Franchisee successfully appeals for error as a result of a forecast provided by the franchisor
Court of Utrecht
The District Court of Utrecht recently rendered an interim judgment in a prognosis case (in which the franchisor had provided the franchisee with a financial estimate for the coming years that turned out to be incorrect), which mainly concerned a consultancy firm that had been engaged by the franchisor to conducting location research into a new ‘Read Shop’ to be opened in Smilde. Partly on the basis of the location survey, a (potential) franchisee has decided to contract with the franchisor.
In retrospect, it turned out that the consultancy firm’s report contained errors or omissions, as a result of which the outcome of the location survey was not sound. The operating forecast, which was based on this study, would therefore also be unsound. If the franchisee had known this, he would not have concluded the franchise agreement with the franchisor, or would not have concluded it under the same conditions.
Although the franchisor invokes an expiry period of three months in which to act against incorrect information on the part of the franchisor, such as the location investigation and the prognosis, this defense is overruled by the court.
The court accepts that the franchisee could have erred about the incorrect location research and the incorrect operating forecast, but the court still wants to see in more detail what the operating result could have been if the consultancy had done its job properly. This – of course – to demonstrate causality.
Remarkably enough, the court states that the franchisor is not automatically liable for the errors of the consultancy, because the franchisor did not have to doubt the correctness of the investigation. Because the franchisor therefore did not know about the errors, it would not be liable for those errors in the view of the court. While it is arguable that no fault can be attributed to the franchisor because the franchisor was not aware of the errors, it could be argued that the franchisor’s attribution in such cases could also exist on the basis of prevailing views. After all, the franchisor can be considered to have full knowledge of the franchise formula and the potential franchisee may therefore rely on statements made by the franchisor or the consultancy firms it has engaged. Were this to be otherwise, the franchisor, by engaging a consultancy, could quite easily escape the scene of errors in the reporting and the franchisee could (apparently) only sue the consultancy on the basis of a tort. That does not seem reasonable, given the position of the franchisee.
Mr JH Kolenbrander – Franchise attorney
Ludwig & Van Dam Franchise attorneys, franchise legal advice Would you like to respond? Mail to info@ludwigvandam.nl
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Other messages
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Disputes about forecasts between franchisor and franchisee remain a hot topic in franchising. After the Street-One judgment, it seems that franchisors feel safe
Column Franchise+ – Outsourcing forecasting to an administrative office does not benefit the franchisor
Disputes about forecasts between franchisor and franchisee remain a hot topic in franchising. After the Street-One judgment, it seems that franchisors feel safe
Outsourcing prognosis to an administrative office does not benefit the franchisor
Disputes about forecasts between franchisor and franchisee remain a hot topic in franchising.
Contribution Mr. AW Dolphijn in Contracting magazine 2018, no. 1: “The unilateral amendment clause in the franchise agreement.”
A contribution by mr Dolphijn has been published in the magazine Contracteren entitled: “The unilateral amendment clause in the Franchise Agreement”.
Supermarket letter – 22
No Dutch Franchise Code, but legislation on franchising.
No Dutch Franchise Code, but legislation on franchising
The State Secretary has announced that the Dutch Franchise Code ("NFC") will not be enshrined in law. However, there will be legislation on franchising.