FRANCHISE AGREEMENTS UNDER THE LAWS OF ARUBA (I)
What are called ‘franchises’ are not seldom mixed type agreements
Franchise agreements are not defined in any Aruban statute and are not subject to any specific Aruban legislation. The franchise agreement is a sui generis agreement, subject to the general law of contracts. Distribution agreements are not subject to any specific Aruban legislation either, and are, as with franchise agreements, also subject to the general law of contracts.
In accordance with the general law of contracts, parties are free, in principle, to agree on whatever they wish. However, certain restrictions are imposed by the general principle of Aruban law that agreements must be performed in good faith (redelijkheid en billijkheid). The parties are free, in principle, to agree on a notice period for termination, provided that such a period is reasonable. When no notice period has been agreed, either party may terminate the agreement while observing a reasonable period of notice. The determination whether a certain notice period is reasonable may depend on a variety of circumstances, including e.g. the specific investments made by the franchisee / distributor, the duration of the contractual relationship between the parties and the question of whether the franchisee / distributor had justified reasons to believe that the agreement was to be continued for a longer period.
Moreover, under certain circumstances, the termination of a franchise / distribution agreement, even if done in accordance with a reasonable period of notice, may be contrary to the principle of good faith, for example, when the terminating party does not have any proper cause or ground for termination, such as failure to meet (monetary) obligations, failure to meet sales quotas, selling of competing products, lack of quality standards, or conduct by the franchisee that materially impairs the goodwill of the franchise business or that has damaged the franchisor’s reputation. In cases where a reasonable period of notice has been observed the franchisee / distributor may, depending on the circumstances, still be entitled to fair compensation in order to cover investments made with a view to the continuation of the agreement.
Karel Frielink / Ursus van Bemmelen
Dutch Antilles Attorneys / Lawyers
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