Continue to serve (existing) customers after termination of the franchise relationship

The wish of a franchisee who has been informed by the franchisor that the franchisor wishes to terminate the franchise agreement, that he wishes to obtain clarity within the foreseeable future by means of preliminary relief proceedings about the continuation of the franchise agreement or whether it is possible to go beyond the formula continuing to serve (existing) customers is quite conceivable. After all, the value of the company and customer base evaporates if a judgment of the court in substantive proceedings first has to be awaited.

If it is unclear whether the franchisor can terminate the franchise agreement and hold the franchisee to a post-contractual non-compete clause, initiating summary proceedings is a good option. On 27 March 2015, the preliminary relief judge of the District Court of The Hague rendered a judgment on such a matter in summary proceedings.

According to the provisional relief judge of the District Court of The Hague, it had sufficiently appeared in the present case that, according to both the franchisor and the franchisee, the cooperation between the parties had been disrupted to such an extent that the termination of their cooperation was appropriate. The preliminary relief judge took as a starting point that both parties no longer intended to implement the franchise agreement and that it (therefore) had to be assumed for the time being that the franchise agreement had been terminated.

For that reason, the preliminary relief judge rejected the franchisee’s claims for compliance with the franchise agreement and, by extension, a prohibition to have contact with the franchisee’s relations.    

The franchisor argued that it could invoke the non-compete clause included in that contract because of the contract takeover of a franchise agreement previously drawn up between the franchisee and, in short, the predecessor of the franchisor. The franchisee disputed that the contract was legally valid, so that – according to the franchisee – the (successive) franchisor could not invoke the non-compete clause.         

In order to answer the question whether the post-contractual non-compete clause could be invoked against the franchisee in the present case, the preliminary relief judge held that further investigation was necessary in this specific case due to the lack of clarity about the contract takeover. That investigation went beyond the scope of summary proceedings and must therefore take place in proceedings on the merits. If there had been no doubts about the legally valid contract takeover, the preliminary relief judge might well have been able to give an opinion on the post-contractual non-compete clause.

With regard to the question whether the franchisee was free to continue to serve its (existing) relations or whether the franchisor rightly invoked a contractual non-compete clause, the preliminary relief judge therefore ruled that the related claims of the franchisee and the franchisee were not in the degree required for award in interlocutory proceedings was plausible. The preliminary relief judge therefore rejected the claims of both the franchisee and the franchisor.

In this specific case, due to the investigation required in substantive proceedings in connection with the lack of clarity about the contract takeover, the franchisee did not obtain (provisional) clarity in preliminary relief proceedings that it can continue to serve (existing) customers. Under other circumstances, a judge in interlocutory proceedings might well have given an opinion on the post-contractual non-compete clause.
                       
If the (former) franchisee in the present case were to choose to continue to serve customers, he would run the risk of forfeiting a fine later in the event that the court were to determine in proceedings on the merits that the franchisor was justified in invoking the post-contractual non-compete clause. The (former) franchisee of the issue in question will only obtain clarity about whether or not the post-contractual non-compete clause has been violated, or as soon as the parties reach an amicable settlement when the court renders a judgment in proceedings on the merits.

Mr. J. van de Peppel  – franchise lawyer

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