Franchise code applicability remains roulette for the time being

In a judgment of 13 November 2015 (ECLI:NL:RDOVE:2015:5020), the Overijssel District Court ruled as follows on the occasion of preliminary relief proceedings, seeking to evict a franchise company, in which the duty of care was invoked as a defence:

“The preliminary relief judge considers that the Honor Code is a code of which franchisors, who are members of the Dutch Franchise Association (NFV), have committed themselves. The Code of Honor contains a guideline for a fair and reasonable interpretation of the franchise relationship, taking into account the interests of both parties. However, this Code of Honor does not contain any legally enforceable obligations. ”

The underlined passage raises questions. After all, members of the NFV have also committed themselves through their membership to strictly comply with the code and therefore to make it enforceable. Although the critics of the existing code must admit that the code may not provide sufficient concrete guidance on all parts to enforce compliance, this is certainly the case with regard to a number of parts of the existing code.

The franchisor who is a member of the Dutch Franchise Association has committed itself towards that Dutch Franchise Association, also and in favor of the franchisee, to comply with the code. In my opinion, the franchisee can invoke this directly against the franchisor because this code therefore qualifies as a so-called third-party clause (Section 6:253 of the Dutch Civil Code), or at least has become part of the franchise relationship due to the franchisor’s commitment. The latter section of the law stipulates that the third party can directly invoke a clause that is in his favour. Especially if the third party does not owe any consideration for this. The stipulation is then deemed to have been accepted by operation of law.

This is not the first time that judges have regarded the code as merely a guideline for a reasonable interpretation of the franchise relationship, without considering it enforceable. See also the judgment of the District Court of the Northern Netherlands of 29 November 2013 (ECLI:NL:RBNNE:2013:7307), which judgment has already been strongly criticized and has contributed to the initiative of a new code, which is currently being worked on. :

“In that context, the parties have debated the legal obligation of De IJsvogel Groep to the Honor Code. In this regard, the subdistrict court considers that the Code of Honor is a code to which franchisors who are members of the Dutch Franchise Association (NFV) have committed themselves. The Code of Honor contains a guideline for a fair and reasonable interpretation of the franchise relationship, taking into account the interests of both parties. However, the Code of Honor does not contain any legally enforceable obligations. To that extent, the Code of Honor has at most the status of a standard of decency. This means that the Code of Honor must be disregarded when it comes to answering the question of whether De IJsvogel Groep has failed to comply with the franchise agreement.”

It seems that the District Court of Overijssel has simply accepted this conclusion, all the more so now that it is without force of (sufficient) arguments in the judgment. Moreover, the court makes no distinction between the formal status of the code as in principle a self-declared enforceable set of rules, belonging to the franchise relationship on the one hand, and the fact that parts thereof, when applied to a particular case historie, may not lend themselves sufficiently to direct enforcement as such.

On the other hand, there are (fortunately) judges who see it differently. In a judgment of 12 December 2012 (ECLI:NL:RBUTR:2012:BY6869), the District Court of Utrecht considered that the Code of Honor is enforceable:

“The court adds that in this context Tahama has also been allowed to attribute meaning to the fact that Readshop is bound by the European Code of Honor on franchising of the Dutch Franchise Association, and in particular the fact that in article 4.3 of that Code of Honor provides that prospective franchisees must be provided with complete and accurate written information and documentation regarding the franchise relationship, including “financial estimates and/or forecasts, if available”. Tahama has been able to understand that Readshop, by including the guarantee referred to under 2.1 under c, has intended to give substance to that standard endorsed by franchisors in the Netherlands. Readshop has also not denied that this Code of Honor has meaning, but in this context only stated that it  has not violated, since it has provided all complete and correct information to Tahama before the conclusion of the agreement. However, this is an untenable position in the light of what the court considered in the interlocutory judgment of 16 May 2012 on the report of Boek & Bedrijfs.”

In all three cases, the franchisors were also members of the NFV. In this last judgment, however, the starting point was that the Readshop did not deny the applicability of the code either. Of course, it cannot be the case that the latter determines whether the code is then not applicable.

These apparently contradictory positions of judges raise the question of what the actual usefulness of a franchise code is, besides possible other objections. If there is no conclusive solution for this in advance, the applicability of a franchise code remains roulette.

Mr J. Sterk – Franchise lawyer

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