Forecasts not achieved: franchisor liable. Remarkable?

Introduction

The court recently rendered judgment between a franchisor and one of its franchisees. In short, the franchisee concerned was provided with a significantly overly optimistic turnover and result forecast, on the basis of which the franchisee successfully appealed for error and compensation was awarded. The franchisor was also ordered to pay various costs.

Judgement

In February 2013, an external expert assessed the prognosis for the franchisee involved in these proceedings. The expert was approached by the franchisee. The expert’s opinion was that the prognosis was unrealistic. It has also become apparent to the expert that during the preparation of the prognosis information was available at the franchisor which, with proper research, should have led to a different prognosis.

The court agrees with the expert that an error has been made by basing the prognosis almost exclusively on an existing establishment of the franchisor. The franchisee’s branch was located in a different place, a place that is structured differently, resulting in completely different footfall counts, for example. Furthermore, according to the court, the prognosis does not sufficiently take seasonal influences into account, which is of great importance in the sector in question. The court also finds that the forecasted margin on the product in question has been forecasted too high, based on the margin figures of one’s own branch. There was a 10% difference between them. The expert has also established that the personnel costs were also estimated too low in the prognosis, which is the opinion of the court.

The court also considers that the fact that the franchisee was aware that the franchisor was a start-up organization does not justify that the franchisee should not have relied on the forecast. This compares the franchisee’s limited obligation to investigate when entering into the franchise agreement and the franchisor’s far-reaching duty of disclosure. The circumstance that the franchisor had provided the franchisee with the prognosis of its own accord makes that duty of disclosure even more important than the duty of investigation on the part of the franchisee. In that context, importance is also attached to the fact that the franchisee has indeed carried out his own investigation, including in the form of a visit to the franchisor’s branch in Hoogezand, and has thus, in the opinion of the court, sufficiently fulfilled his obligations. duty of investigation.

Conclusion

Is the above-treated statement now special? No. A franchisor is liable for incorrect forecasts, unless the franchisee is clearly at fault for this. This liability also exists if the franchisee himself drew up the forecast and the franchisor knew or should have known that it might not be feasible. The judgment links up with the assessment framework developed in case law between 1995 and 1998, which has essentially not been changed or nuanced since then. The fact that each case must be weighed individually and therefore naturally leads to different considerations and outcomes is something completely different, but does not affect the case law framework. The parties are therefore advised to take the assessment framework as a starting point for their contractual and non-contractual cooperation and also to use it in the event of unexpected disputes. Incidentally, this assessment framework is so crystal clear that no further regulations are required.

Mr Th.R. Ludwig – Franchise Attorney

Ludwig & Van Dam Franchise attorneys,franchise legal advice.

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