THE TERMINATION OF A FRANCHISE AGREEMENT UNDER THE LAWS OF THE NETHERLANDS ANTILLES
The good faith principle is leading
In actual practice franchises frequently bare resemblance to (certain aspects of) distribution agreements. Hence, what are called ‘franchises’ are not seldom mixed type agreements, consisting of a franchise and of a distribution element.
Franchise agreements are not defined in any Netherlands Antilles statute. The franchise agreement is an agreement sui generis (legalism for ‘of its own kind’), subject to the general law of contracts. Distribution agreements are also not subject to any specific legislation, with the same result as with regard to franchise agreements in that the general law of contracts will apply.
Following the general law of contracts, parties are in principle free to agree on whatever they wish. However, certain restrictions are imposed by the general principle of Netherlands Antilles law that agreements must be performed in good faith (‘redelijkheid en billijkheid’).
In principle, the parties are free to agree on a notice period for termination. When no notice period was agreed, either party can terminate the agreement observing a reasonable period of time. 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 termination of a franchise / distribution agreement in accordance with a reasonable notice period can 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 notice period is 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
Attorney (Lawyer) / Partner
