Arbitration clause may not disadvantage the franchisee: nullification

By Published On: 18-07-2016Categories: Statements & current affairs

Conducting proceedings is already expensive enough, let alone if you also have to conduct these (arbitration) proceedings abroad and/or under a law other than Dutch law. Despite these objections, this is still the case with a large internationally operating franchise organization. The choice of law, included in the franchise agreement, is determined on the basis of convenience for the franchisor or even for the benefit of  deterring franchisees from starting a procedure. The aforementioned situation has been submitted to the court for review to see whether this is so unreasonable that it is necessary to deviate from the central freedom of contract that applies in the Netherlands.

The Amsterdam Court of Appeal has already ruled that such a provision in a franchise agreement, in this case an arbitration procedure in New York under Liechtenstein law, is null and void under certain circumstances. The District Court of The Hague has also endorsed this judgment  similar statement. Last month, another similar issue was raised in preliminary relief proceedings before the court of Amsterdam. This matter also involves arbitration proceedings to be conducted in New York, to which Dutch law applies. However, the fact that the proceedings must be conducted through arbitration in New York is decisive.

What is special is that alignment is sought with the legal provisions applicable to private individuals with regard to the possibility of annulment of unreasonably onerous contractual provisions. In principle, these provisions do not apply to companies, including the franchisee. However, it is considered that the position of the franchisee is sufficiently comparable to that of a consumer, so that the relevant articles of law influence the assessment of whether there is an unreasonably onerous provision and are also applied.

The court mentions as relevant circumstances to judge whether there is an unreasonably onerous provision for the franchisee that the franchisee is the economically weaker party and that the franchisee is considerably burdened in terms of money, time and energy to go to court for a procedure. to travel to the United States. Conducting the proceedings via a conference call is not regarded by the court as an adequate solution, a conference call cannot be equated with an oral hearing. Conducting the proceedings in English is also seen as a tax on the franchisee. Now that internationally operating organizations often have their establishment in the country of the franchisee, this cannot be regarded as a justification either, as all this creates disproportion between franchisor and franchisee.

A successful annulment appeal ensures that the franchisee does not have to conduct expensive proceedings in New York, but can bring his proceedings to the court in the Netherlands. It will be assessed on a case-by-case basis whether the relevant arbitration clause can be annulled, since it is obvious that the franchisor will always invoke the lack of jurisdiction of the Dutch court. 

mr. M. Munnik – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

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