Article 7:920 DCC

Article 7:920 section 1 DCC which partially relates to goodwill provides the following:

“The franchise agreement determines (a) the way in which it is established whether goodwill is present in the franchisee’s business and, if so, the extent thereof and to what extent such goodwill is attributable to the franchisee and (b) the way in which the goodwill reasonably attributable to the franchisee will be compensated to the franchisee at the termination of the franchise agreement, if the franchisor takes over the franchise business of the relevant franchisee in order to continue that business independently, or to transfer the franchise business to a third party with whom the franchisor enters into a franchise agreement.”

Article 7:922 Dutch Civil Code (DCC)

Article 7:922 DCC of the Dutch Franchise Act contains the following closing provision:

“With regard to franchisees established in the Netherlands, the provisions of this Title cannot be deviated from to their detriment and a provision violating article 920 is null and void, regardless of the governing the franchise agreement.”

EU context: Overriding mandatory provision under Rome I?

Overriding mandatory rules within the meaning of article 9 of the Regulation (EC) No 593/2008 on the law applicable to contractual relations (Rome I) are defined as follows:

“Overriding mandatory provisions are provisions the respect for which is regarded as crucial by a country for safeguarding its public interests, such as its political, social or economic organisation, to such an extent that they are applicable to any situation falling within their scope, irrespective of the law otherwise applicable to the contract under this Regulation.”

The wording of article 7:922 DCC is unclear as to whether the purpose of the Dutch legislator was to qualify the entire Dutch Franchise Act or only the provision of article 7:920 as an overriding mandatory rule in cases where the franchisee is established in the Netherlands.

Sooner or later the above question is likely to be addressed in disputes relating to not only international franchise agreements governed by foreign law with a choice of jurisdiction for the Dutch Courts but also in disputes relating to such agreements subject to foreign law and foreign jurisdiction/international arbitration and where the franchisee is established in the Netherlands.

It remains to be seen if article 7:922 DCC qualifies as an overriding mandatory provision and, if so, whether and to which extent foreign courts shall give effect to that provision. The hurdle to be taken lies in the last sentence of article 9 section 3 of Rome I:

“In considering whether to give effect to those provisions, regard shall be had to their nature and purpose and to the consequences of their application or non-application.”  

Not an easy hurdle to take as we have seen in the Unamar case. In that decision it was again made explicitly clear that such application depends on whether it appears that the legislature adopted it in order to protect an interest judged to be essential by the Member State concerned.

For further information and support in matters of franchise law, please contact Jaap van Till, Partner at Loyal.