Australian Franchising code Flawed?
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"Some of the new changes in the Franchise Code may be difficult to implement and lead to higher costs, say franchise law specialists representing some of the leading retail brand franchises."
One of the more interesting additions to the Franchise Code is the requirement of independent legal advice. At least one franchise system has run afoul of this requirement.
"The Ketchell case, which is awaiting a decision in the High Court on an appeal, revolves around a franchisee arguing successfully that their agreement was unenforceable and illegal because Franchising Code clause 11 had not been met.."This governs the requirement for a franchiser to be told or to obtain independent advice and to receive, read and understand the disclosure document and the Code
This requirement seems impossible to meet: how would anyone be able to prove that they read and understood a disclosure document?
Just recently, an US Court of Appeal weighed in on what "any" meant - and produced a result I would have never thought possible, having read the disclosure document.
The case was about whether the franchisor Domino's could require its franchisees to purchase an integrated computer POS system -when the language in the franchise contract and FDD spoke of "purchasing computer from any source which meets our requirements."
Janet Sparks, writing at Blue Mau Mau, about decision reported:
"The district court granted the franchisees' summary judgment, holding that Domino's "may not require store operators to purchase Domino's proprietary integrated computer system."But on its appeal, the franchisor argued that the district court had misinterpreted the franchise agreement.
Domino's admitted that its franchise agreements do state that it provides franchisees with specifications and that franchisees may purchase those items from any source. But it argued that "from any source" doesn't mean multiple sources.
Domino's defined "any" as "one, some, every, or all" without specification, citing the American Heritage Dictionary's definition.
The Appellate Court ruling handed down on Friday stated, "Accordingly, we reverse the district court grant of summary judgment in favor of plaintiffs [franchisees] and remand with instructions to grant Domino's motion to dismiss and enter judgment in its favor."
In reading the Appeals Court decision, Steinberg said, "Even those with existing, more broadly worded contracts are going to wind up getting caught up in this." "Essentially, what this means is that any franchisor saying you can use anything meeting our specifications is now meaningless."
This is simply not a reading any reasonable franchise attorney could have predicted.
So, how would a prospective franchisee in Australia show that they understood this important clause? By being smarter than most franchise attorneys or being as dumb as the U.S. Court of Appeals in Minnesota?
Comments
Very interesting.
I have sympathy for both sides here - except for the fraud criminals.
Could you email me the case you are referring to, and I will post over at the franchise regulation site I have.
Thanks.
Posted by: michael webster
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September 29, 2008 11:38 PM
Interesting article here also relating to Australian Franchise Law -----
The Full Court of the Federal Court has warned that franchisees may be sued if they wrongly complete standard franchise documents. In the Lenard's case[1] the Court considered that
"a case may one day arise in which it will be necessary for a court to decide whether a corporation that knowingly executes a contract that contains clauses [stating that they did not rely on any representations other than those contained in the franchise agreement] will be found to have contravened section 52 of the Trade Practices Act (TPA) should its conduct in doing so prove to be misleading.
Gerry Harvey comments on the ACCC “It's our view that we're being victimised by the ACCC, and you can roll over as most people do and just cop it. But we've decided not to, and I've been to see Allan Fels. I didn't get far with him I might tell you. He's a nice fellow. He's very polite. But like a lot of nice polite fellows, they don't help you out sometimes.”
Ian Scarffe : A striving young entrepreneur, with self-taught business skills, who invested in and operated a computer cleaning franchise, Office Support Services International. Franchisees motivated by ill will, were able to make alleged complaints against the company and as a result the company was forced to close. Ian Scarffe and his company, Ian Scarffe and Office Support Services International was nominated for the Prestigious Ernst and Young – Entrepreneur of the Year.
Posted by: Lord | September 27, 2008 2:41 AM