Franchisor remains liable for incorrect prognosis

By Published On: 16-06-2016Categories: Statements & current affairs

Very recently, the Court of Overijssel ruled in a matter between a franchisee and Otto Simon,  parent company of the franchise formula Top 1 Toys (ECLI:NL:RBOVE:2016:2172). The central question was whether the figures provided can be qualified as a forecast and then whether this forecast was careless and unsound. The question of when a cooperation agreement should be qualified as a franchise contract is also discussed in detail. The judgment is seamlessly in line with principles previously formulated within the case law.

Whether a cooperation agreement can be qualified as a franchise agreement depends on the elements included in this contract. The fact that the word ‘franchise’ does not appear in the contract does not alter this. The court repeats the definition already formulated by the Supreme Court, resulting from the EC Regulation (4087/88). In addition, various elements are cited which, among other things, give substance to this definition.

The court qualifies the cooperation agreement as a franchise agreement and it is considered important that the contract states that know-how is protected. The obligation included in the contract to adapt, furnish and equip the store in accordance with Otto Simon’s guidelines also points to a franchise relationship. The national advertising and promotion campaigns and the current account relationship with a direct debit mandate support the existence of a franchise agreement. In short, despite the fact that a collaboration is called differently, there can indeed be a franchise agreement if the elements discussed above are met.

In addition to the qualification of the franchise agreement, the question of whether there is a forecast is also discussed. Otto Simon takes the position that there is no question of a prognosis because there would be a so-called ‘task setting’. Otto Simon states that it has provided the franchisee with estimated sales with regard to what the franchisee would have to achieve in order to make a certain profit.  this would not concern a turnover expectation.

The court does not follow this statement by Otto Simon. The statement that a certain turnover must be achieved in order to achieve a certain profit implies that that turnover can also be achieved, the court ruled. The mention of the term ‘task’ does not detract from this. So there is indeed a forecast. Here too, you can use other terminology, but if the facts show that there is indeed a prognosis, then it will also be qualified as such, with all possible consequences.

It has been established that there is a franchise agreement and that there is a forecast. Whether the prognosis issued is actually unsound cannot yet be determined by the court. Both parties have submitted a report from which the turnovers deemed feasible follow. However, the results in the two reports are so different that a judicial expert will have to be called in for further advice. The court does note that Otto Simon’s prognosis differs substantially from the forecast in  actual results achieved. Now that there is no evidence that a location survey or market survey has been carried out and the figures have not been substantiated and have been produced in the short term, there is a chance that the expert will conclude that there is an incorrect prognosis with the wrongful act and the destruction of the property. franchise agreement. Franchisors would in any case do well, if they issue a prognosis, to also base it on research, otherwise there is a chance that one will end up in such a procedure.

mr. M. Munnik – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

Do you want to respond? Go to munnik@ludwigvandam.nl

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