Under Dutch law, a franchise agreement dispute arises when franchisee and franchisor conflict over fulfillment of contractual obligations, whereby the court determines which party is in breach and what damages are owed pursuant to Article 6:74 Dutch Civil Code.
Franchise disputes in the Netherlands rank among the most complex commercial cases in the Netherlands. The franchise relationship combines multiple legal aspects: contract law, lease law and corporate law. Consequently, a dispute requires legal expertise across different areas of law simultaneously.
What Disputes Arise Between Franchisor and Franchisee Under Dutch Law?
Franchise disputes in the Netherlands typically concern four main categories: pre-contractual disclosure, performance during collaboration, termination disputes and financial disputes over compensation.
According to Article 7:920 Dutch Civil Code (Dutch Franchise Act), the franchisor bears a pre-contractual disclosure obligation. Violation thereof regularly leads to disputes over mistake or fraud. Franchisees who discover afterwards that provided exploitation forecasts were incorrect can void the franchise agreement. Moreover, they can claim damages for the misleading information.
Furthermore, legal disputes in the Netherlands arise over performance during the collaboration. Franchisees reproach franchisors for insufficient support, while franchisors hold franchisees accountable for violating non-compete clauses or inadequate payment of franchise fees. Recently, the District Court of Limburg ruled that a franchisor breached by terminating trust too quickly in the collaboration, thereby entitling the franchisee to damages.
Upon termination, disputes concentrate on whether the cancellation was legally valid. The District Court of Amsterdam confirmed, for example, that negotiating an improvement plan offers no guarantee for extending the franchise agreement. A franchisor may terminate the agreement despite ongoing improvement plans, provided a justified reason exists.
How Do I Determine Which Court Has Jurisdiction in a Franchise Dispute Under Dutch Law?
The competent Dutch court is determined by absolute jurisdiction (type of court) and relative jurisdiction (location of court), whereby Article 99 Code of Civil Procedure governs the choice and lease disputes are always handled by the subdistrict court.
Netherlands courts maintain two divisions handling franchise disputes: the Civil Division and the Subdistrict Division. The Subdistrict Division handles claims up to €25,000 and disputes over lease and employment agreements. The Civil Division takes on remaining cases.
If the franchise agreement encompasses a sublease agreement, a special situation emerges. Disputes over commercial premises fall exclusively under the subdistrict court, regardless of value. This lease claim “pulls” other claims along to the subdistrict court. Even when the franchisor claims €100,000 for contract breach, the subdistrict court handles the dispute when lease issues also play a role.
The legislator considered upon introducing the Dutch Franchise Act (in Dutch: “Wet Franchise“)to always have franchise disputes handled by the Dutch subdistrict court. However, this plan was not implemented. Experts raised objections to the legislator’s reasoning.
For territorial jurisdiction, the forum choice in the Dutch franchise agreement applies first. Parties can contractually determine which court has jurisdiction. However, Article 100 Code of Civil Procedure breaks through this freedom of choice in lease disputes: exclusively the court within whose jurisdiction the leased commercial property is located has jurisdiction. This mandatory rule prevents franchisors from directing franchisees to unfavorable courts via forum selection.
When a forum choice is absent, the court of the defendant party’s residence has jurisdiction according to Article 99 paragraph 1 Code of Civil Procedure.
What Are the Consequences of an Internal Dispute Resolution Mechanism in the Netherlands?
An internal dispute resolution mechanism within a franchise organization binds parties, whereby the civil court declares claims inadmissible until the dispute committee has ruled.
Franchise organizations sometimes maintain their own dispute resolution through a dispute committee. This arrangement determines that disputes must first be exclusively submitted to the dispute committee for binding advice. Only thereafter can parties approach the civil court.
The Dutch District Court of Amsterdam ruled in July 2022 that a franchisor remains bound to the agreed dispute resolution, even when the dispute committee does not function. A franchisor attempted to reach the court because the franchise organization was too small to establish a dispute committee. The court rejected this reasoning: the franchisor could have assembled an ad-hoc committee for this specific dispute.
This judgment illustrates the importance of careful formulation of dispute resolutions. Franchise organizations must provide for situations where the dispute committee cannot be appointed. Otherwise, a legal deadlock emerges whereby neither the committee nor the court can handle the dispute.
Do you want certainty about the feasibility of your dispute resolution? Specialized lawyers in Amsterdam analyze your franchise agreement and advise on practical dispute resolution.
What Damages Can I Claim in a Franchise Dispute Under Dutch Law?
Damages in franchise disputes encompass actually suffered property damage and lost profits, whereby Article 6:96 Dutch Civil Code determines that the injured party must be positioned as if the breach had not occurred.
