Business climate and recent developments
What is the extent of franchise business in your jurisdiction, including any particular franchise-heavy sectors and notable recent developments?
Franchising has always been popular in the Netherlands. In recent years, the franchise sector has grown steadily in terms of both turnover and the number of franchises. This is largely due to an increase in consumer confidence; as the Dutch consumer market has improved, consumer spending has increased. This has had a positive effect on the franchise sector. The food retail sector in particular has traditionally been franchise heavy and there has recently been an increase in fast food franchises operating in the Netherlands.
The most notable development in the franchise sector in recent years has been the government’s push to establish a mandatory code of conduct for the franchise sector. However, it is unclear when and to what extent Parliament will adopt the proposed legislation.
Are there any franchising-specific laws in your jurisdiction? What other legal regimes apply?
At present, no franchising-specific laws exist. Instead, franchising is governed by the general principles of contract law, as set out in the Civil Code. There is a vast body of case law in which these general principles have been tailored to franchise agreements. Depending on the franchise formula, laws which are not specific to franchising may apply (ie, IP, employment, tenancy, privacy or competition laws).
Is there a legal definition of ‘franchise’?
As Dutch law does not specifically address franchise agreements, it also provides no statutory definition of a ‘franchise’. However, a generally accepted definition of ‘franchising’ can be derived from the definition used by the Netherlands Franchise Association (NFV) as “a system for distributing products and/or services and/or exploitation of technology, founded on a close and lasting cooperation between legally and economically independent businesses, the franchisor and the franchisee(s)”.
Franchisors and franchisees are normally considered independent entities and franchisees do not act on behalf of franchisors.
Are there any specific regulatory implications for foreign franchisors seeking to expand into your jurisdiction?
In the Netherlands, there are no restrictions on foreign franchisors looking to expand their formulas in the Dutch market.
Are any regulatory reforms envisaged or underway that affect franchises?
In recent years, franchise disputes have caught the Dutch government’s attention. Although such disputes are limited in number, they relate to high-profile brands and therefore attract significant media and political attention. This attention has focused mainly on the position of franchisees and whether this position should be strengthened. Initially, the previous administration actively pushed for a code of conduct based on self-regulation, resulting in the Netherlands Franchise Code. A second step would have been to anchor this code in the Civil Code, generally on the basis of the 'adopt or explain’ principle. However, this approach was widely criticised, especially by franchisors that did not feel their interests were adequately taken into account when the code was drafted. Consequently, there was little willingness among franchisors to voluntarily adopt the code.
The current administration has taken a different approach. It has introduced draft legislation that – instead of a system of self-regulation by means of the code – aims to impose a body of mandatory law governing franchise agreements. If the draft legislation (the Franchise Act) passes into law as it is currently drafted, it will affect all franchise agreements with Dutch franchisees, including existing agreements. The Franchise Act covers a wide range of topics, including:
- the introduction of open norms relating to the basic principles of good franchisor and good franchisee;
- far-reaching disclosure obligations in the pre-contractual phase;
- an obligation for the franchisor to perform due diligence on prospective franchisees with respect to their entrepreneurial qualities and financial resources;
- prior franchisee consent requirements in case of material changes to the franchise formula and policies;
- prior franchisee consent requirements before being allowed to operate derived formats relating to (largely identical) products or services (eg, operating a separate online channel in addition to an existing brick-and-mortar franchise channel);
- restrictions on exclusive purchasing provisions;
- restrictions on post-term, non-competition clauses; and
- the obligation to compensate franchisees for accrued goodwill on termination of the agreement, distinguishing between a soft and hard franchise.
If the Franchise Act is enacted in its current form, it will constitute a U-turn from the existing legal framework in the Netherlands. As part of the legislative process, the government has initiated an online consultation process to obtain feedback from interested parties. Depending on the submitted opinions, the Franchise Act will then go through the formal legislative process.
Which models and company forms are commonly used for franchises in your jurisdiction? Are there any restrictions or requirements as to which models and forms may be used?
Common franchise models in the Netherlands range from so-called ‘hard’ models (where the franchise exploitation is dictated by the franchisor) to softer models that give franchisees more freedom in the exploitation of the formula. In addition, franchisors tend to work both with master franchisees and directly with subsidiary franchisees. Most franchise formulas fall within the category of business format franchising. This applies to both sales and services franchises.
Foreign investors predominantly conduct business activities in the Netherlands by way of a private company with limited liability. This type of company allows for a separation of investors from the company’s duties and liabilities while maintaining a relatively low level of formality.
