Incorrect forecasts: no dissolution of the franchise agreement

Franchise lawyer, franchise agreement, forecast

On 6 January 2010, the preliminary relief judge of the District Court in The Hague rendered a judgment that could have major consequences for the franchise practice. Based on this judgment, it will become considerably more difficult for a franchisor to terminate a franchise agreement with a franchisee if the franchisor previously, at the time of entering into the franchise agreement, provided unsatisfactory forecasts to this franchisee.

A dissolution of an agreement can only take place if various elements are met, such as, in certain cases, default on the part of the other party. If a franchisor has previously provided an unsatisfactory forecast to a franchisee, the franchisor will automatically be in default by operation of law because it commits an unlawful act against the franchisee. As a result, the franchisee will not in turn be in default, so that the franchisor cannot pronounce the dissolution as a result.

This is important for the legal development of the case law in the area of ​​franchising, because it has never before been so clearly established by a court that, due to the franchisor’s automatic default, a dissolution invoked by the franchisor is ineffective. In practice, this will mean that franchisees who have been provided with unsatisfactory forecasts by their franchisee at the time of concluding the franchise agreement can more easily defend themselves against an attempt to dissolve the franchise agreement by the same franchisor.

Franchisors are therefore – also for this reason – well advised to ensure that all forecasts they provide to potential franchisees are sound. Franchisees – in turn – should be aware of the implications of the foregoing should they find themselves in such a situation.

Ludwig & Van Dam franchise attorneys, franchise legal advice