Jumbo refuses to convert C1000 and claims the franchise company

An apparently remarkable outcome about a C1000 franchisee, of which the provisional relief judge of the Amsterdam District Court (July 3, 2014, ECLI:NL:RBAMS:2014:4152) ruled in summary proceedings that C1000 does not fall short in the franchise agreement. On the other hand, the franchisee was forced to sell his shop to Jumbo/C1000. The loss-making franchise situation would be unsustainable and warrant becoming an affiliate.

Although it is not clear from the published data exactly what was going on, it seems that the preliminary relief judge did not assess all relevant facts equally well.  submitted, or at least assessed.

Reportedly, an appeal would be lodged against the decision of the preliminary relief judge.

Falling short C1000?

It is known in the industry that the C1000 formula will cease to exist. C1000 was taken over by Jumbo in 2012. The C1000 formula would merge into a stronger Jumbo formula that would combine the best of both formulas. C1000/Jumbo has even drawn up a so-called “Transition Scheme” that provides financial compensation to C1000 franchisees for phasing out the C1000 formula.

If the franchise agreement to operate the C1000 formula continues for a long period, it should be possible to prove that C1000/Jumbo has already failed as a franchisor.

It does not follow from the published judgment that this argument has been advanced. The franchisee seems to be focusing on reproaches regarding a forecast for the relocation of that supermarket that took place in 2010. The judge in preliminary relief proceedings does not agree.

No conversion for C1000 franchisee?

If the preliminary relief judge were to be convinced that C1000/Jumbo had failed or failed as a franchisor, the C1000 franchisee would be in a position to demand a solution from the franchisor. Many other C1000 franchisees are being converted to other formats. That is not so surprising if the C1000 formula will cease to exist.

The franchisee therefore demands that Jumbo/C1000 be ordered to provide the necessary cooperation to facilitate the conversion to the Jumbo formula. The conversion to the Jumbo formula (and the expansion from 2,700 m2 to 3,500 m2) could make the franchise profitable, according to the franchisee. However, Jumbo/C1000 refuses. Now that the preliminary relief judge has ruled that Jumbo/C1000 does not fall short as a franchisor and that Jumbo/C1000 cannot be obliged to convert (and expand).

What does not appear from the ruling is whether it has been discussed that the location in question in Almere-Buiten was also not on the “conversion lists” published in April 2012 by Jumbo, Albert Heijn and Coop. For C1000 franchisees who are on those “conversion lists”, they may also be able to derive rights from this. In that case, the claim for conversion to Jumbo would probably have a greater chance of success.

From franchise to branch

Jumbo/C1000 no longer sees any benefit in the loss-making franchise. The costs of personnel and rent would be too high in relation to the turnover potential, so that profitable operation would not be possible. The accounts receivable of the franchisee is only increasing and it is apparently impossible to see that this increase will come to an end. Jumbo/C1000 has (among other things) terminated the franchise agreement and invokes the obligation to offer of the franchise agreement. There is a rental contract with the franchisee of which at least 11 years are still to be served. However, Jumbo/C1000 apparently believes that the use of the business space should also come to an end, so that the supermarket as a branch could more or less cover its costs.

The preliminary relief judge rules that Jumbo/C1000 can no longer be expected to comply with the obligations under the franchise agreement. This therefore also applies to the rental agreement, according to the preliminary relief judge.  In short, the franchisee has to give way and receives a price for the forced sale that will have to be determined by experts. However, that offers little hope for the ex-franchisee, now that it concerns a company that is apparently unprofitable.

This judgment goes far, especially in preliminary relief proceedings. There is ample case law where it was decided that the franchise agreement can be terminated in summary proceedings, but the eviction of the leased property remains in force, because the tenant could also use the business space for another purpose. However, because the rent arrears will also have been substantial, and because only use as a C1000 supermarket will be permitted on the basis of the lease, the judgment of the court in preliminary relief proceedings is apparently different. It is true, however, that in principle it cannot be the intention of preliminary relief proceedings to create an irreversible situation. After all, the judgment of the preliminary relief judge should in principle only be provisional in nature. It is difficult to call the decision of the preliminary relief judge in this case temporary.

Key lock

It is especially important in these specialist areas to clearly explain what is happening and what is going on in the industry. The ruling of the preliminary relief judge in this matter seems quite rigorous, but if the operating results have been structurally and dramatically loss-making for years, then a franchisor should also be able to put a stop to it.

With regard to the C1000 establishments of which it has been publicly announced that they will be converted from C1000 to a different formula, one can imagine that rights can also be derived from this by the franchisee. As indicated, a reassessment may follow on appeal.

Mr AW Dolphijn – Franchise lawyer

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