Penalty obligation for the franchisor for failure to comply with the franchise agreement
In a judgment of 9 November 2016, ECLI:NL:RBROT:2016:8667 (Coffeeclub2015), the Rotterdam District Court ruled on a case in which the franchisor had dissolved the franchise agreement because it was not possible to realize the agreed locations for exploiting the franchise agreement, because the necessary permits were not granted. The franchisee, however, saw this as an established obligation of the franchisee because it was precisely the location permits that were the reason for entering into the franchise agreement. The franchisor had tried to achieve this, but failed. The franchisor argued that there was a best efforts obligation. However, the franchise agreement stipulated that the franchisor “will” realize two locations. The normal meaning of the terms used here – in particular the imperative “will” – points to the existence of an obligation of result, according to the court.
The franchise agreement stipulates that the party that fails to comply with the franchise agreement is obliged to pay a penalty. The franchisor had not achieved the agreed result and was held liable by the franchisee for the penalty obligation. That fine had now risen to € 44,750. The franchisor is ordered to pay the entire penalty because no valid reason has been provided by the franchisor for the lack of payment.
The franchisor is further required to compensate the franchisee for the loss of gross margin. The court rules that other costs must also be deducted from the gross margin, such as car costs and costs of the accountant. The costs of coffee machines, coffee carts, etc. can also be considered. The franchisor is ordered to pay damages, to be drawn up by the state.
This judgment once again shows the need to pay close attention to the meaning of what is now being agreed when drawing up a franchise agreement.
mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice.
Do you want to respond? Go to dolphijn@ludwigvandam.nl
Other messages
When does a franchisor go too far when recruiting franchisees?
The judgment of the Court of Appeal of Arnhem-Leeuwarden on 5 February 2019 dealt with whether the franchisor had acted impermissibly when recruiting the franchisees.
Advisory Board on Regulatory Pressure (ATR) advises State Secretary Keijzer about the Franchise Act
In short, it is first advised to actively inform franchisors and franchisees about this amendment to the law.
Post non-competition ban on services and sales franchise
When a franchise agreement ends, many franchisees encounter a prohibition in the franchise agreement to perform similar work for a period of time thereafter
The concept of the Franchise Act: impact for franchisors and franchisees – dated February 5, 2019 – mr. AW Dolphin
Ludwig & Van Dam Advocaten believes that if the draft of the Franchise Act actually becomes law, a lot will change for franchisors and franchisees.
Buy franchise business and the laid off sick employee from 7 years ago
The question is whether a Bruna franchisee, when selling the franchise company to Bruna, should have stated that seven years ago an employee had left employment sick.
Court prohibits Domino’s unilateral area reduction when extending franchise agreements – dated January 28, 2019 – mr. RCWL Albers
On January 9, 2019, the District Court of Rotterdam rendered a judgment in a lawsuit initiated by the Association of Domino's Pizza Franchisees and all its members (almost all Domino's franchisees).