Article Franchise & Law No. 7 – Franchise agreement as general terms and conditions

Uniformity of the franchise formula and (therefore also) uniformity of the agreements with the franchisees will often be of great importance to the franchisor. Therefore, franchisors generally use standard franchise agreements that are presented to their franchisees. Can clauses in model franchise agreements, such as a penalty clause, be qualified as general terms and conditions? The question is also what implications this could have. 

Terms and Conditions. 

Section 6:231 of the Dutch Civil Code stipulates that general terms and conditions have been drawn up in order to be included in a number of agreements, with the exception of stipulations that indicate the core of the performance. This could qualify the standardized model franchise agreement as a set of general terms and conditions, as also established in court.1 According to Article 6:231 sub a of the Dutch Civil Code, general terms and conditions do not, in principle, include stipulations that indicate the core of the performance. It is sometimes difficult to determine which clauses are core clauses. The structure of an agreement can sometimes provide a clue. When the franchise agreement is considered as a whole, after the preamble one often finds provisions about the rights and obligations of the parties during the existence of the franchise relationship. This is followed by provisions about duration, termination and dissolution of the agreement, sometimes including penalty clauses. Although a penalty clause relates to part of the performance that the franchisor is obliged to provide to the franchisee, it can often not be seen as a clause in which the core of the performance is stated. It concerns an elaboration of the termination that takes into account the settlement of performances that form the core of the mutual obligations during the existence of the franchise relationship. Viewed objectively, such an elaboration in the sense of, for example, a penalty clause does not belong to the core clauses.2

Unreasonably onerous terms 

The next issue is whether the clause in the standard franchise agreement is unreasonably onerous within the meaning of Article 6:233 sub a of the Dutch Civil Code. When the regulation on general terms and conditions was introduced, it was considered that, for example, in the case of franchising agreements, the franchisee could become dependent on the franchisor, which would lead to unfavorable, possibly unreasonably onerous, clauses in general terms and conditions for the franchisee.3 

Pursuant to Article 6:233 sub a of the Dutch Civil Code, a clause in general terms and conditions is voidable if, in view of the nature and other content of the agreement, the manner in which the terms and conditions have been established, the mutually known interests of the parties and the other circumstances of the case, is unreasonably onerous for the other party. Article 6:233 sub a of the Dutch Civil Code does not derogate from Article 6:248 paragraph 2 of the Dutch Civil Code, so that the franchisee can choose for itself which scheme it wishes to invoke.4 The major difference between the two regulations is that an appeal to Article 6:233 sub a of the Dutch Civil Code necessitates annulment, whereas an appeal to Article 6:248 paragraph 2 of the Dutch Civil Code does not. 

The element of “encumberment” only means that it must be detrimental to the other party.5 That disadvantage does not have to be of a financial nature, but can also be immaterial in nature. These are clauses that deviate in an unreasonably onerous manner for the franchisee from what would otherwise have applied under the franchise agreement, i.e. if the clause had not existed. It must therefore be stipulations that deviate from the legal consequences that the franchise agreement would have had without those stipulations.6 However, not every adverse onerous clause is also unreasonable. The word “unreasonable” indicates that a certain threshold must be passed before a term unfavorable to the franchisee is voidable. The higher the threshold thus raised, the more restrained the content check is. The height of the threshold does not always have to be the same: it is quite conceivable that the assessment will take place more cautiously the more expert a party is or should be! 

As an elaboration of the open standard of Article 6:233 sub a of the Dutch Civil Code, Articles 6:236 and 6:237 of the Dutch Civil Code for consumer contracts list a number of terms in general terms and conditions that are respectively regarded as unreasonably onerous or are presumed to be unreasonably onerous. Incidentally, a franchisee cannot invoke Articles 2:236 and 2:237 of the Dutch Civil Code, because he is acting in the course of his business. The fact that the franchisee previously worked as an employee and received unemployment benefits for some time does not change this.8 

Case histories 

Various examples can be found in case law of cases in which clauses in franchise agreements have been tested against the question of whether they could be unreasonably onerous as a general condition. 

