Case background
A franchisor held its former franchisee liable for outstanding debt. To defend itself, the franchisee sued the franchisor on the grounds that the franchisor failed to abide by the one-month reflection period that was required by law. The franchisee sought the court to nullify the franchise agreement.
The Antwerp Court of Appeal ruled in favour of the franchisee and declared the franchise agreement null, including every other agreement that the franchisor had concluded with the franchisee in that context (such as the commercial tenancy contract for the retail property).
Consequent to this declaration of nullity, the franchisor was ordered to pay everything (in “restitution” in legal terms) that he had received from the franchisee in the context of the nullified agreement, which included paid franchise joining fees and rent, among other sums.
The financial consequences of the declaration of nullity did not end there, though. The Court of Appeal also ordered the franchisor to pay additional compensation to the franchisee for costs and expenses that the franchisee had incurred and paid to third parties, such property tax, investments, and electricity costs.
In an attempt to address the far-reaching financial consequences of the nullification of the franchise agreement, the franchisor petitioned the Court of Cassation for review of the Court of Appeal’s decision.
The Court of Cassation’s ruling
It was a bitter pill to swallow for the franchisor after all.
The Court of Cassation affirmed that the consequences of declaring the franchise agreement null for the franchisor go beyond the mere refund of what he had received from the franchisee in the context of the agreement. Moreover, the franchisor is under the obligation to make restitution and is therefore liable to pay additional compensation to the franchisee.
In practice, a franchisee can therefore seek refund of not only the joining fees or royalties but also additional compensation for (for example) the costs paid to suppliers and utility companies, the investments made in the business, costs for recruitment and wages paid to staff, interest on business loans, etc.
Conclusion
This Court of Cassation judgment emphasizes that it is crucial for you, the franchisor, to act prudently in the precontractual phase. Not complying with one of the statutory obligations to provide precontractual information can cost an arm and a leg.
We therefore recommend that you, the franchisor, seek advice in time during the precontractual phase so that you can correctly fulfill all your obligations to provide precontractual information.
