Damage estimate after wrongful termination of the franchise agreement by the franchisor

In a judgment of the Supreme Court of 15 September 2017, ECLI:NL:HR:2017:2372 (Franchisee/Coop), it was discussed that supermarket organization Coop had not complied with agreements, as a result of which the franchisee legally dissolved the franchise agreement. How high is the damage due to the lost profit? 

In particular, this concerns the question of whether and, if so, in what way the franchisee’s income and income possibilities in the period after the dissolution should be included in the determination of the compensation. 

Article 20 of the franchise agreement obliges Coop to comply with the European Code of Honor on Franchising (hereinafter: the European Code of Honor). The franchisee accuses Coop of failing in the sense of (i) failure to provide the agreed full bridging loan, (ii) wrongly claiming the two weekly invoices, (iii) Coop’s refusal to pay the promised promotional costs and to make available the additional commercial budget promised and (iv) the implementation of a delivery stop. These shortcomings were of sufficient weight to justify dissolution and its consequences. 

The question then arises of how to estimate the damage that Coop has caused. The parties do not agree on (1) the period of operation over which the compensation must be calculated, (2) the question whether account should be taken of the fact that the surface of the shop floor has been increased, (3) the amount of the loss cumulative earnings before personal expenses and taxes, (4) the goodwill on the sale of the store at the end of the period of operation, and (5) the extent of the tax loss. 

With regard to the period over which the damage must be calculated, the starting point is that this is the period in which the agreement would have been terminated at the end of the first agreed term. 

In cassation, the central question is whether sufficient account has been taken of the income of the franchisee after the dissolution.

Referring to HR July 10, 2009 (ECLI:NL:HR:2009:BI3402), the franchisee has also argued that there is no room for a (full) settlement of income from employment and that of damage due to the dissolution, because there is no is of any benefit enjoyed by the franchisee that is in any way related to the damage based on the attributable failure by Coop. 

In another judgment, Supreme Court 23 September 2016, ECLI:NL:HR:2016:2180 (Luxembourg/Habitat), the Supreme Court also considered the question of how compensation for damage to the franchisee should be estimated if the franchisor is at fault. unjustified a supply stop. Does this right to compensation apply in full if the franchisee has nevertheless purchased replacement goods via another supplier? The Supreme Court has ruled that the question is of a factual nature and does not concern a legal complaint. In the opinion of AG Wissink dated 17 June 2016, ECLI:NL:PHR:2016:903, it is pointed out that the Court of Appeal was right to take advantage of the replacement agreement, because the replacement agreement is the actual situation in which the franchisee after the failure of the franchisor. 

The Supreme Court is of the opinion that in the present case it is no longer under discussion that the income that the franchisee enjoyed after the dissolution should be set off against the damage. Coop believes that the franchisee’s income could have been higher because the franchisee had insufficiently fulfilled its obligation to limit damage. The Supreme Court believes that the income of the franchisee after the dissolution has been taken into account and that the obligation to limit damage has also been assessed, albeit that a calculation error has been made. 

It can be concluded from this judgment that, if a franchisee rightly terminates the franchise agreement prematurely, determining the damage suffered as a result can be a complicated task. 

mr. AW Dolphijn – Franchise lawyer 

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