On 23 May 2017, the The Hague Court of Appeal gave a judgment in respect of a bank’s duty of care regarding an ex-franchisee. In short, the Court of Appeal is of the opinion that it was not established that the bank neglected its duty of care by not warning the franchisee about the poor financial position of the franchiser.
What was this issue about?
In September 2007, a prospective franchisee acquired a bakery shop in Amsterdam, and to this end the franchisee concluded a credit agreement with the bank in June 2008. Due to the fact that the franchisee did not meet his payment obligations in respect of the bank, the bank terminated the credit agreement by means of a letter of 25 January 2010 and ordered the franchisee to pay the arrears of more than
€ 100,000 under the credit agreement within 14 days.
Subsequently the franchiser, who banked with the same bank as the franchisee up to February 2009, went bankrupt on 4 February 2010.
As the franchisee failed to pay the arrears, the bank summonsed the franchisee and claimed payment of the outstanding amount. In first instance, the Rotterdam District Court was of the opinion that the bank had not breached its duty of care in respect of the franchisee, because the Court was of the opinion that there was a limited duty of care on the part of the bank. This concerned a regular credit agreement with risks that could be overseen by the franchisee. Furthermore, the Court was of the opinion that privacy did not allow the bank to report any issues regarding the franchiser to the franchisee.
The franchisee evidently disagreed with the judgment and appealed.
Appeal
In appeal, the franchisee took the view that the Court had unlawfully referred to a regular credit agreement and had failed to observe that this concerned a credit agreement for the purpose of a franchise and the franchisee believed to be tied to the franchise agreement. The franchisee was also of the opinion that the bank should exercise more prudence on entering into a credit agreement, as it was aware of the franchiser’s financial situation.
The Court of Appeal did not accept the franchisee’s position and pointed out to the franchisee that in this case that bank was only obliged to inform the franchisee of the consequences of entering into the credit agreement and the resulting risks, which the Court believed the bank to have made appropriately clear. Finally, the Court was of the opinion that it had not been demonstrated that the franchisee, which had been in business for some time, asked the bank questions about the franchiser’s financial situation at the time.
Conclusion
Given this issue, a franchisee would be wise to ask the bank the right questions about the franchiser’s financial situation in the event of a bank arrangement.
Information
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