A franchisor and a franchisee lay down the agreements they make for their cooperation in a franchise agreement. As long as the cooperation is convenient for both parties, the parties are often convinced that the agreements made are clear to both parties. In the event that the parties run into problems in their collaboration, the agreements made as contained in the franchise agreement and any related agreements concluded therewith are often added. It happens more than once that each of the parties gives a different interpretation to one or more specific agreements. If the parties continue to differ in opinion on this, the question is which interpretation applies between the parties. In what follows, I will first indicate in general what standard the Supreme Court has formulated for this. Subsequently, I will provide an explanation based on a recent judgment of a lower court, which will show the importance of clearly recording agreements.
On 13 March 1981 (NJ, 1981, 635 Haviltex), the Supreme Court, the highest court of justice in the Netherlands, issued a guiding judgment on the problem of the interpretation of contracts, which judgment has still been rendered by lower courts in some cases to this day. is applied. In the aforementioned judgment, the Supreme Court ruled, in short, that the answer to the question of how the relationship of the parties is arranged in a written agreement and whether the agreements made are clear or leave a gap that needs to be filled cannot be determined. suffice with a purely linguistic explanation of the provisions of the agreement. According to the Supreme Court, the answer to that question depends “on the sense that the parties in the given circumstances could reasonably assign to these provisions and on what they could reasonably expect from each other in this regard.” According to the Supreme Court, the social circles to which the parties belong and what legal knowledge can be expected of such parties may also be important. In practice, the aforementioned criterion is also referred to as the “Haviltex criterion”.
Although, as stated, lower case law applies the Haviltex criterion in appropriate cases, it appears from lower case law that great importance is attached to the purely linguistic meaning of a clause.
Partly as a result of the number of judgments that are rendered and published regarding the interpretation of clauses in agreements, it can be concluded that the interpretation of agreements made can divide the parties considerably, which also applies to the interpretation of clauses in franchise agreements. For example, on 6 April 2009 the Court of Arnhem ruled on a dispute between a franchisor and (then an ex) franchisee in which the parties differed on the interpretation of a goodwill clause in the event of a resale of the company. This is because the franchisee had sold back to the franchisor his company in which he operated a supermarket under the franchisor formula. In the franchise agreement, the parties had agreed on a fixed formula for calculating the goodwill of the company upon its transfer, namely 16.52 x the weekly turnover minus an amount of NLG 1,250,000. . In the purchase agreement for the takeover of the franchisee’s business, the parties agreed on goodwill amounting to (NLG) NLG 3,200,000 agreed. Upon effectuation of the purchase agreement, the franchisor subsequently paid a goodwill compensation minus (NLG) NLG 1,250,000 to the (then) former franchisee. The (former) franchisee does not agree with this and is claiming payment in court of (among other things) the amount of (NLG) NLG 1,250,000. The franchisee has put forward in the proceedings that the goodwill clause in the franchise agreement was only written for the situation that he would sell his company to a third party and that the goodwill clause thus had more the character of an ‘anti-speculation clause’.
The central question was therefore whether the franchisor, following the literal reading of the goodwill clause in the franchise agreement, rightly reduced the goodwill fee by the aforementioned amount and whether or not (as the former franchisee argues) a different interpretation of the goodwill clause should be applied. to be given.
The court first of all explicitly considered that although on the basis of the so-called Haviltex standard, the interpretation of a written agreement should not take place solely on the basis of the linguistic meaning of the wording in which it is stated, in practical terms the linguistic meaning that these wording are often of great importance in the interpretation of that writing. The court ruled that the text of the goodwill clause in the franchise agreement is clear and does not provide any concrete basis for the (former) franchisee’s claim that the goodwill clause only applies in the event of transfer to a third party. Subsequently, the court considers that there could nevertheless be reason to use the wording of the goodwill clause in the franchise agreement that should not be misunderstood if the (former) franchisee were to substantiate, and if necessary, prove that, in view of all concrete circumstances, the wording of the goodwill clause has a different meaning. The court deems the (former) franchisee’s argument that the goodwill clause was intended as an anti-speculation clause insufficient for this purpose. The court therefore came to the conclusion that the pure linguistic meaning of the goodwill clause is decisive and that therefore the franchisor had rightly reduced the goodwill payment by the amount of NLG 1,250,000 as stated in the goodwill clause.
This ruling by the Court of Arnhem once again underlines the importance of clearly formulating the clauses in a franchise agreement, whereby one should be aware of any possible deviating interpretations of those clauses when drafting them. Even if a franchisor and a franchisee wish to make arrangements that deviate from the franchise agreement, it is important to carefully record this in writing. After all, it is more pleasant to work together if the agreements are clear to both parties, not to mention the considerable damage that the parties can suffer if agreements are not properly recorded. It goes without saying that Ludwig & Van Dam, attorneys, are happy to assist you in recording the agreements you intend to make.
Ludwig & Van Dam franchise attorneys, franchise legal advice