A non-solicitation clause in a franchise agreement for a term of two years was judged to be long in duration compared to the actual term of the franchise agreement, but that this effect is related to the franchisee’s own choice to terminate the franchise agreement after less than one year with immediate effect. In itself no argument can be derived from this that (the duration of) the clause is unreasonably onerous.9 

A clause that does not exclude the right to annul the franchise agreement on the grounds of error due to an unsatisfactory forecast, but that attaches a period of one year after the conclusion of the franchise agreement is not unreasonably onerous. With careful monitoring of the company data, a sufficiently clear picture can be obtained within a year of the accuracy of the forecasts presented, according to the Arnhem-Leeuwarden Court of Appeal.10 

The franchisor usually also includes standard exonerations in the franchise agreement. For example, a case is known in which the franchisee demanded that the franchisor’s appeal to the exoneration clause be nullified, because it would be unreasonably onerous, because the franchisor would have deliberately provided incorrect or misleading (turnover) forecasts. The court ruled that no reason could be found in the manner in which the franchise agreement was concluded and the mutually known interests, or the other circumstances, would make an appeal to the exoneration clauses unreasonably onerous. 

Whether stipulations in the model franchise agreement are unreasonably onerous depends strongly on the circumstances of the case, but does not seem to be easily accepted. This may be due to the far-reaching consequences of the nullification of the clause. This is different from, for example, an appeal to the derogatory effect of reasonableness and fairness, where the court could weaken the effect of the clause at issue. This option also sometimes appears to be opportune in the case of penalty clauses in franchise agreements. However, a special legal regulation is then applied that is tailored to this. 

Penalty clause as a general condition 

Penalty clause means any clause stipulating that the debtor, if he fails to fulfill his obligation, is obliged to pay a sum of money or another performance, regardless of whether this serves to compensate damage or merely to encourage compliance with the obligation. to go.12 The word “penalty” need not be used explicitly as such.

General terms and conditions, as well as franchise agreements, usually contain (various) penalty clauses. When parties conclude an agreement that includes a fine, the amount is rarely negotiated. It is understandable that penalty clauses are not often negotiated, because critical remarks from the franchisee about a high penalty can easily undermine the confidence of the franchisor, resulting in him not doing business with the franchisee. A comparable reasoning is possible with regard to the model franchise agreement proposed by the franchisor. Acceptance of the franchise agreement model will generally be inherent to entry into the franchise formula. To that extent, a penalty clause in any case seems to have the same purport as the regulation on general terms and conditions referred to above. 

The Midden-Nederland District Court ruled on a clause based on which the franchisor was entitled to compensation upon termination of the franchise agreement. This concerns a penalty clause pursuant to Article 6:91 of the Dutch Civil Code to fix damage. According to the text of the clause, the compensation would also be due in the event that the termination results from a shortcoming on the part of: 

1   See, for example, Almelo District Court 15 September 2006, ECLI:NL:RBALM:2006:AY8624 ground 4.8.
2   See Court of Arnhem 18 April 2007, ECLI:NL:RBARN:2007:BA5581, ground 4.Z
3  See House of Representatives, session 1981, 16983, nos. 1-3, p. 40.
4  See HR 14 June 2002, ECLI:NL:HR:2002:AE06592.
5  See HR 7 December 2007, ECLI:NL:HR:2007:BB5078.
6  cf. MBM Loos, ‘Terms and Conditions’ (2013), p. 129.
7  See MBM Loos, “Terms and Conditions” (2013), p. 129.
8   Arnhem-Leeuwarden Court of Appeal 17 February 2015, ECLI:NL:GHARL:2015:1180, para 2.2Z
9   Amsterdam Court of Appeal 17 October 2017,
ECLI:NL:RBAMS:2016:5094, paragraph 3.8.4.
10  Arnhem-Leeuwarden Court of Appeal 17 February 2015,
ECLI:NL:GHARL:2015:1180, para 2.27.
11  See Northern Netherlands District Court 16 March 2016, ECLI:NL:RBNNE:2016:1101, ground 4.8.
12  See Article 6:91 of the Dutch Civil Code.
 
mr. AW Dolphijn – franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl .