Stone in the pond on forecasting issues – September 6, 2016 – mr. DL van Dam
As of July 1, 2016, an important amendment to the law came into force. This concerns the Acquisition Fraud Act (Section 6:194 of the Dutch Civil Code, paragraphs 2 to 4), which is primarily intended to prevent misrepresentations in recruitment activities. The law should also curb misleading advertising. However, the law also has a direct relationship with franchise relations.
Minister Kamp of Economic Affairs has made a first move to this end and has informed the House of Representatives how the law should be interpreted in franchise relationships. In short, the minister is of the opinion that forecasting problems in franchise relationships also fall within the scope of the new law. The Minister has stated in so many words that the law applies to franchise relationships in his view.
Acquisition fraud
Acquisition fraud within the meaning of the law applies to:
misleading statements;
omitting, concealing, or presenting material information in an obscure manner;
while that information is necessary to make an informed decision about a transaction.
If acquisition fraud is involved, the new law will result in a reversal of the burden of proof. Acquisition fraud is a form of tort and results in liability for damages. In addition, acquisition fraud has been made a punishable offence.
It follows from Minister Kamp’s announcements to the House of Representatives that the franchisee can derive protection from the new law against the franchisor. In particular, this concerns the provision of unsatisfactory forecasts prior to the conclusion of a franchise agreement by the franchisor. In that case, the franchisee has the benefit of the burden of proof reversal. A franchisee can also file a targeted criminal report.
Until now, the franchisee had to use the legal instruments of error and fraud in this context. These are sometimes difficult to prove. The franchisee must then generally demonstrate that there is intent or knowledge on the part of the franchisor regarding the inadequacy of the prognosis. In addition, fraud and error may void the franchise agreement, with all performance reversed. Compensation is not always obvious. As regular visitors to this site know, this problem is the subject of many legal proceedings.
Under the new law, the franchisee in principle only needs to state motivated acquisition fraud, after which the franchisor must convincingly demonstrate that the prognosis was sound. The franchisee therefore does not have to prove that the prognosis was wrong, but the burden of proof is reversed: the franchisor must demonstrate that he has done his homework properly. If the franchisor fails to do so, this constitutes an unlawful act, which also implies an obligation to pay compensation for damage.
All in all, the new law has quite a few consequences. It is true that the law entered into force on 1 July 2016 and therefore applies to forecasts issued from that moment onwards. However, should a franchisee at any time have to reinvest in its establishment, and receive a new forecast from its franchisor as part of this, then the law does in principle apply. This includes opening a new branch or other business where essential information is provided to the franchisee by its franchisor necessary to make an informed decision on a major transaction. The franchisee’s legal position, particularly in connection with prognostic problems, is therefore considerably strengthened. A revolution in franchise relations!
mr. DL van Dam – Franchise lawyer
Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Go to vandam@ludwigvandam.nl
![](https://ludwigvandam.megaconcept.nl/wp-content/uploads/2020/12/232court-min-400x222.jpg)
Other messages
Transfer of the Franchisor’s Business: A Follow-up
In previous contributions in this section, aspects of the transfer of the company have already been discussed
Market and market share
Some notable rulings have recently been made in the field of franchising and competition law
Freedom of contract in franchising
The post-contractual non-compete clause in the franchise agreement is perhaps the most discussed clause in franchising.
The hardness of a non-competition clause in bankruptcy
Most franchise agreements contain post-contract non-competition clauses
E-mail traffic between franchisor and franchisee
If a discussion gets out of hand and a real conflict arises, can communication continue via email?
Turnover-related rent for franchisees
Increasingly, franchisor/landlord and franchisee/lessee are pursuing opportunity for a variety of reasons