Mr MSJ Steenhuis – Franchise lawyer
In recent years, a large amount of jurisprudence has come to light regarding the non-achievement of the forecasts by the franchisee. In the majority of these rulings, the franchisee’s failure to meet forecasts is linked to the franchisor’s duty of care. If the line of the various judgments is followed, it appears that in the event of disappointing results of the franchisee, the franchisor is obliged to provide advice and assistance in order to turn the unfavorable financial tide of the franchisee.
In a judgment of one of the Courts of Appeal some time ago, the franchisor’s duty of care is further clarified.
For example, the franchisor’s duty of care is linked to, among other things, the franchisor’s experience in the sector in question. In the present case, the franchisor presented itself as a company with extensive experience in the sale of potatoes, fruit and vegetables (fruit and vegetables). All this was also stated in so many words, as is customary, in the franchise agreement. In this regard, the Court considered, inter alia, the following:
“On the basis of this it cannot be judged without further ado that the franchisor has not fulfilled its guarantee obligation under Article 1, but the circumstance that, contrary to what it repeatedly suggested to the franchisee, it had no experience whatsoever in the franchising of fruit and vegetables makes again that even stricter requirements must be set for the aforementioned duty of care.”
It also appears from this ruling that the handbook can also play a significant role in the context of the franchisor’s duty of care with regard to whether or not the forecasts issued by the franchisor are achieved. In this context, the Court considered as follows: “The Court agrees with the franchisee that the handbook is so brief and the instructions given therein are so general that it did not offer the franchisee any concrete guidance to improve the disappointing turnover. ”
It also appears once again that a franchisor must provide a franchisee with adequate advice and assistance in the event of disappointing results and cannot suffice with conducting “a few conversations”. The Court held in this regard as follows:
“The conversations prior to the conclusion of the agreement cannot be regarded as guidance and training during the term of the franchise agreement. It is established that the franchisor accompanied the franchisee for a few hours each time on three days during the delivery of fruit and vegetables. The However, the franchisor has not made any statements from which to infer the “tricks” that the franchisor allegedly taught the franchisee. (…) Finally, it is certain that the franchisor visited the franchisee’s home several times, but the franchisor has no facts or circumstances from which it can be concluded that he would then have helped the franchisee in creating higher sales opportunities.(…) Finally, it has been established that no additional training was offered to the franchisee and that no advertising or other promotional activities were undertaken by the franchisor developed.”
Finally, the explicit obligation of the franchisor once again appears, even if the franchisee does not specifically request this, to actively intervene in the event of lagging results. The Court devotes the following consideration to this:
“It must have been absolutely clear to the franchisor that the turnovers achieved deviated so much from the forecasts given by it that they not only offered no realistic prospect of profit, but, on the contrary, the prospect of ever-increasing losses. (…) All in all, the Court rules – with the Court – that the franchisor has failed imputably in its duty of care towards the franchisee by providing him with forecasts that were not based on high-quality market research and by subsequently failing to act independently when it turned out that the projected turnover figures were nowhere near being met and the franchisee not only did not earn the minimum income from his activities, but even continued to suffer large losses.”
The foregoing is seen as an attributable shortcoming on the part of the franchisor, which once again emphasizes that the franchisor must take its duty of care very seriously, particularly in the context of the forecasts it provides, and that it is not sufficient to conduct ” some conversations”.
Mr MSJ Steenhuis is a lawyer in Rotterdam. The law firm Ludwig & Van Dam is specialized in franchising.
Ludwig & Van Dam franchise attorneys, franchise legal advice