Are there any national or regional franchising associations? If so, is membership mandatory and what operational codes and guidelines apply?
Several national franchising interest groups are active in the Netherlands. The NFV is the umbrella organisation that represents the majority of leading franchisors (ie, in the food, non-food, services, hospitality and healthcare industries). The NFV is also a member of the European Franchise Association and the World Franchise Counsel. In addition, several interest groups exist which represent the interests of franchisees. Membership of these interest groups is non-mandatory.
In general, interest groups for franchisees tend to refer to the Franchise Code of Conduct as the guidelines that govern the relationship between franchisors and franchisees. The NFV encourages its members to declare the European Franchise Code of Ethics applicable. There have been several cases in which parties tried to rely on the European Franchise Code of Ethics as a prevailing principle of Dutch law governing franchise agreements. In a landmark case, the Supreme Court ruled that this was not the case (Albert Heijn, ECLI:NL:HR:2018:1696).
Common features and contractual requirements
What are the common elements of franchise agreements in your jurisdiction? Do any requirements or restrictions on contractual provisions apply?
Franchise agreements in the Netherlands typically contain a description of the formula and the know-how made available to the franchisees. Franchise agreements also provide for licence rights in respect of:
- trade names;
- domain names;
- copyrightable works; and
- other IP rights.
A franchisor and its franchisees are independent entrepreneurs, meaning that the franchisees act on their own account and at their own risk. Other common provisions concern:
- the duration of the agreement;
- franchise fees;
- franchise rules, as set out in a handbook;
- exclusivity and non-compete obligations;
- minimum purchase requirements;
- marketing activities;
- online sales;
- audit rights; and
- the franchisor’s obligations to support its franchisees.
Are parties to a franchise agreement subject to an implied or explicit duty of good faith?
The prevailing principles of Dutch contract law are reasonableness and fairness, particularly the derogatory effect of reasonableness and fairness. Under Dutch law, a rule which is binding on the parties to a contract does not apply to the extent that, in the given circumstances, this would be unacceptable according to the standards of reasonableness and fairness (Article 6:248(2) of the Civil Code). Given the use of the word ‘unacceptable’, the threshold for invoking such a claim successfully is high. This principle is defined by case law.
There is also a vast body of case law stipulating that a franchisor has a duty of care to provide advice and guidance to underperforming franchisees.
Are franchise agreements subject to any formal or documentary requirements, including registration?
Franchise agreements are form free and subject to no formal or documentary requirements. As such, the registration of a franchise agreement is not a prerequisite for its validity.
What due diligence should both parties undertake before entering into a franchising agreement?
Franchisors typically tend to investigate the liquidity and solvency of prospective franchisees. Franchisors should also perform due diligence to ascertain whether prospective franchisees possess the relevant capabilities, training, personal qualities and financial resources to operate a business in line with the franchise formula in a healthy and responsible manner. Further, franchisors usually research the competitive position of their brand in a particular area before appointing a franchisee to operate in that area.
Franchisees should investigate whether it will be feasible to operate their business. They should verify the information received from the franchisor and the criteria and assumptions on which it is based for financial correctness and feasibility. In this respect, franchisees should reach out to other franchisees to seek information on their experiences in exploiting the formula.
Are franchisors subject to pre-contractual disclosure requirements? If so, do any exemptions apply? What remedies are available to franchisees in the event of breach of these requirements?
There are no statutory provisions that impose pre-contractual disclosure requirements on franchisors. Based on the general principles of contract law, a franchisor is not obliged to provide information to its franchisees. The Supreme Court confirmed this rule as recently as 2018 (Albert Heijn, ECLI:NL:HR:2018:1696). In turn, franchisees must investigate franchisors (which is again based on the principles of general contract law). As a general rule, a franchisor’s duty to inform prevails over a franchisee’s duty to investigate its franchisor.
In a landmark case, the Supreme Court ruled that franchisors are liable if they knew that a prognosis or forecast of profits prepared by a third party at their request contained serious flaws (Paalman v Lampenier, ECLI:NL:HR:2002:AD7329). Further, the Supreme Court recently reiterated that the Paalman ruling applies only when a sales forecast is prepared by a third party (Street One, ECLI:NL:HR:2017:311). In Street One, the Supreme Court clarified that a franchisor can be held liable if the prognosis or forecast of profits that it prepares is inaccurate.
