Deception in recruiting a franchisee?

On 19 March 2019, the Den Bosch Court of Appeal ruled, ECLI:NL:GHSHE:2019:1033, on the question whether the franchisor had misrepresented the facts when recruiting a franchisee, or at least had misled the franchisee by providing an overly rosy prognosis.

A franchisee of Biretco, was initially an employee and had obtained material from Biretco regarding the benefits of franchising with Biretco prior to entering into the franchise agreement. The plan was to continue the employer’s business as a franchise under the Biretco formula. The franchisee was informed beforehand by an acquisitor who, employed by Detavisie, aimed to recruit franchisees for Biretco. As a result, the franchisee had received financing from the bank. This financing was provided after a financing advice, with prognosis, made by Detavisie on behalf of the franchisee. This advice and prognosis were drawn up on the basis of figures provided by the franchisee’s employer at the time for the purpose of operational management. At a later stage, financial business analyzes of the franchisee’s company were also made by Detavisie and subsequently by Biretco. In those analyses, the franchisee’s figures were compared with so-called Detavisie/Biretco standards. However, the results achieved were quite disappointing.

The franchisees accuse Biretco of misrepresenting the facts (mistake). The franchisor is also accused of acquisition fraud due to incorrect forecasts, false statements in advertising brochures and false statements by Biretco’s acquisitors.

The court ruled that the forecasts are general and not focused on the franchisee. Leaflets such as the present one can be regarded as sales-stimulating written communications, which (in this case by Biretco) have been fabricated to be distributed to potential franchisees and not a communication aimed at only one potential client. The Court of Appeal is of the opinion that brochures such as the present one cannot only be regarded as forecasts, but that the promotions in the brochures can also only be read as general “advertising”, all the more so now that it is clear that a franchisee had the choice whether or not using the different tools that Biretco offered. The misappropriation claim fails.

The franchisee’s appeal to acquisition fraud also fails. The Acquisition Fraud Act came into force on 1 July 2016 and aims to protect entrepreneurs against, in short, misleading omissions. The facts in question take place in the period between 2000 and 2010. It is therefore a legal relationship that arose when the “old” law still applied and a legal question that arose after the law was changed. The court therefore concludes that the provisions of the Acquisition Fraud Act cannot be successfully invoked by the franchisee, contrary to what was decided in the judgment of the Zeeland-West-Brabant District Court of 22 November 17, ECLI:NL:RBZWB :2017:8013. In that case it was held that the Acquisition Fraud Act does apply to the situation prior to the introduction of the Act.

mr. AW Dolphin  – franchise lawyer

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