Suspension of the fee by the franchisee is not in itself an automatic ground for suspension of goods deliveries by the franchisor

The court in Assen recently ruled that a franchisor had wrongly suspended the deliveries of goods. The matter concerns a dispute between a franchisee and its franchisor. Since 2005, the franchisee has been operating two branches based on this franchise formula on the basis of a franchise agreement.

In the franchisee’s view, the franchisor is failing to fulfill its obligations under the franchise agreement. For example, a discussion has arisen about charging a non-agreed surcharge on the goods delivered  goods and, contrary to the franchise agreement, not charging market prices. Based on this, the franchisee (together with 12 other franchisees) is claiming compensation from the franchisor in proceedings on the merits, which have also been brought. Furthermore, the franchisee has argued that the franchisor has announced a lowest price guarantee without consultation and that the necessary guidance is not provided in conducting the business. The franchisee also states that, in contrast to the franchisor’s own branches, it is excluded from attractive promotions. Based on the aforementioned grounds, the franchisee has suspended its payment obligation in respect of the franchise fee.

In response to the suspension of the franchise fee, the franchisor has suspended the supply of goods and furthermore, the franchisor has announced that it will terminate the franchise agreement if the franchisee defaults on the payment of the franchise fee.

As a result of this, the franchisee has initiated preliminary relief proceedings and demanded that the franchisor be ordered to fully comply with the franchise agreement and to immediately resume deliveries to its stores.

Since the franchisor has suspended deliveries because the franchisee has suspended (the payment of) the franchise fee, the preliminary relief judge must assess whether the suspension of the fee justifies suspending deliveries. In the opinion of the preliminary relief judge, this is not the case. The franchisee has rightly argued that there is insufficient cohesion between the claim of the franchisor regarding the franchise fee on the one hand and the claim of the franchisee with regard to the delivery of the ordered goods on the other hand. The goods ordered by the franchisee are always paid for by the franchisee. Moreover, the preliminary relief judge is of the opinion that the franchisee has sufficiently explained why he believes he is entitled to suspend the franchise fee. Also, partly in view of the obligation to purchase (the franchisor had designated itself as a mandatory supplier) of the franchisee from the franchisor under penalty of forfeiture of a fine, the preliminary relief judge also considers a supply stop to be too far-reaching a reaction to the suspension of the franchise fee.

All things considered, the Court in preliminary relief proceedings ruled that the franchisee can rightly invoke the suspension of the franchise fee in this matter. In view of the fact that there is insufficient coherence between the fee and the goods deliveries, the franchisor cannot invoke suspension thereof. Therefore, the franchisor is ordered to resume deliveries. Since the dissolution is also based on the suspension of the fee, the preliminary relief judge also considers the appeal to be unfounded. This judgment once again shows that a far-reaching measure such as suspension of deliveries first of all requires a sufficiently related shortcoming. The question arises how the preliminary relief judge would have ruled if the invoices for the goods deliveries were also not paid by the franchisee. However, even in the event of payment arrears, suspension of deliveries may under certain circumstances be unacceptable according to standards of reasonableness and fairness. See also an article by Mr. J. Sterk: http://ludwigvandam.nl/toch-doorleveren-bij-paymentsachterstand-7-juni-2013-mr-j-sterk

Mr RCWL Albers – Franchise Attorney

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