The benchmark for franchise forecasts – dated 29 May 2019 – mr. AW Dolphin

On 19 March 2019, the Den Bosch Court of Appeal, ECLI:NL:GHSHE:2019:1037, listed the case law of the Supreme Court on prognosis in franchising. The Court of Appeal summarizes that the Supreme Court has ruled that in principle there is no obligation on the franchisor to inform the franchisee about the expected turnover or about the profit forecast. However, the special circumstances of the case could entail such an obligation.

It cannot be inferred from the mere circumstance that the franchisor provided the franchisee with a report on the expected turnover and profit during the negotiations prior to the conclusion of the franchise agreement that an obligation to that effect rested on the former. However, the franchisor who provides a report as referred to above to his counterparty may, under certain circumstances, act unlawfully.

In the event that the franchisor has outsourced the investigation and the preparation of the report based on it to a third party, the franchisor may also generally rely on the correctness of the report drawn up by the third party. In that case, however, there will in principle be negligence on his part if he knows that this report contains serious errors and he does not draw the other party’s attention to these errors.

In the event that the franchisor itself, or a person for whom it is liable, conducts the investigation and provides the results thereof to its counterparty, negligence may also exist without the franchisor (or the person for whom it is liable) know that the report contains errors if negligence on the part of the franchisor (or the person for whom it is liable) led to the errors in the report.

After the Court of Appeal explained the Supreme Court’s teaching in this case, it tested it against the present case. The franchisee bases two arguments on the franchisor’s alleged errors. First, the franchisee points to an email from the franchisor from the pre-contractual stage, with the subject; “estimate of potential toy turnover” which includes a calculation, which closes on a net turnover forecast of € 274,477. In that e-mail, a number of factors were listed as unknown, namely purchasing power retention, indexation and rent levels. In addition, the e-mail emphatically states that no rights can be attached to the figures, that it is the responsibility of the entrepreneur to check the data and that specialist agencies are referred to for an extensive location investigation. In view of the foregoing, according to the Court of Appeal, the franchisees have not sufficiently substantiated that this e-mail can be regarded as a turnover forecast on which they could justifiably rely.

Second, the franchisee had stated that the franchisor would have provided an itemized investment budget, a location survey and two statements of net sales data. However, those documents were not submitted, so that this second claim was also rejected.

Against the assessment framework outlined, forecasting issues remain a matter of sound factual substantiation.

mr. AW Dolphin  – franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice.

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