Contractual dissolution requirements not observed? No legal dissolution of the franchise agreement – dated July 23, 2020 – mr. C. Damen

Can a franchisor terminate the franchise agreement if it has failed to comply with its own contractual requirements? The Court of First Instance recently ruled that there was no legally valid dissolution of the franchise agreement as a result of this.  

After a successful period of cooperation between franchisor and franchisee, cracks have appeared in the relationship between the parties. The franchisee plans to take over a business that the franchisor believes violates a contractually agreed non-competition clause. The franchisor then terminates the franchise agreement and terminates the formula with respect to the franchisee. Subsequently, the franchisee terminates the franchise agreement because the franchisor allegedly failed.   Both parties state that they have dissolved the franchise agreement on good grounds and are claiming damages from each other. Who is now right in court and why? 

The judge does not follow the vision of the franchisor. In complying with the franchise agreement, the franchisor itself would have failed to comply with a number of contractual agreements. These agreements relate to the continuation of the form of cooperation, the development of the formula and the promotion of joint growth. In the present case, the franchise agreement contains an obligation for the franchisor
to inform the franchisee by registered letter of the measures to be taken to bring the operation back into line with the franchise agreement. However, the court is of the opinion that the franchisor wrongly failed to observe this provision when dissolving the franchise agreement. Because the franchisor has not observed its own rules on dissolution, the dissolution is invalid and the franchisor wrongly stopped complying with the  franchise agreement.

The franchisor is ordered to pay compensation to the franchisee as a result of the non-legally valid extrajudicial dissolution of the franchise agreement.

It strongly depends on the circumstances whether and how a franchise agreement can be legally dissolved and what requirements apply. In this ruling, however, it has been confirmed once again that what the parties have agreed with each other (in the agreement) is leading in any case.

mr. C. Damen – franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

Do you want to respond? Go to damen@ludwigvandam.nl