Non-competition clause is lost in summary proceedings

Recently, the preliminary relief judge in Rotterdam ruled that a franchisee was not bound by the non-competition clause included in the franchise agreement. In mid-2012, this franchisee had purchased an existing ice cream parlor branch from a franchisor with whom it also entered into a franchise agreement. At the end of 2013, after operating the establishment for a season and a half, the franchisor announced that it wanted to terminate the franchise agreement. That same day he confirmed this by email. Two weeks later, the franchisor sent a letter in which he stated that he had already dissolved the agreement on the day of the aforementioned notification. However, the franchisee was never given notice of default by the franchisor, which is a requirement for a legally valid dissolution, both by law and by virtue of the franchise agreement concluded between the parties. Furthermore, the shortcomings on which the franchisor had based the dissolution were not serious enough to justify the use of such a drastic legal remedy. Based on applicable case law, there must be material shortcomings. In this case there were only a number of alleged complaints supplemented with a few trifles that could not be held against the franchisee, such as not selling the correct coffee due to canisters of coffee beans supplied by the franchisor that did not fit on its coffee grinder.  After the (invalid) dissolution, the franchisor tried to buy back the franchisee’s establishment and offered him an amount of only € 10,000, which offer the franchisee did not accept. Now that the franchisor had stopped deliveries on the one hand and was unwilling to pay a fair price for the ice cream parlor on the other, the franchisee was therefore forced to continue operations under its own name. Due to the fact that the rented property was intended as a point of sale for the preparation and sale of ice cream and coffee, he had no choice but to continue the operation as an ice cream parlor. However, he was forbidden to do so by the franchisor on the basis of the non-competition clause included in the franchise agreement, which he claimed compliance with in summary proceedings on pain of forfeiture of a penalty. On behalf of the franchisee, I defended the claim of this completely unreasonable franchisor. Luckily saw the  The preliminary relief judge also stated that the franchisor’s claim could not possibly be awarded in the given circumstances and he therefore made short shrift of this by rejecting it. The judgment was based on the consideration that there was no legal dissolution by the franchisor and that the franchisee could not reasonably be expected to agree to a sale price of his ice cream parlor of € 10,000. Therefore, partly due to the destination of the leased property, the franchisee had no choice but to continue the operation of the ice cream parlor under its own name.

This judgment shows once again that a dissolution should not be treated too lightly, but also that a non-competition clause is not the ultimate solution. The moment a franchisor prematurely terminates the franchise agreement without sufficient compelling grounds or without properly giving the franchisee notice of default, he will therefore not be able to invoke the non-competition clause included in the franchise agreement. This is also apparent from previous case law.

Mr RCWL Albers  – Franchise attorney

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