A franchise agreement entered into on the basis of an error (ie, an incorrect prognosis or forecasts of profits furnished by the franchisor) which would not have been concluded by the franchisee if it had had a correct view of the situation is voidable. In certain circumstances, the franchisee can also seek damages and termination for breach instead of voiding the agreement.
Choice of law
May the parties freely choose the governing law of the franchise agreement?
Yes, parties are free to choose the laws governing their agreements.
What fees are typically charged under a franchise agreement?
The following fees are typically charged under a franchise agreement:
- a subscription fee;
- royalty or franchise fees;
- marketing fees;
- sales prices for products procured from the franchisor; and
- lease fees if the franchisor leases the property to the franchisee.
Do franchisees have a right of renewal?
Dutch law provides no statutory right to renew a franchise agreement. As such, agreements terminate by operation of law when their term expires. Some legal scholars have argued that an agreement is extended for an indefinite term if the parties continue to work together after the term’s expiry. Some lower court rulings support this position; however, no case law has been established to this effect.
On what grounds may a franchisor refuse to renew?
Based on the general principle of freedom of contract, a franchisor can refuse a renewal at its discretion. However, this may not be the case if the franchisee had a justified expectation that the agreement would be renewed.
How are renewals of franchise agreements usually effected? Do any formal or substantive requirements apply?
As is the case with the conclusion of a franchise agreement, an agreement on its renewal is also form free. In general, parties tend to record their renewal agreement in a written instrument, such as an addendum.
On what grounds may a franchisor terminate a franchise agreement? Are any remedies available to franchisees in this regard?
In the absence of express contractual termination for breach provisions, both fixed-term and non-fixed term agreements can generally be terminated where the other party commits a breach of contract, unless the breach does not justify the agreement’s termination given its special nature or minor significance.
If a contract includes no express termination for convenience provision, either party may terminate it for convenience on reasonable notice. Fixed-term contracts cannot be terminated early for convenience without the other contracting party’s consent, unless continuation of the agreement is unacceptable due to unforeseen circumstances.
In case of unlawful termination by one of the parties, the other party may demand specific performance and bring an action for damages.
Ongoing franchisor/franchisee relationship
What mechanisms (formal and informal) are commonly used by franchisors to ensure franchisee compliance with the operational terms and standards of the agreement?
Franchisors usually demand formal audit rights which allow them to inspect whether the franchisee is acting in compliance with the agreement. Franchise managers also frequently visit franchisees informally to keep up to date.
Amendment of operational terms
Can the franchisor unilaterally change operational terms and standards during the course of the agreement?
As a contract requires an offer and the acceptance thereof, a contract which includes operational terms and standards generally cannot be varied unilaterally. However, the right to vary the contract may be contractually agreed. Clauses in an agreement allowing franchisors to change their franchise manual or handbooks are fairly common in the Netherlands. In addition, although seldom successful, a party may request the court to vary or terminate a contract in the event of unforeseen circumstances of such a nature that the other party could not reasonably expect the agreement to be upheld in the original form.
Do any specific laws affect the ongoing franchisor/franchisee relationship after they enter into the franchise agreement?
No statutory provisions impose ongoing disclosure requirements on franchisors.
Do any ongoing disclosure requirements apply during the course of the agreement?
Based on the general principles of contract law, a franchisor has no obligation to provide relevant information to its franchisees during the course of the franchise agreement.
Transfer and sale
Transfer and sale
What rules and procedures apply to the transfer and sale of a franchise business?
Benefits (eg, rights for claims) may be freely assigned to a third party unless the contract provides otherwise. If the contract contains a restriction on assignments with a property law effect, such a restriction may be invoked against any third party.
Debts may be assigned to a third party if the other party consents to such an assignment. Similarly, with the other party’s consent, a contractual position (ie, all rights and obligations of a party) may be transferred in its entirety to a third party, whereby the acquirer continues in exactly the same position as the transferor.
What competition laws apply to franchises, with particular regard to:
Non-competes and other restrictive covenants?
Non-compete and other restrictive covenants are governed by the EU Block Exemption Regulation on Vertical Agreements (330/2010/EC).
Based on this regulation and the accompanying guidelines issued by the EU Commission, non-compete provisions in franchise agreements fall outside the scope of competition law when the obligation is required to maintain the common identity and reputation of the franchised network. In such cases, the duration of the non-compete obligation is also irrelevant, as long as it does not exceed the duration of the franchise agreement. Post-term non-compete clauses are subject to strict requirements and must be limited to one year from the agreement’s termination.
Other restrictive covenants dealing with the exclusive or selective nature of a franchise agreement are also governed by the EU Block Exemption Regulation.
