To what extent is a franchisee obliged to pay a contribution for national marketing activities to the franchisor? A ruling of the Court of Appeal of Amsterdam, published today, shows that reasonableness and fairness mean that a franchisee of Spare Rib Express was not obliged to pay the contribution. Attorney Hidde Reitsma explains the ruling.
The facts in this case are as follows. The franchisor, Spare Rib Express Nederland BV, concluded a franchise agreement with a franchisee in 1997. In this agreement, a monthly payable franchise fee of 6% of the entire turnover, excluding VAT, for the month concerned was agreed. The franchise agreement does not explicitly include a separate contribution for marketing activities.
In the annual meeting of 2009, the proposal by Spare Rib Express for a national marketing contribution was put to the vote for the first time. All franchisees present agreed to this. The franchisee concerned always agreed for the years 2009, 2010 and 2011 with the proposed marketing contribution and also paid this. However, in 2012 the franchisee did not agree with the proposal by Spare Rib Express to (again) determine the marketing contribution at 1% of the turnover a month, excluding VAT (to a maximum of €400.= a month) and stated that he would not pay this contribution.
Spare Rib Express states that it is entitled to continue to demand payment of the national marketing contribution from all its franchisees, therefore including the franchisee concerned. Spare Rib Express therefore brings a main action against the franchisee. However, the Subdistrict Court rejected the claim by Spare Rib Express, considering that the franchise agreement of 1997 did not substantiate this claim and that Spare Rib Express was also not entitled to amend the agreement to include that the franchisee was obliged to pay, apart from the agreed franchise fee, a monthly marketing contribution. Spare Rib Express appealed this ruling.
The Court of Appeal agrees with the ruling of the Subdistrict Court. The Court of Appeal finds that the argument by Spare Rib Express, that the franchise fee of 6% agreed in 1997, these days, now that the internet plays such a major part, is not enough to cover the marketing costs, is not adequately substantiated, especially since the franchisee offered the (counter) argument that Spare Rib Express through the franchise fee also profits from the higher turnover of the franchisee. The argument by Spare Rib Express that the franchisee is bound, based on the franchise chain interest, to a resolution by the majority of the franchisees, and that this interest therefore supersedes the individual interest of the franchisee, is also rejected by the Court of Appeal, since the franchise agreement does not include such binding force.
Furthermore, this binding force does not follow from the previous marketing contributions that were paid by the franchisee. The Court of Appeal adds that it cannot be assessed whether the additional effect of the principle of reasonableness and fairness means in this case that, within the scope of the franchise interest, the franchisee can be required to continue to pay a contribution, that was not stipulated in the agreement, to the national marketing activities, as it has not been made clear what the advantages of the national marketing are or were, in terms of increased turnover, increase in value of the chain and cost reduction due to scale benefits. The Court of Appeal of Amsterdam therefore confirms the ruling in the first instance.
Dutch law does not separately regulate a franchise agreement. Therefore, only the general conditions applying to agreements have effect. This means that franchise agreements are often extensive and detailed documents, mostly also including a franchise handbook. This further explains and records the practical and operational aspects of the franchise.
The main obligations of the franchisee are the payment of the franchise fee and the daily course of business. The franchisor is involved in marketing and leading the entire franchise chain. Often a standard franchise agreement is used that has also been offered to other franchisees within the chain. However, the franchise agreement often offers room for interpretation. It is therefore essential to properly record the agreements reached.
If you have any questions about a franchise agreement or if you want to have a franchise agreement drawn up or assessed, please contact one of our lawyers specializing in the law of obligations.