Franchise Regulation Down Under
Here is an interesting story about franchise regulation. Franchisors raising money to fight franchisees in [Australian] High Court
"The Franchise Council of Australia is attempting to raise money from franchisor members to fund a High Court appeal against a significant court decision in favour of franchisees’ rights.The Court of Appeal in Ketchell v Master Education Services held that where a franchisor does not have a written acknowledgement that a franchisee has received, read and had an opportunity to understand the disclosure document, the franchise agreement is unlawful and unenforceable.When the decision was handed down last July, franchisors realised its significance and the Franchise Council of Australia, the peak industry body, made a submission in support of the application for leave to appeal.
'We did that because we don't agree with the Supreme Court finding that a technical breach of the type in question should necessarily invalidate the whole agreement,' says Steve Wright, chief executive of the Franchise Council of Australia.
'Because if you take that to the nth degree it doesn't matter what has happened during course of whole agreement, the whole agreement will be invalidated if there is trouble in producing a signed document."
Interestingly, in Ontario the only required is that their be an acknowledgment by the franchisee that they received the disclosure document.
The same requirement is present in the US: none of the registration states require proof that the "franchisee has received, read and had an opportunity to understand the disclosure document."
The disclosure document mentions that you ought to get professional assistance, but it isn't required as an acknowledgment.
However, there is a trend, among the US UFOCs or FDDs that I have reviewed to include a questionnaire with the disclosure document, see attachment 8.
I believe that it is a mistake to include the questionnaire as part of the disclosure document. The argument is that you have to include all material documents in the UFOC.
But the questionnaire is not material to the franchise agreement: it is evidence that the franchisee has conducted independent due diligence.
As such, questionnaires should be delivered far in advance of the UFOC or FDD in order to ensure that a prospective franchisee clearly understands their obligations to do due diligence.
(Thanks to Jenny Buchan for the Australian tip.)