Exclusive geographical areas?
Geographical exclusivity falls within the ambit of EU and Dutch competition law and is governed by the EU Block Exemption Regulation. This regulation stipulates, among other things, that suppliers (ie, franchisors) can prevent buyers (ie, franchisees) from actively selling outside their territory only if:
- the other territory is allocated to another buyer exclusively; or
- the franchisor has reserved the territory for itself.
Passive sales to other territories cannot be restricted.
Price fixing and mandatory product purchases?
Price fixing falls within the ambit of EU and Dutch competition law and is governed by the EU Block Exemption Regulation. Therefore, a hard restriction is the direct or indirect imposition by a franchisor of a fixed or minimum resale price on its franchisees. The EU Block Exemption Regulation allows for maximum prices and recommended retail prices if they do not have the same effect as fixed or minimum prices. An exception applies to fixed prices as part of short-term marketing campaigns.
The legal framework set out in respect of non-compete obligations similarly applies to mandatory product purchases.
Restrictions on online sales fall within the ambit of EU and Dutch competition law and are governed by the EU Block Exemption Regulation. Based on the EU Block Exemption Regulation, a franchisor can impose restrictions that require:
- active sales to be restricted in order to protect exclusive franchisees;
- physical sales to occur in addition to online sales;
- a certain level of quality (ie, sales services) to be maintained; and
- websites to be of a certain quality.
A franchisor cannot impose restrictions that:
- block customers from other regions or countries from using websites;
- re-route customers from other regions or countries to the franchisor’s or another franchisee’s website;
- terminate customer transactions using credit card data from other countries;
- limit sales via the Internet to a certain amount; or
- impose higher prices for products sold online.
Restrictions concerning the location from which a franchisee can operate its business and sell products – as well as provisions granting franchisors a right of first refusal in case the franchisee terminates its business – are acceptable under Dutch and EU competition law provided that certain conditions are met.
How can franchisors protect their intellectual property (eg, trademarks and copyright)?
Benelux trademarks must be registered through the Benelux Office for Intellectual Property and EU trademarks must be registered through the Office for Harmonisation in the Internal Market. The registrant of a trademark obtains an exclusive right to use the trademark in Benelux or the European Union, as relevant.
Copyrights do not require registration. A work can be eligible for copyright protection if it meets the requirements for copyright protection – meaning that the work has its own original character and bears the maker’s personal stamp. The work must be the result of creative human labour and thus creative choices.
Trade names do not have to be registered to qualify for trade name protection under the Trade Name Act.
Must IP licences be registered?
There is no legal requirement to register IP licences. Registration of a trademark licence enables franchisees to:
- intervene in enforcement actions undertaken by the franchisor (as trademark owner); and
- bring its own claim for compensation or profit remittance.
How can franchisors protect their know-how and trade secrets?
Dutch law includes no provisions that deal specifically with trade secrets and undisclosed know-how. Article 39(2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights is deemed to be incorporated into the Dutch Civil Code in the general article on torts (Article 6:162). In the absence of eligibility for specific IP rights protection, protection of data can be sought through the use of non-disclosure agreements.
What are the consequences of a franchisee’s breach of the franchisor’s IP, know-how or trade secret rights and what remedies are available to the franchisor in this regard?
The misappropriation of intellectual property, know-how or trade secrets often constitutes a breach of the agreement’s licence and confidentiality provisions. Such a breach would, in principle, allow the franchisor to terminate for breach and claim damages.
Infringement of the abovementioned rights by the franchisee can also result in the franchisor bringing suit to obtain provisional measures designed to cease all infringing use. Said claim can also be strengthened with court-appointed penalties.
Laws and considerations
What real estate laws and considerations should franchisors bear in mind where:
The franchisor owns the premises on which the franchisee operates?
If a franchise has agreed to pay a certain price for the use of a retail premise, certain semi-mandatory rules dealing with the lease of retail property apply. Some key issues regarding the lease of retail property are discussed below.
Dutch law provides for specific rules concerning ‘retail’ leases (ie, a lease for a commercial space that is used for retail, hotel, restaurant or similar purposes and is open to the public). By virtue of certain mandatory provisions (mandatory to the extent that deviations from the law cannot be to the lessee's detriment), retail leases are entered into for an initial duration of at least five years. On the initial term’s expiry, the lease will automatically continue for up to a total of 10 years. Leases entered into for less than two years (and which last less than two years) are not subject to the same provisions regarding a commercial lease’s duration. A retail lease can be terminated or rescinded only on the basis of certain grounds and – if the lessee does not approve – after obtaining court approval (even in the case of a termination for breach). The notice period is a minimum of one year.
