Indemnification II – Failed Forecasts
A special form of indemnification consists of exoneration clauses that attempt to indemnify the franchisor against incorrect forecasts. Most of the clauses in this framework are so absolute and rigid in nature that they are legally powerless. The court passes such clauses more than once effortlessly, because of the completely unreasonably onerous nature of the clause, or because the rigid clause in question no longer bears any relation to the culpability of the franchisor, in case there is there is actually conscious, deliberate reinforcement of incorrect forecasts.
Is nothing possible at this point? Anyway. A nuanced exoneration can indeed protect the franchisor against incorrectly provided forecasts. However, such a nuanced regulation is based on a number of elements:
– both the franchisor and the franchisee are involved in the location survey, from which the forecasts are derived;
– the franchisee is advised to convince himself of the correctness of the forecasts, for example by engaging a professional adviser who is not the franchisor’s adviser;
– the franchisor does not exclude its liability, but limits it to clearly incorrect information provided.
This creates a nuanced approach, in which both franchisor and franchisee take on a shared responsibility. Such an approach promotes the franchisee’s obligation to investigate, whereby the franchisor’s duty of care is substantiated and nuanced. Such a regulation becomes even stronger if the franchisor and franchisee also include in the regulation how to deal with each other in the unlikely event that a significant deviation from reality in relation to the forecast nevertheless emerges. If the parties still cannot reach an agreement and legal proceedings actually take place, a court will indeed detain the conduct of the parties against the nuanced regulation, as included in the franchise agreement.
Ideally, the franchisor and franchisee will strive to achieve clarity about this in advance and should actually behave accordingly in the pre-contractual phase – and afterwards.
Ludwig & Van Dam franchise attorneys, franchise legal advice
Other messages
Non-competition clause unreasonably onerous
Non-competition clause unreasonably onerous
Ludwig & Van Dam main sponsor partner National Franchise Congress 4 October 2012
The world goes on. And it seems to be getting faster and faster. It took 130,000 years before we invented the steam engine around 1750.
Failure to provide the data underlying the forecasts will justify dissolution
Failure to provide information on which the forecasts are based is possible
Non-competition clause in the franchise agreement should not be lightly brushed aside due to (alleged) incorrect forecasting and non-performance and/or reasonableness and fairness
The Court of Appeal of 's-Hertogenbosch recently ruled on the question whether a franchisee is
Rent goodwill in franchise relationship
Rent goodwill in franchise relationship
Terms of payment
Franchisees and franchisors regularly send invoices to each other (and also to third parties).