Incorrect prognosis due to lack of location research

On 21 March 2018, the District Court of The Hague ruled, ECLI:NL:RBDHA:2018:3348, that a franchisor’s forecast was unsound, as a result of which the franchisee had erred and the franchisor had acted unlawfully. 

Contrary to what was stated in the franchise agreement, the franchisor had not conducted a location survey. Nor had the franchisor conducted any research among its own franchisees. The franchisor has acknowledged that it only used historical turnover and profit data (annual figures) of two stores when drawing up the forecasts. Furthermore, the franchisor had not sufficiently disputed that the aforementioned two stores differed substantially in terms of retail space, location and product range. 

The predictive value of (merely) historical turnover and profit data is relative, especially now that the franchisor determines both the purchase prices and the sales prices of its franchisees in accordance with its franchise formula, according to the court. 

The operating results turn out to be considerably lower than forecast. The court considers that the franchisor must, in principle, guarantee the soundness of the operating forecasts (prepared by itself) that it had provided to the franchisee. After all, the franchisee could assume that it could rely on the information provided by the franchisor, because a large franchisor, such as in the present case, with more than a hundred franchised pet specialty shops in the Netherlands, can be pre-eminently considered to be aware of all market conditions relevant to the potential turnover of the VOF, and on the basis thereof be able to make realistic estimates of the turnover opportunities arising from those circumstances. 

On the basis of the foregoing, the court is therefore of the opinion that the operating forecasts drawn up by the franchisor are unsound and that the franchise agreement was concluded under the influence of error as a result of errors in the operating forecast provided by the franchisor. 

mr. AW Dolphijn – franchise lawyer 

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