Need thorough research for a sound prognosis?
Is a thorough investigation by the franchisor always necessary to arrive at a sound prognosis? A ruling by the Court of Appeal of ‘s-Hertogenbosch[1] concerned a prognosis presented to a franchisee of a shop to be operated at a gas station. The question was how the franchisor could have arrived at the prognosis.
In the interlocutory judgment[2] it was already held that the franchisor who provides a forecast will, under certain circumstances, act unlawfully if he knows that the forecast contains serious errors and does not draw the other party’s attention to these errors. The franchisor must therefore justify the forecast.
As a result of the interim judgment, the franchisor has named and submitted sources from which it has drawn its prognosis. The court notes that the shop at the pumping station in question was not staffed before the forecast. The franchisor was therefore unable to draw on concrete figures. She was dependent on softer data. The franchisee knew this, or at least should have known this. After all, the forecast mentioned figures regarding an unmanned pumping station.
The court also notes that the forecast with the figures referred to therein was not presented to the franchisee as being based on a thorough investigation. The numbers are preceded by the words ‘Known is’ and are on one A4 with the title ‘model’. The franchisee was therefore not allowed to attach too much importance to these figures, according to the court.
These considerations seem to be somewhat at odds with the principle adopted elsewhere in case law that the franchisor must guarantee the accuracy of the data underlying the forecast.[3] It has also been assumed in case law that the franchisor is obliged to carry out market research in order to arrive at a sound prognosis.[4]
The franchisee is admitted in this case to prove that forecast contains serious errors and that the franchisor knew but failed to point it out to the franchisee. The franchisee seems to be facing a difficult job.
When drawing up a forecast, the franchisor would do well to state as fully as possible the sources on which the forecast is based. The franchisee would do well to verify the sources and to form an idea of the reliability. If the franchisee (based on this) detects ambiguities, it is advisable to ask for clarification here. In particular, if it is known that a thorough investigation has not been carried out, this can apparently be relied on against the franchisee.
[1] See Court of Appeal of ‘s-Hertogenbosch 8 March 2016, ECLI:NL:GHSHE:2016:851. [2] See Court of Appeal of ‘s-Hertogenbosch 15 September 2015, ECLI:NL:GHSHE:2015:3583. [3] See, for example, Rotterdam District Court October 2014, ECLI:NL:RBROT:2014:8895, para 4.5., and Noord-Holland District Court 3 February 2016, ECLI:NL:RBNHO:2016:718, para, 4.3, as well as Zeeland District Court – West Brabant 15 June 2016 ECLI:NL:RBZWB:2016:3723, para 3.4.1. [4] See Utrecht District Court 15 November 2011, ECLI:NL:RBUTR:2000:AJ0157 and Utrecht District Court 23 November 2011, ECLI:NL:RBUTR:2011:BU5842.mr. AW Dolphijn – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice.
Do you want to respond? Go to dolphijn@ludwigvandam.nl
Other messages
When does a franchisor go too far when recruiting franchisees?
The judgment of the Court of Appeal of Arnhem-Leeuwarden on 5 February 2019 dealt with whether the franchisor had acted impermissibly when recruiting the franchisees.
Advisory Board on Regulatory Pressure (ATR) advises State Secretary Keijzer about the Franchise Act
In short, it is first advised to actively inform franchisors and franchisees about this amendment to the law.
Post non-competition ban on services and sales franchise
When a franchise agreement ends, many franchisees encounter a prohibition in the franchise agreement to perform similar work for a period of time thereafter
The concept of the Franchise Act: impact for franchisors and franchisees – dated February 5, 2019 – mr. AW Dolphin
Ludwig & Van Dam Advocaten believes that if the draft of the Franchise Act actually becomes law, a lot will change for franchisors and franchisees.
Buy franchise business and the laid off sick employee from 7 years ago
The question is whether a Bruna franchisee, when selling the franchise company to Bruna, should have stated that seven years ago an employee had left employment sick.
Court prohibits Domino’s unilateral area reduction when extending franchise agreements – dated January 28, 2019 – mr. RCWL Albers
On January 9, 2019, the District Court of Rotterdam rendered a judgment in a lawsuit initiated by the Association of Domino's Pizza Franchisees and all its members (almost all Domino's franchisees).