The obligation of franchisor and franchisee to behave towards each other as a good franchisor and good franchisee has been enshrined in law with the introduction of the Franchise Act on 1 January 2021. In a recent ruling by the District Court of Gelderland (despite the fact that the Franchise Act was not yet in force at the time of the substantive discussion), the court seems to justify dissolution by the franchisee on this basis.

Facts

In the matter in question, the franchisee was dissatisfied with the franchisor’s actions and had invited other franchisees to consult with daasrover and then jointly approach the franchisor.

This apparently did not sit well with the franchisor. According to the franchisee, the franchisor had publicly expressed the wish that he should leave the formula. As a result, the franchisee confirms by e-mail dated March 19, 2019 that he will comply with the franchisor’s request and leave the formula.

In response, the franchisor denies that it wants the franchisee out of the formula and argues that his words have been misinterpreted. However, the franchisee stands firm and maintains its position that it considers the franchise agreement to be terminated as of March 15, 2019, the date on which the franchisor would have expressed its request for termination.

The franchisor disputes that the franchise agreement has ended, but it does stop sending invoices and removes the franchisee’s location from the website. The franchisee then continues to operate under its own name and the franchisor does not take any action. Only almost 2 years later, on February 16, 2021, does the franchisor state that he will still terminate the franchise agreement and (alternatively) dissolve it.

Judgment judge

Although the court does not agree with the franchisee’s argument that the franchise agreement ended on March 15, 2019 due to a (oral) competition from the franchisor, the court is of the opinion that the franchise agreement ended in March 2019.

It is important in this respect that after the written confirmations of the franchisee about the termination, the parties actually acted as if the franchise agreement had ended. Invoices for the franchise fee were no longer sent and the franchisee’s location had been removed from the website.

Then the court then rules, based on extensive considerations, that the letters from the franchisee must be regarded as a statement of dissolution, despite the fact that no such statement can be read in them.

According to the court, the dissolution of the franchisee can be based on the fact that the franchisor has not behaved as a good franchisor. As a result, he has failed in his obligations to the franchisee.

The court fulfills this obligation on the basis of the facts that are briefly described below:

– The franchisor would have blatantly blamed the franchisee for playing a pioneering role in the “club” of franchisees;
– Referring to the franchisees as a “club” would show that the franchisor was unwilling to listen seriously to their concerns;
– According to the judge, it would be understandable that the franchisee felt that he had been declared undesirable and that the cooperation was no longer an option;
– It has not become apparent that the franchisor has made any attempts to make the relationship workable again.

On the basis of the above facts, the court ruled that the franchisor failed in his obligations to act as a good franchisor and therefore the franchisee could legally dissolve.

Conclusion

In itself it is understandable that the court concludes that the franchise agreement has ended, since the parties actually no longer implemented it.

However, the motivation seems to me to be a goal-oriented reasoning of the relevant judge who has sought legal leads to be able to agree with the franchisee. In my opinion, that could also have been done more simply by ruling that both parties had terminated the franchise agreement by mutual consent by effectively ceasing to perform it.

It is also not clear from the judgment whether the court actually grounds the dissolution on the obligation to behave as a good franchisor as included in the Franchise Act (Section 7:912 of the Dutch Civil Code). This ruling does show that judges can afford to reach certain judgments with a catch-all term like ‘good franchisor’, which are not always obvious from a strictly legal point of view.

Although it is questionable whether this matter would also withstand the (legal) test of criticism before a court of law, franchisors would do well not only to make clear agreements, but certainly also to keep in mind that they to behave reasonably. After all, violation of ‘good franchisorship’ can cost them dearly.