When is there a prognosis?

The Amsterdam court has ruled  in an interim judgment of 17 September 2014 (ECLI:NL:RBAMS:2014:6732) considered whether the franchisee had rightly invoked error in entering into the franchise agreement for providing an incorrect forecast. The question is whether a prognosis has been made by the (prospective) franchisor. If that is not the case, then of course the franchisee’s appeal to error regarding that forecast also fails. 

The franchisee reproached the franchisor that prior to concluding the franchise agreement, the franchisor had presented a much rosier picture of the expected business results of an average franchisee than was actually the case. After entering into the franchise agreement, the franchisee in question therefore achieved a pittance of what the franchisee had expected (whether rightly or not).

The Court notes that in its judgment of January 25, 2002, NJ 2003, 31, the Supreme Court confirmed that annulment on the grounds of error is also possible in the case of a franchise agreement, if the franchisee has fallen into error as a result of errors in a sales or profit forecast provided by the franchisor. In general, a franchisor is not obliged to provide a turnover or profit forecast, but if the franchisor does, then this forecast must – according to established case law – be based on sound (market and place of business) research.

Before reaching a judgment on whether a prognosis has been provided, the court indicates that if a prognosis has been provided,  as the franchisee states, error or plausible. In the view of the court, the difference with the actual turnover is inexplicably large. 

The franchisor denies having made a forecast and also refers to a provision in the franchise agreement that states that the franchisor cannot give any turnover guarantee and the franchisee will therefore never hold the franchisor liable for any disappointing business results. 

However, this provision does not seem to refer to the situation of a forecast, but only to the situation of a guarantee. Furthermore, destruction is not excluded, but liability.  

The franchisee points out  a PowerPoint presentation from the franchisor stating, among other things, that  it concerns a proven franchise concept and there is a low investment and a high return. Two overviews printed on letterhead of the franchisor read “Average turnover (…) € 58,350” and “Top turnover (…) € 102,600”.

The court is not (yet) convinced that a forecast has been provided and orders the franchisee to prove that a forecast has been provided  as franchisee states. It is obvious that the franchisee will present employees of the franchisor as witnesses under oath. 

This judgment once again shows that it is important that prior to concluding a franchise agreement, the franchisee makes clear what principles led the franchisee to decide to enter into the franchise agreement. The franchisor would do well, if it wishes to exclude cancellation due to error, to formulate this carefully in the franchise agreement.

mr. AW Dolphijn – Franchise lawyer

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