Breach of pre-contractual information obligation in case of franchise

In summary proceedings, the District Court of The Hague rendered a judgment on May 1, 2024, ECLI:NL:RBDHA:2024:7220, on the question of whether the franchisor had correctly informed the intended franchisee prior to concluding the agreement.

The franchisor has entered into several agreements with the franchisee under which the franchisee is obliged to open at least 30 branches within five years in return for payment to the franchisor, even if this development goal is not achieved.

Prior to the collaboration, the franchisor provided a forecast from which rosy results followed. That forecast would be based on experiences that the franchisor would have gained in Ireland. However, the franchisor failed to state that the branches in Leiden and Rotterdam operated by the franchisor itself did not achieve these turnovers and were loss-making.

After entering into the partnership, the franchisee opened two locations. However, these branches turned out to be loss-making. The franchisee refuses, among other things, to further implement the agreement to open new branches. The franchisor demands compliance with the agreements, against which the franchisee defends itself. To this end, it is argued, among other things, that the franchisor has violated the pre-contractual information obligation.

The preliminary relief judge considers that on the basis of Article 7:913 paragraphs 3 and 4 of the Dutch Civil Code, the franchisor must provide the intended franchisee with information in a timely manner before concluding the franchise agreement, including the financial data of the intended location of the franchise company and all other information. which he knows or can reasonably suspect is important for concluding the franchise agreement. This pre-contractual information obligation, followed by the pre-contractual reflection period, serves to protect the franchisee, usually the more dependent party, against the franchisor.

It is considered that it is likely that presenting the positive Irish figures and concealing the loss-making stores that the franchisor itself has in the Netherlands has created a misrepresentation. The franchisor must have been aware that, if the facts had been correctly represented, the franchisee would not have concluded the agreements or – perhaps more likely – would not have concluded the agreements under the same conditions.

The franchisor’s claims to fulfill the agreements are therefore refused.

mr. A.W. Dolphijn
Ludwig & Van Dam lawyers, franchise legal advice.
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