Beware of vague wording in franchise agreements

Publication date: 24 June 2021
It is important to use clear and unambiguous language in agreements. This has once again been demonstrated by a recent judgement of the Supreme Court. Because of ambiguities in franchise agreements, franchisees of Albert Heijn may have lost millions.

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Interpretation of agreements

What exactly the rights and obligations are of parties under an agreement depends on the interpretation of this agreement. Not only the text of an agreement plays a role in this but also various other circumstances. It must be considered, for example, what the parties have said to each other during negotiations, which intentions they have and what their negotiation position is. It is also important how the parties have implemented the agreement. Generally speaking, the clearer and more unambiguous the wording of the agreement, the less likely it is that additional circumstances will have to be taken into account in the interpretation.

A lot can depend on the interpretation of an agreement. Based on the interpretation, the parties will have to perform the agreement. This may sometimes lead to disputes. As, for example, in the following case:

The franchise agreements of Albert Heijn

Albert Heijn has concluded a large number of franchise agreements allowing franchisees to operate an Albert Heijn shop. These agreements contain unclear terms on the basis of which the financial settlement of the parties takes place. These terms include, for instance, ‘tax price’, ‘undistributed margins’ and ‘action discount result’.

The franchisees complain that Albert Heijn has wrongly used these stipulations to their detriment. As a result of this, the franchisees would have missed out on income. Albert Heijn relies on the fact that it interpreted the stipulations in the same way the accountants, including those of the franchisees, applied them when carrying out the financial settlement.

Amsterdam Court of Appeal Court: accountants’ interpretation is correct

The Amsterdam Court of Appeal did not go along with the complaints of the franchisees. It ruled that the interpretation of the agreements as given by the accountants could be attributed to the parties.

Supreme Court: accountants’ interpretation does not bind franchisees

The Supreme Court disagrees. The fact that the accountants of Albert Heijn and those of the franchisees agreed on the interpretation and application of the unclear terms, does not mean that the franchisees agreed to this interpretation. Also, the franchisees must be given the opportunity to prove their intentions on concluding the agreement by means of witnesses.

The Supreme Court refers the case to The Hague Court of Appeal. It will have to judge whether Albert Heijn has indeed paid too little to the franchisees.

Beware of vague wording

In the case described above, the franchisees’ income depends on the interpretation of the franchise agreement of Albert Heijn. The fact that such a confusion could have arisen was due, among other things, to unclear wording in the franchise agreements. The judgement is therefore a good reminder to be clear and unambiguous in the wording of agreements and to seek legal assistance if necessary. This way, misunderstandings and thus legal proceedings with witness examinations can be avoided.

Franchise lawyer

Do you have any questions regarding a franchise agreement? Or would you like us draw up a franchise agreement or check a standard agreement? We are also happy to help you in the event of a dispute or regarding the interpretation of a franchise agreement. Please contact us:

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