Early Termination by Franchisee.

On September 17, 2014, the District Court of Gelderland ruled on a number of aspects that frequently occur in the premature termination of a franchise agreement by a franchisee.

In the present case, the franchisor sued the franchisee for damages and penalties for the early termination of the franchise agreement by the franchisee.

Among other things, the franchisor is claiming damages because of the fact that – if the franchise agreement had not been terminated prematurely – it would have received a franchise fee for the remaining term of the franchise agreement. The court rules that the full compensation of this so-called “positive contract interest” if damage is not ready for allocation, now that the franchisor had found a replacement franchisee in the meantime who owed the franchise fee. The franchisor is not entitled to a “double” franchise fee in the sense of damages.

The basis for the franchisee’s termination of the franchise agreement cannot be deduced from the published ruling, but it appears that the franchisee has terminated the agreement. The Supreme Court previously ruled that the regulation of compensation in the event of dissolution (ex Article 6:277 of the Dutch Civil Code) does not apply any other or more far-reaching requirements than the regulation of compensation in the event of non-performance (ex Article 6:74 of the Dutch Civil Code). See HR 8 July 2011, ECLI:NL:HR:2011:BQ1684 (G4 Management / Hanzevast). This also applies to the “positive contract interest”.

The franchisor also claims a number of agreed fines. For example, the franchise agreement stipulates that the franchisee is obliged to cease using the franchisor’s name in the event of premature termination of the franchise agreement. The trade register shows that the franchisee has not discontinued the name of the franchisor. The franchisor itself has not claimed the entire due and payable penalty, but a part. For this reason, the court sees no need to (further) moderate the fine.

Other contractual penalties, such as for the surrender of franchisor stationery, handbooks and other documents, are waived. The franchisee denies having any business from the franchisor. Despite the fact that, according to the franchise agreement, the franchisor had the right to check the franchisee’s premises, the franchisee did not do so. The fine is therefore rejected on this point. The claim for a fine is also rejected for not transferring a complete settlement of the cooperation, as the franchisor had denied access to the online accounting program to the franchisee. The franchisor then stands in the way of what it is entitled to.

It follows from the ruling that the premature termination of a franchise agreement should not be done rashly. It is advisable for both the franchisor and the franchisee to draw up a list with not only the contractual rights and obligations, but also the legal possibilities and possible consequences, followed by the actions to be taken in the event of an early termination.

mr. AW Dolphijn – Franchise lawyer

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