Between Forecasts and Expectations in Franchising – February 9, 2016 – Mr. AW Dolphin

In a judgment of 3 February 2016, the District Court of the Northern Netherlands devoted a number of fairly principled considerations to the fulfillment of the franchisor’s duty of care towards a franchisee regarding forecasts, among other things.

The standard starting point is that the franchisor must guarantee the correctness of the data on which the forecast issued by the franchisor is based. In the present case, the franchisee himself had drawn up a turnover forecast. The franchisee obtained the data used for this purpose from the previous owner of the company, and therefore not from the franchisor. This self-made forecast was sent by the franchisee to the franchisor for inclusion in a business plan that the franchisor would draw up. The business plan would then be used in the financing application.

The dispute is whether the franchisor has a responsibility towards the franchisee with regard to the correctness of the data on which the forecast is based. Among other things, the court considers as follows: “The franchisor does not automatically have a duty of care that extends to the fact that the franchisor would be obliged to check turnover forecasts supplied by a potential franchisee for accuracy.”. In principle, therefore, the franchisor has no obligation to verify a forecast drawn up by the franchisee. In another case it was already considered that if the (prospective) franchisee requests information from the previous operator, and the franchisor has merely forwarded this information, that information cannot simply be relied on against the franchisor. See District Court of The Hague 11 November 2014, ECLI:NL:RBDHA:2014:16502. The court does not get round to the follow-up question, namely whether the prognosis was unsound, because that is beyond the responsibility of the franchisor involved.

Although in principle there is no duty of verification for the franchisor, it appears that the franchisor in question has assessed the business plan, including the franchisee’s prognosis, for feasibility. To increase the level of reality, the franchisor had made a small downward adjustment in the final business plan. On the basis of this, the court concludes that the franchisor has been willing to do so to the franchisee. In the judgment HR 19 February 1993, Prg. 1996, 4459 (Renault/Mastrigt), the Supreme Court also ruled that a request from a franchisee to draw up an optimistic forecast does not justify presenting an unsatisfactory forecast. However, that is not the case in the present case. The franchisee alone drew up a prognosis, which the franchisor incorporated into a business plan.

Another reproach was that the franchisor had not reported of its own accord that there had also been franchisees who did not always achieve favorable results. The court does not follow this and considers: “In addition, the franchisor is not automatically obliged to disclose the experiences of other franchisees.”. A distinction can be made from this situation in which a former franchisee has gone bankrupt at the same location. See, for example, the judgment of the District Court of Den Bosch on 25 February 1997, Prg. 1997, 4727. That situation was out of the question.

If a forecast issued by a franchisor is not met, then according to settled case law, the franchisor must provide the necessary assistance and advice. However, a general obligation to do so does not apply: “Other than [eisers] apparently believe that a franchisor is generally not required to provide detailed advice of its own accord or to provide systematic guidance with regard to the exploitation by the franchisee, and the franchisor is not subject to any special duty of care in this respect.” It is conceivable that an obligation to provide assistance and advice if a prognosis is not achieved, this applies in particular if the prognosis has been drawn up by the franchisor.

This statement therefore illustrates that a franchisor is not fully responsible for the expectations and results of the franchisee.

mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to dolphijn@ludwigvandam.nl