Damages in franchise disputes split into two components: actually suffered damage (damnum emergens) and lost profits (lucrum cessans). The District Court of Limburg recently clarified how this damage is established.
In damage calculation, the court compares two scenarios: the actual situation after the breach and the hypothetical situation wherein the counterparty had performed correctly. The difference determines the damage.
A franchisee claimed reimbursement of the initial franchise fee of €16,995 because the franchisor had wrongfully terminated the collaboration. The court rejected this claim: the franchise fee would have been owed even in a correctly proceeding collaboration. Therefore, these costs do not constitute damage resulting from the breach.
Conversely, the court did award damages for lost profits. The franchisee had demonstrated that a realistic possibility existed that she had lost profits because the establishment never opened. Because the precise extent of lost profits is complex, the court referred to a damage assessment procedure. In that procedure, both parties can present their vision on the hypothetical profit development.
Damage assessment procedures often last years. Therefore, franchisees must demonstrate patience before actually receiving a monetary amount. This underscores the importance of thorough preparation: document exploitation figures, investments and cost estimates carefully from the beginning of the collaboration.
Besides property damage, non-pecuniary damage can be claimed in case of serious infringements on personality rights. However, this rarely occurs in commercial franchise disputes between legal entities.
How Does a Legal Procedure Proceed in Franchise Disputes According to Dutch Law?
Franchise disputes usually go through a preliminary relief procedure (summary proceedings) followed by substantive proceedings, whereby alternative dispute resolution via mediation often proves more effective than years of litigation.
Summary proceedings offer urgent relief within several weeks. The preliminary relief judge rules on provisional measures such as suspension of payments or temporary continuation of the collaboration. The judgment in summary proceedings applies only provisionally until the substantive judge rules definitively.
Substantive proceedings often follow after summary proceedings. Herein, the court assesses the dispute completely. From summons to final judgment typically 12 to 18 months elapse in first instance. Appeal at the Court of Appeal takes another 12 to 24 months. Cassation at the Supreme Court can additionally take 18 months.
Alternative dispute resolution via mediation or arbitration often offers advantages. Mediation lasts on average 2 to 3 months and ends voluntarily in a settlement agreement. Arbitration delivers a binding ruling within 6 to 12 months. Both procedures proceed confidentially, while court proceedings are public.
The District Court of Amsterdam emphasized in multiple rulings that franchise parties must always keep an eye on inventive solutions. Endless litigation harms both parties and disrupts the franchise formula. Therefore, franchise lawyers have experience with both hard litigation and constructive negotiation.
In collective disputes whereby multiple franchisees jointly act against the franchisor, additional complexities arise. The lawyer must align the different interests of franchisees and bundle the claims. This requires experience with mass claims and advocacy for larger groups.
What Does the Franchise Act Mean for Dispute Resolution in the Netherlands?
The Franchise Act of 2021 introduces stricter disclosure requirements and goodwill arrangements, whereby franchisors bear more responsibility in disputes over pre-contractual information.
Since January 1, 2021, the Franchise Act applies, introducing title 7.9 into the Dutch Civil Code. This law obliges franchisors to more extensive disclosure prior to contract conclusion. Article 7:920 Dutch Civil Code prescribes that the franchisor must provide a draft agreement and information document at least four weeks before signing.
The information document must contain among other things: business-economic data about the formula, financial forecasts, list of existing franchisees and information about disputes within the franchise organization. Violation of this disclosure obligation leads to voidability of the franchise agreement due to mistake or fraud.
Additionally, the Franchise Act introduces a goodwill arrangement in Article 7:931 Dutch Civil Code. Upon termination of a long-term franchise agreement, the franchisee can claim compensation for the built-up goodwill. This arrangement is semi-mandatory: deviation to the detriment of the franchisee is only limitedly possible.
Recently, the journal Contracteren published an analysis of the goodwill arrangement. Experts signal that uncertainty exists about the precise calculation method of goodwill in franchise situations. Case law will need to further clarify this arrangement.
The Franchise Act also contains a non-compete clause arrangement. Franchisors may restrict franchisees in competing activities after termination, but only for a maximum of one year and within a geographically limited area. The District Court of Amsterdam declared in November 2024 an overly broad non-compete clause void due to conflict with Article 7:930 Dutch Civil Code.
For dispute resolution, the Franchise Act means that franchisors must operate more carefully. More extensive disclosure prevents disputes over mistake, but also brings greater liability risks. Franchisees can more easily prove that they were insufficiently or incorrectly informed.
Contact specialized lawyers in Amsterdam for expert legal advice on your specific franchise dispute. They assess your position, strengthen your negotiating position and litigate if necessary for your interests.
