Outsourcing prognosis 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 by letting third parties draw up the forecasts, preferably on behalf of the franchisee himself. But is this correct?

The well-known Street-One judgment emphasized that a franchisor acts unlawfully towards the franchisee if a franchisor independently conducts research in a careless manner and, as a result, provides incorrect results to the franchisee. However, if a third party – not on his behalf – has drawn up a prognosis, he is in principle not liable unless the franchisor is aware of errors and has failed to communicate these errors to the franchisee.

Recently, the court once again shed light on a prognosis issue. The franchisee has entered into the franchise agreement on the basis of forecasts provided to him, which forecasts are far from being fulfilled.

The financial calculations with regard to the expected turnover have been provided to the franchisee by an administrative office and therefore a third party. There is a discussion between the parties who is the client for the preparation of these turnover forecasts.

The court rules that this is not relevant in the present case. It is important that the franchisor has provided all the information necessary to easily calculate the turnover amounts. Despite the fact that the franchisor himself has not stated the detailed turnover amounts and despite the fact that the franchisor may not have been the client for drawing up the forecasts, these forecasts should be regarded as a turnover forecast of the franchisor.

Because the competition was not sufficiently taken into account in the turnover forecasts and, moreover, a comparison was made with three other franchise locations that were not representative for the determination of the turnover forecasts for the franchisee, this constitutes an incorrect location investigation and the franchisor is therefore acting unlawfully towards the franchisee.

Although a trend has emerged as a result of the Street-One Judgment whereby franchisors outsource the preparation of turnover forecasts to third parties and/or the drawing up of these turnover forecasts is commissioned (at least on paper) by the franchisee, this is not always evident sufficient to avoid liability.

In short, as a franchisor you are not automatically exempt from liability if it provides (unsound) forecasts to the franchisee via a third party that the franchisor has not engaged. A franchisor must also act carefully when providing information to this third party.  

mr. M. Munnik – franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to munnik@ludwigvandam.nl