Error in prognosis – contrary to the expert report

In cases where it is alleged that a franchisor provided an incorrect forecast to the franchisee prior to the collaboration, it can be difficult for a court to assess whether the forecast is indeed incorrect in relation to the actual situation.  business operations. An opinion of a court-appointed independent expert, such as that of an accountant, can then offer a solution. In that case, it is not likely that the court will not adopt the expert report. After all, the court appoints the expert for a reason.

In the present case, a franchisee of a flan shop claimed that the franchisor had made an incorrect forecast, as a result of which both the franchise agreement and the accompanying rental agreement could be annulled out of court on the grounds, among other things, of error. In these proceedings, the franchisee is seeking a declaratory judgment for the nullification of these agreements.

An interim judgment has already been rendered in this case (Roermond District Court, 26 February 2012, ECLI:NL:RBROE:2012:BV1313) from which it follows that the prognosis is based on “the practical experience” of the franchisor, with a turnover forecast of 450 pies a week in the first year, rising to 600 in the third year. The franchisor would have indicated that a franchisee should be able to earn an acceptable business income if the franchisee were to sell approximately 600 pies per week.

It is further stated that when the formula was operated at the location in question in the previous four years, a maximum of approximately 400 pies per week were sold, which raises questions, according to the judge. It does not follow from the published interim judgment and final judgment how many pies the franchisee has actually sold, or what turnover has been achieved. It is also unclear what turnover the franchisee has achieved or could have achieved with other activities. The formula also offers space for the sale of bonbons and cakes.

In an interlocutory judgment, the court appointed an independent expert from an accountancy and tax consultancy firm to report – in essence – on the question whether the franchisor was reasonably able to arrive at the prognosis as provided to the aspiring franchisee at the time. The expert answered this question in the affirmative. The franchisee’s claim therefore appears to be ready for rejection.

However, the law gives the opportunity to parties to respond to the expert report. The franchisor apparently did not make use of this possibility. The franchisee However. The court finds that, according to the expert report, a maximum turnover of € 275,000 could be achieved. According to the court, this means that in the best case a turnover of € 275,000 must be considered realistic, which corresponds to a weekly sale of approximately 554 pies.

However, the franchisor would have indicated in its prognosis that with a sale of 600 pies per week an acceptable entrepreneurial income can be generated and that this can be expected in the third year. On that basis, the judge, unlike the expert, decides that the prognosis was incorrect and the contracts were rightly annulled on the basis of error. This means that the expert’s report is passed over by the court, which is possible  on the basis of the free assessment of evidence by the court.

Perhaps the franchisor, if it had responded to the expert’s report, could have made a point that the prognostic problems that had been raised could not be decided solely on the number of pies sold per week. This has not happened for unknown reasons.

The franchisee is responsible for the consequences

(the financial settlement) of the nullification of both agreements. However, the annulment results in the obligation to undo the services rendered. For example, paid rent and franchise fee could be reclaimed by the franchisee. The court also suggests that where a performance by its nature is not eligible for restitution, an obligation to pay value can also take its place. In addition, under certain circumstances there is room for additional compensation for damage (on the basis of an unlawful act), for example for investments made. In short, the result of this procedure is (only) destruction without any refund, compensation for wrongly performed performances or compensation.  However, the ruling does show that an ex officio expert report can also be disregarded by the court.

Mr AW Dolphin  – Franchise attorney

Ludwig & Van Dam Franchise attorneys,franchise legal advice.

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