For leases of retail space, the Civil Code contains a mandatory provision enabling a lessee – if the lessor does not approve – to demand a court to rule that a third party be substituted as lessee under the lease if the lessee intends to transfer its business to the third party. Any provision in the agreement to the contrary is voidable. The lessee and the lessor can also ask the court to adjust and assess the rent in accordance with that of comparable local retail spaces.
If, after the lease agreement has been terminated, the lessor enjoys a benefit due to the fact that the leased retail space will be reused to conduct business similar to that of the former lessee or sub-lessee to which the retail space was rightfully sub-leased, the former lessee or sub-lessee may claim compensation from the lessor which will be determined in fairness.
It is advisable to include so-called ‘co-terminus’ clauses, meaning that the lease agreement will be terminated if the franchise agreement is terminated. However, the courts do not usually approve extrajudicial termination grounds to the effect that the lease can be terminated in the event that the franchise agreement terminates due to extensive protection of retailers that should be in the position to earn back their investments in the leased retail space.
A franchisor should also check whether the agreements with its mortgage provider, if any, allow for such leases to franchisees.
Model contracts for Dutch rental agreements are used. The lease is often based on the model adopted by the real estate counsel of the Netherlands, Raad voor Onroerende Zaken.
Leases covering office spaces are also subject to certain semi-mandatory rules.
The franchisor sub-leases the premises to the franchisee?
Unless agreed otherwise, a franchisor is generally allowed to sublet in whole or in part if reasonable objections of the lessor are not anticipated. It is advisable to establish a back-to-back agreement with the franchisee to ensure that a franchisor can comply with its own agreement with its lessor.
The franchisee leases the premises from a third-party landlord?
No specific real estate laws apply in respect of a franchisor’s legal position. The franchisor should stipulate in the agreement that the franchisee can use the property only for the operation of the franchise formula. If the franchisee decides to operate a different business on the property, the franchisor could terminate for breach. The franchisee should also comply with its obligations regarding its lessor and ensure that it can actually operate the franchise formula at the leased premises.
The franchisee owns the premises?
No specific real estate laws apply in respect of a franchisor’s legal position. The franchisor should stipulate in the agreement that the franchisee can use the property only for the operation of the franchise formula. If the franchisee decides to operate a different business from the property, the franchisor could terminate for breach of the franchise agreement.
Can franchisees or their employees be regarded as employees of the franchisor for liability purposes? If so, how can franchisors mitigate this risk?
Under Dutch law, a person is considered to be an employee if the following criteria are met:
- the employee must perform the work him or herself during a certain period;
- a relationship of authority exists (ie, the employee must follow the employer's instructions); and
- remuneration of salary is required.
As a general rule, franchisees do not qualify as employees, as a franchisee operates on its own account and at its own risk. Whether an agreement is in fact an employment contract depends on the parties’ intentions when concluding the agreement, as well as the actual facts and circumstances and the way in which both parties have carried out the agreement. If a franchise agreement is deemed to be an employment contract, mandatory Dutch employment regulation will apply. In this respect, importance can be attached to circumstances such as:
- the right of a franchisee to have the work performed by someone else;
- the right to undertake competing activities;
- franchisees keeping their own administration;
- franchisees carrying the risk of non-payment by customers;
- freedom to set customer prices; and
- invoices to customers being sent by the franchisor.
Tax and currency controls
What tax regimes apply to the franchisor/franchisee relationship?
Dutch personal income tax Franchisors which carry out their franchising services through a partnership or as a sole trader and are tax resident in the Netherlands will be subject to Dutch personal income tax. In addition, a franchisee that carries out its business through a partnership or as a sole trader may deduct the payments made to the franchisor as a general business expense.
Dutch corporate income tax Pursuant to Dutch legislation, only Dutch companies and foreign companies that have a permanent establishment in the Netherlands are subject to Dutch corporate income tax. Where the franchisor is a Dutch company or has a permanent establishment in the Netherlands, the income derived from the franchising activities is subject to Dutch corporate income tax. Where the franchisor is a foreign company that has no permanent establishment in the Netherlands, the franchising income will not be subject to corporate income tax in the Netherlands.
In addition, the payments made by the franchisee in relation to the franchise agreement are generally tax deductible in the Netherlands as a general business expense. Further, if a franchise contract is entered into by related parties, the remuneration agreed by the franchisor and the franchisee must be at arm's length. This at arm's-length principle implies that the remuneration should be similar to the remuneration paid by non-related parties.
