Directors’ liability in the settlement of a franchise agreement

Privately, can the director of a franchisee-legal entity be liable to the franchisor if the franchisee-legal entity erroneously fails to return goods to the franchisor in the settlement of a franchise agreement? The Amsterdam Court of Appeal ruled on this question in its judgment of 28 February 2017, ECLI:NL:GHAMS:2017:650 (Market Food Group/franchisee). 

The franchisor of the Le Perron formula and an entrepreneur planned to roll out the franchise formula in the United Kingdom as well. To this end, the entrepreneur has set up two English limiteds, of which he is an (indirect) director. The franchisor then made a sales car available to the franchisee. 

After some time, the franchisor and franchisee agreed to terminate the franchise project, but because the franchisor failed to comply with this agreement, the entrepreneur claimed compensation. The franchisor puts up a defense and argues, among other things, that the sales vehicle made available was not returned to the franchisor, other than agreed. The driver of the franchisee states that he has placed the sales vehicle with a third party, but that it is now unknown where the sales vehicle is. 

The franchisor states that the driver of the franchisee is personally liable for not returning the sales car. The franchisor accuses the driver of having moved the sales vehicle with the aim of exercising a right of retention, which means that there is risk liability. In addition, it is stated that strict liability (ex Article 6:171 of the Dutch Civil Code) applies to the third party engaged for safekeeping of the sales vehicle. In the view of the franchisor, the director of the franchisee would therefore have acted negligently, precisely now that the franchisee is liable for risks. 

The court ruled, among other things, that it had not been argued or proved that the driver himself knows where the sales vehicle is. The Court of Appeal does admit, however, that acting with regard to the sales vehicle in itself does not show much care. However, this is not sufficient for assuming directors’ and officers’ liability. The conclusion that the driver is not personally liable (in addition to the liability of the franchisee) for not returning the sales car. 

The standard of liability used indicates a lower standard of due care for the director, for which the strict liability of the legal entity franchisee is of insufficient decisive significance. This is in accordance with case law (HR 5 September 2014, ECLI:NL:HR:2014:2628), which also applies to the second-degree driver (HR 17 February 2017, ECLI:NL:HR:2017:275). The lower standard of due care lies in the social interest of preventing directors from allowing their actions to be determined to an undesirable degree by defensive considerations. 

mr. AW Dolphijn – Franchise lawyer 

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