceedings in order to cancel or reduce the penalty imposed, or to demand an injunction, as a result of which the private limited company is prohibited from executing the penalty. The preliminary relief judge ruled in favor of the ex-wife, in the sense that the penalty to which the private limited company was entitled under the earlier summary proceedings has been lifted. In order to ensure that the ex-wife can actually enforce this, the preliminary relief judge has ruled that the private limited company may no longer proceed with the enforcement of the judgment and has imposed a penalty against the private limited company. The private limited company disagrees with this court judgment and has lodged an appeal.

Appeal 

In this case, the private company is claiming the annulment of the most recent judgment of the preliminary relief judge. On appeal, the first consideration is the division of the burden of proof between the parties. It must be considered what the executed person, in this case the ex-wife, has done to implement the earlier summary judgment. In doing so, attention must be paid to the purpose and purport of the conviction and it must be ensured that the conviction does not extend beyond the intended purpose, in this case the filing of a corporation tax return by the private limited company.

The Court of Appeal reviews each claim from the previous summary proceedings to see whether the ex-wife has complied with the conviction of the previous judgment. On appeal, it is ruled that the ex-wife has indeed complied with the claims of the private limited company, or at least that there are such minor shortcomings that these shortcomings cannot justify the demand for a penalty payment by the private limited company. On appeal, the judgment of the preliminary relief judge is upheld and the private limited company is ruled against. The private limited company therefore fishes behind the net.

Making good agreements in a partnership contract can help prevent problems between partners at a later stage. It may also be important for a franchisor to understand how the mutual relationship between the partners who operate the establishment is structured contractually, so that when the franchise agreement is continued or when the company is transferred to a successive franchisee, as much prevent problems from arising if possible.

If you have any questions in this regard, please feel free to contact me.

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond?  Go to devilee@ludwigvandam.nl