Franchisors beware: this is the way to avoid proceedings
The obligations that a franchisee and a franchisor have towards each other may differ in form.
On the one hand, they can enter into an “best efforts obligation“; on the other hand it is possible to enter into an agreement on the basis of an “obligation to achieve results“.
However, this terminology is not always used, which may subsequently lead to a dispute/conflict between the franchisor and the franchisee regarding this obligation. This is important in the event of a non-performance. The way it is assessed depends on the type of obligation that has been entered into. In a recent decision by the District Court of Rotterdam (ECLI:NL:RBROT:2021:5502), this issue was the subject of dispute.
The characteristics of a best efforts obligation
With a best efforts obligation, the party subject to this obligation must make an effort to achieve a certain result.
However, the mere effort is no guarantee that the result will be achieved. This makes it difficult to provide evidence in the event of a dispute, since it must reasonably be assumed that the party has not made a sufficient effort to achieve the intended result.
The characteristics of an obligation to achieve a result
In contrast to a best efforts obligation, two parties can also include an obligation to achieve a result in an agreement.
This form extends beyond the best efforts obligation, as the party subject to the obligation is also contractually obliged to achieve a predetermined result.
The amount of effort is therefore irrelevant here: achieving the result or not is decisive. If the party does not deliver the required result, there is often a failure to fulfil an agreement. This is a big difference from the best efforts obligation.
The court agrees with the franchisor
In the case mentioned above, the franchisor supplied a software package to the franchisees. For this purpose, two agreements were entered into:
- the first agreement stated that the franchisor “will make every effort to provide the User (i.e. the franchisees) with problem-free use of the Package”;
- the second agreement stated that the franchisor “will make every effort to be able to offer the franchisees use of the package”.
The first agreement expired when the second agreement was entered into. In the end, the software package turned out to be defective and the franchisees experienced malfunctions.
In the proceedings, the franchisees took the position that the software packages did not function without problems, resulting in a breach of the agreement.
However, the court considered that there was a best efforts obligation, not an obligation to achieve a result: “that on the basis of the [agreements] applicable between the parties there is a best efforts obligation and not an obligation to achieve a result.”
The judgment shows the importance of classifying an obligation in advance. Since this was a best-efforts obligation, the court considered that the functionality of the software package was irrelevant and there could therefore be no question of a failure.
This is the consequence for the franchisees
Since the franchisees had based their claims on an obligation to achieve a result, a failure based on an obligation to make best efforts was not sufficiently substantiated and was also not demonstrated.
This lawsuit emphasises the importance of the type of obligation and whether it is properly classified by the claimant. In the event of an incorrect classification, a court will be unable to determine whether there has been a breach of contract, let alone allow a claim.
VIOTTA supports you as franchisor
Contractual provisions are rarely black or white. That is why experienced lawyers can help you make an analysis in advance so that you do not face difficulties later on. At VIOTTA, we are highly specialised and have a lot of experience in this field. We also always keep an eye on the costs. Would you like more information? Contact us.