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
Franchisor fails by invoking a non-compete clause
Although a non-compete clause is validly formulated in a franchise agreement, a situation may arise that is so diffuse that the franchisor cannot invoke it.
Acquisitions and Franchise Interest
It will not have escaped anyone's attention, certainly in the last year it can only be concluded that the Dutch economy is once again on the rise.
Which court for a rental and franchise agreement?
Which court is competent to rule on a related rental and franchise agreement?
Interview Franchise+ – mrs. J. Sterk and AW Dolphijn – “Reversal burden of proof in forecasts honored by court”
The new Acquisition Fraud Act indeed appears to be relevant for the franchise industry, according to this article from Franchise+.
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 prognosis
Agreements Related to the Franchise Agreement
On 31 October 2017, the Arnhem-Leeuwarden Court of Appeal issued similar judgments for nineteen franchisees (ECLI:NL:GHARL:2017:9453 through ECLI:NL:GHARL:2017:9472).