Withholding tax At present, there is no withholding tax on outgoing royalty payments in the Netherlands. Consequently, royalties that are paid by a franchisee to a franchisor that is established outside the Netherlands will not be subject to Dutch withholding tax.
Value added tax (VAT) In general, the supply of services performed by a business are subject to Dutch VAT insofar as the business qualifies as a VAT taxable person and the place of supply is in the Netherlands.
In general, a franchisor that renders economic activities against remuneration qualifies as a VAT taxable person. Further, franchising agreements will most often be entered into by two VAT taxable persons (B2B). In that case, the place of supply for VAT purposes is the place where the supplier of the service is established. Consequently, if the franchisor is established in the Netherlands, the place of supply for VAT purposes will be the Netherlands. The Dutch VAT treatment will be as follows:
- If the franchisee is established in the Netherlands, the franchisor is required to charge 21% Dutch VAT to the franchisee.
- If the franchisee is established outside the Netherlands and has a VAT identification number, the franchisor may apply the reverse-charge mechanism, by virtue of which a 0% VAT rate applies.
- If the franchisee is established outside the Netherlands and has no VAT identification number, the franchisor should charge 21% Dutch VAT to the franchisee.
Franchisees which are established in the Netherlands and incur Dutch VAT when they acquire franchising services may recover this VAT insofar as these services are attributable to their taxable supplies. If the franchisee is established outside the Netherlands, the franchisee must self-assess VAT in its country of residence. Provided that the franchising services acquired by the franchisee are attributable to its taxable supplies, the franchisee can recover self-assessed VAT.
Do any currency controls apply with respect to foreign franchisors?
From a Dutch tax perspective, no currency controls apply with respect to foreign franchisors.
What issues are typically the subject of disputes arising in the franchisor/franchisee relationship?
The following issues are often the subject of legal disputes:
- underperformance by franchisees resulting from alleged misrepresentations by franchisors;
- termination of franchise agreements;
- payment delays;
- price increases; and
- non-compete obligations.
Which venues are empowered to hear franchising disputes in your jurisdiction? What considerations should be borne in mind when choosing a venue?
A contract can expressly specify which dispute resolution procedure the parties will follow. The conventional method is litigation via the courts, governed by the rules set out in the Code of Civil Procedure. Dutch courts will generally respect the venue chosen provided that the jurisdiction clause meets the requirements set out in the EU Brussels I (Recast) Regulation 1215/2012.
Although some courts have a bigger case backlog then others, the level of quality is fairly consistent across the various Dutch courts.
The Code of Civil Procedure also provides for the possibility to obtain a summary judgment in all cases of an urgent nature in which, in view of the interests of the parties, an immediate measure is required. These proceedings are brought before the relief judge of the district court, which has jurisdiction over the matter.
Dutch law does not provide for trials by jury.
Alternative dispute resolution
Is alternative dispute resolution (ADR) commonly used for franchising disputes in your jurisdiction? What considerations should be borne in mind when opting for ADR?
ADR is not commonly used for franchising disputes; the majority of franchise disputes are still brought before the regular courts. Mediation is voluntary in the Netherlands. A regular court will not declare itself incompetent to hear a case if the suit was brought without following an agreed mediation procedure.
Arbitration is often used by parties to resolve commercial disputes and is private and confidential. There are also a number of other ADR procedures available. No link to the particular jurisdiction need exist.
Foreign judgments and awards
What regulations and procedures apply to the recognition of foreign judgments and arbitral awards where international franchising networks are concerned?
Verdicts rendered by the courts of EU member states are recognised and easy to enforce in the Netherlands. Verdicts rendered in countries with which the Netherlands has no treaty governing the execution of court verdicts (eg, the United States) are not executable automatically by operation of law. In principle, this means that the dispute must be brought before the Dutch courts again. The Dutch court will subsequently assess whether the foreign verdict can be recognised, resulting in a verdict by the Dutch court in which the earlier foreign court ruling is incorporated. The likelihood of a Dutch court recognising a foreign verdict depends on the level of compliance with international private law standards. In this regard, specific importance is attached to the validity of the jurisdiction clause used to justify the competence of the foreign courts.
In an international setting, the parties may prefer to opt for arbitration instead of dispute resolution by the regular courts. As the Netherlands is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, foreign arbitral awards are, in principle, enforceable in the Netherlands.