Mandatory (market-based) purchase prices for franchisees

To what extent can a franchisor change agreements about the (market) purchase prices of the goods that the franchisees are obliged to purchase? 

In a judgment of 11 July 2017, ECLI:NL:GHARL:2017:5959 (Franchisenemers/Op=Op), the Court of Appeal of Arnhem-Leeuwarden ruled on appeal against the judgment of the District Court of the Northern Netherlands dated 9 September 2015, ECLI: NL:RBNNE:2015:4271. I commented on this judgment earlier and can be read here. 

In the first instance, the franchisees’ intention was that the franchisor, contrary to the franchise agreements, did not charge competitive purchase prices, but (much) higher prices. The franchisees also argued that no further agreements had been made about purchase prices. The situation changes on appeal, because the franchisees now argue that there would be a further agreement about the height of the purchase prices. According to the franchisees, the franchisor violated that agreement. 

In the first instance, the court concluded that the franchisees had not sufficiently substantiated that the franchisor charged them prices that were not in line with the market. The mere fact that other suppliers had cheaper purchase prices at different times (and usually for a limited number of products) is not sufficient for this. According to the opinion, it cannot in any way be deduced from the statements of the franchisees that other suppliers could continuously supply all franchisees at those lower purchase prices. 

On appeal, the question is whether it has been agreed that the franchisor may increase the charged purchase prices with a surcharge of (maximum) 10% margin. The franchisees argue that the margin for wholesalers, on the other hand, averaged more than 17% and was therefore (much) too high. 

It is established that the director of the franchisor had promised the franchisees that the price of the purchase plus a 10% surcharge would be passed on to the franchisees. There are also minutes of the franchisees’ representation and the franchisor’s representation, which mention, among other things, “10% surcharge on purchases”. The franchisor argues that there was no agreement and, if that were the case, it was never implemented and never protested against by the franchisees. 

The question is, however, whether a further agreement has been made about the purchase prices. Based on various circumstances, the Court of Appeal concludes that no further agreement has been reached with the franchisees. In doing so, the court also takes into consideration that the radical change of direction of the franchisees’ point of view contributes little to the persuasiveness of the franchisees’ new point of view. 

Setting up a process strategy is an element that should not be underestimated. The positions to be taken must be taken in a well-considered manner. Above all, it is illegal, and therefore not advisable, to take a position that is untrue. Going back on a previously held position loses credibility. 

mr. AW Dolphijn – Franchise lawyer 

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