The set-off defense and the termination of the franchise agreement for an indefinite period

On 29 September 2015, the Arnhem-Leeuwarden Court of Appeal (ECLI:NL:GHARL:2015:7296) ruled on whether the franchisor could terminate the franchise agreement for an indefinite period.

The franchisee argued that there was no payment arrears because the franchisee still had setoffable claims against the franchisor. The Court of Appeal established that this set-off claim was (largely) not (yet) due and payable at the time when the franchisor’s claim against the franchisee was due and payable. There was therefore a shortcoming in the fulfillment of the franchisee’s obligations under the franchise agreement.

Now that there is an attributable shortcoming, the franchise agreement stipulates that the franchise agreement can be terminated. The Court reasoned that the presence of a compelling ground is not a requirement for a valid termination of the franchise agreement. In its judgment of 28 October 2011 (ECLI:NL:HR:2011:BQ9854), the Supreme Court ruled that a continuing performance contract that has been entered into for an indefinite period (if the law and contract do not provide for a termination arrangement) can, in principle, be terminated , on the understanding that the requirements of reasonableness and fairness in connection with the nature and content of the agreement and the circumstances of the case may mean that cancellation is only possible if there are sufficiently compelling grounds for cancellation. However, that situation does not arise here, if only because it is not in dispute between the parties that the franchise agreement, on the basis of the provisions of the franchise agreement, can be terminated immediately if the franchisee has not fulfilled its obligations, according to the Court of Appeal.

The conclusion is that although the franchisee had a counterclaim against the franchisor, this counterclaim was not yet due and payable, so that the franchisor could terminate the franchise agreement at that time because the franchisor did have a due and payable claim against the franchisee.

mr. AW Dolphijn – Franchise lawyer

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