Penalty obligation for the franchisor for failure to comply with the franchise agreement

In a judgment of 9 November 2016, ECLI:NL:RBROT:2016:8667 (Coffeeclub2015), the Rotterdam District Court ruled on a case in which the franchisor had dissolved the franchise agreement because it was not possible to realize the agreed locations for exploiting the franchise agreement, because the necessary permits were not granted. The franchisee, however, saw this as an established obligation of the franchisee because it was precisely the location permits that were the reason for entering into the franchise agreement. The franchisor had tried to achieve this, but failed. The franchisor argued that there was a best efforts obligation. However, the franchise agreement stipulated that the franchisor “will” realize two locations. The normal meaning of the terms used here – in particular the imperative “will” – points to the existence of an obligation of result, according to the court.

The franchise agreement stipulates that the party that fails to comply with the franchise agreement is obliged to pay a penalty. The franchisor had not achieved the agreed result and was held liable by the franchisee for the penalty obligation. That fine had now risen to € 44,750. The franchisor is ordered to pay the entire penalty because no valid reason has been provided by the franchisor for the lack of payment.

The franchisor is further required to compensate the franchisee for the loss of gross margin. The court rules that other costs must also be deducted from the gross margin, such as car costs and costs of the accountant. The costs of coffee machines, coffee carts, etc. can also be considered. The franchisor is ordered to pay damages, to be drawn up by the state.

This judgment once again shows the need to pay close attention to the meaning of what is now being agreed when drawing up a franchise agreement.

mr. AW Dolphijn – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

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