Enforcing US arbitral awards in Germany against local
franchisees
11 February 2009
In a recent decision the German Court of appeal refused to
enforce a US arbitration award against a German franchisee. The
Court felt it was unreasonable to force the franchisee to travel to
New York to attend the arbitration.
The franchisor was a Dutch subsidiary of Subway. The franchise
agreement was subject to Liechtenstein Law and contained a New York
arbitration clause. When a dispute over the payment of franchise
fees arose the franchisor obtained a US arbitration award for
payment.
The German Court refused to enforce the arbitral award as it
unreasonably favoured the franchisor. The Court based its decision
on the principle of reasonableness applicable in Liechtenstein law.
Liechtenstein has a reasonableness test when it comes to reviewing
standard form contracts. Standard term contracts which are
unreasonable are invalid. The Court concluded that an obligation on
a German franchisee to attend an oral hearing in New York is not
justifiable when the place of performance of the franchise
agreement is Germany, especially since the franchisor had a network
of consultants for its German franchisees and engaged a German
lawyer for its German affairs on a permanent basis.
The lesson to be learnt for franchisors
US Franchisors should be careful when they choose the governing
law of their franchise agreements in Europe. Any jurisdiction which
applies a reasonableness test may open up the door for a review of
the franchise agreement.
If arbitration is chosen as the dispute resolution mechanism,
franchisors should not choose a venue out of mere convenience, but
consider if a venue closer to the franchisee's place of business
(such as London or Zurich) would be acceptable.
For further information, please contact Mark Abell, Babette Marzheuser-Wood or Chris Wormald who are happy to
assist you.