Financial contribution to the association of franchisees may not be stopped just like that

Recently, the provisional relief judge of the District Court of Utrecht ruled in preliminary relief proceedings on the question under which circumstances suspension of monthly payments agreed between the parties is justified.

The issue is as follows. Plaintiff is a cooperative of drugstores that sold its brands and rights in 2007 to several investment companies. From the structure before the acquisition in 2007, the Cooperative acts as a representative body for the franchisees, who are all members of the Cooperative. The investment companies have set up an operating company that acts as a franchisor. In connection with the development of a new franchise formula, there has been a disagreement between the Cooperative and the investment companies for some time.

As part of the cooperation structure developed at the time, it was agreed that the Cooperative would receive a monthly contribution from the franchisor in order to be an adequate and professional franchisee representation. Due to the dispute between the parties, the franchisor has at some point suspended the monthly contribution. Only a few months later does the (formal) reason why the franchisor would have suspended the monthly contributions become clear. the franchisor would like financial accountability for the expenditure of that contribution by the Cooperative. The Cooperative disputes that it is obliged to provide this financial accountability, in any case beyond what it has already provided to the franchisor, by submitting annual reports and accounts from 2009 onwards. Since the monthly contributions have remained unpaid since September 2014, the Cooperative has been forced to initiate summary proceedings in order to secure payment of the monthly contributions. The Cooperative hereby argues that the franchisor was unable to proceed with suspension, as this was done on incorrect grounds. In addition, the degree of suspension does not guarantee  proportion to the alleged default on the part of the Cooperative. the Cooperative argues that it is the franchisor’s sole concern to exhaust the Cooperative financially, so that it can no longer defend itself legally against the rollout of the controversial formula.

As a result of the oral hearing, the preliminary relief judge rules – inter alia – as follows. A successful appeal to suspension of the payment obligations requires, among other things, that the franchisor has a claim against the Cooperative that is sufficiently related to the payment obligation. Whether there is sufficient cohesion is also important as to whether a suspension is justified under given circumstances  is. Thus, the question of whether there is sufficient coherence is framed by the factual circumstances of the case.

Subsequently, the question is examined whether the factual circumstances of the case entail sufficient cohesion between the Cooperative’s claim against the franchisor on the one hand and the franchisor’s related claim – being the ground for suspension – against the Cooperative on the other. The preliminary relief judge ruled that this was insufficient, or at least that the franchisor had not sufficiently made the connection plausible. In particular, it is important that the franchisor has invoked the lack of a certain consideration, which consideration has not been laid down in the contract. It also does not appear from other agreements between the parties what exactly is the scope of the agreements that apply between the parties. Furthermore, the franchisor has suspended the monthly contribution, without setting a term within which the Cooperative still had to comply.

With regard to the position of the Cooperative that the franchisor is trying to silence the Cooperative by squeezing it off the necessary financial vein, so that it would no longer be able to defend itself legally, the preliminary relief judge ruled that it It is not appropriate, precisely when the importance of the independence of the Cooperative, as a representative of the entrepreneurs, fully manifests itself, to financially limit that independence.

All this means that the preliminary relief judge rules that the suspension of the obligation to pay the contributions is not justified. The Cooperative’s claim, being payment of the monthly contributions for September up to and including January, is granted.

It appears from the aforementioned summary judgment that payment obligations cannot be suspended in full. It must be based on a solid claim and a term must be set within which compliance can still be done. Maintaining a suspension situation in full, without attaching a term or further consequences, can therefore be regarded as unjustified under certain circumstances.

Mr D. Uijlenbroek – Franchise lawyer

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