Contractual dissolution requirements not observed? No legal dissolution of the franchise agreement – dated July 23, 2020 – mr. C. Damen
Can a franchisor terminate the franchise agreement if it has failed to comply with its own contractual requirements? The Court of First Instance recently ruled that there was no legally valid dissolution of the franchise agreement as a result of this.
After a successful period of cooperation between franchisor and franchisee, cracks have appeared in the relationship between the parties. The franchisee plans to take over a business that the franchisor believes violates a contractually agreed non-competition clause. The franchisor then terminates the franchise agreement and terminates the formula with respect to the franchisee. Subsequently, the franchisee terminates the franchise agreement because the franchisor allegedly failed. Both parties state that they have dissolved the franchise agreement on good grounds and are claiming damages from each other. Who is now right in court and why?
The judge does not follow the vision of the franchisor. In complying with the franchise agreement, the franchisor itself would have failed to comply with a number of contractual agreements. These agreements relate to the continuation of the form of cooperation, the development of the formula and the promotion of joint growth. In the present case, the franchise agreement contains an obligation for the franchisor
to inform the franchisee by registered letter of the measures to be taken to bring the operation back into line with the franchise agreement. However, the court is of the opinion that the franchisor wrongly failed to observe this provision when dissolving the franchise agreement. Because the franchisor has not observed its own rules on dissolution, the dissolution is invalid and the franchisor wrongly stopped complying with the franchise agreement.
The franchisor is ordered to pay compensation to the franchisee as a result of the non-legally valid extrajudicial dissolution of the franchise agreement.
It strongly depends on the circumstances whether and how a franchise agreement can be legally dissolved and what requirements apply. In this ruling, however, it has been confirmed once again that what the parties have agreed with each other (in the agreement) is leading in any case.
mr. C. Damen – franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice.
Do you want to respond? Go to damen@ludwigvandam.nl
Other messages
Legal Franchise Statistics 2019: slight decrease in number of franchise disputes
In 2018, 44 judgments were published on Rechtspraak.nl, 12 of which were appeal cases and one in cassation (a prognosis issue against Albert Heijn).
Article De Nationale Franchisegids: “Judge again rules in favor of Domino’s franchisees” – dated September 3, 2019 – mr. RCWL Albers
At the beginning of 2018, almost all franchisees of Domino's and the Association of Domino's Pizza Franchisees submitted two issues to the court in Rotterdam.
Article De Nationale Franchisegids: “The interim termination of the franchise agreement” – August 12, 2019 – mr. JAJ Devilee
A franchise agreement can end prematurely in many ways.
Article De Nationale Franchise Gids: “Parliamentary questions asked about (false) self-employment franchisees” – dated 24 July 2019 – mr. M. Munnik
Parliamentary questions have recently been asked about the so-called bogus self-employment within the relationship between franchisor and franchisee.
Article Franchise+: “With our franchise formula you will earn mountains of gold.” dated 10 July 2019 – mr. AW Dolphin
The distinction between permissible promotions and misleading information remains a gray area, despite the relevant legislation.
Franchisee may purchase a range of foreign products after mandatory formula change – June 6, 2019 – mr. JAJ Devilee
The District Court of East Brabant recently dealt with an important matter in preliminary relief proceedings in which a franchisee was completely involuntarily forced to adopt an alternative formula.