Franchisor convicted under the Acquisition Fraud Act

For the first time, a court has ruled, with reference to the Acquisition Fraud Act, that if a franchisee claims that the franchisor has presented an unsatisfactory forecast, the franchisor must prove that the forecast is sound. Our office has represented the interests of the franchisee in court in this regard. The court ruled that the franchisee may appeal to a reversal of the burden of proof pursuant to the Acquisition Fraude Act (Section 6:195(1) of the Dutch Civil Code). This reversal of the burden of proof also applies to situations prior to the introduction of the Acquisition Fraud Act on 1 July 2016, according to the court. 

The problem with forecasts that do not materialize is that it is often difficult for franchisees to determine why the expectations raised are not being realised. If a franchisee suspects that a mistake has been made by the franchisor, this will be difficult for the franchisee to prove. Cooperation from the franchisor cannot always be counted on and the franchisor may refuse to divulge trade secrets. The Acquisition Fraud Act came into effect on 1 July 2016 for these and other issues. If there is a sufficiently substantiated argument that there is a case of deception, the burden of proof can be reversed. If the evidence is not successful, the wrongful act can be established. 

The court of Zeeland-West-Brabant recently applied the Acquisition Fraud Act for the first time to a forecast issue. The franchisee had accused the franchisor of having acted unlawfully by providing an unsatisfactory forecast. The franchisor was then sentenced to prove that the prognosis had been drawn up properly. 

Although the Acquisition Fraud Act entered into force on 1 July 2016, the court ruled in its judgment that the reversal of the burden of proof also applies to forecasts issued before 1 July 2016. The court considered that the legislator did not make any distinction at the time of entry into force in the applicability of the provisions to agreements concluded before or after the entry into force of the law. According to the court, freely translated, this would moreover fit within the legal opinions already applicable in the Netherlands about the franchisor’s duty of care.

This ruling sets an important precedent in discussions about the adequacy of forecasts. If a forecast is not realized, this ruling will provide franchisees with an important means of forcing the franchisor to demonstrate that the forecast would be sound. If the franchisor fails to do so, the franchisor’s unlawfulness is in principle established.

mr. AW Dolphijn – Franchise lawyer

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