2. Local Developments
1. Consumer Protection Act and Regulations (“CPA”) came into
operation on 1 April 2011
2. Regulation 2: Contents of Franchise Agreement – sets out
approximately 50 points which must be included or dealt
with in a Franchise Agreement
3. Regulation 3: Contents of a Disclosure Document – sets out
what must be included in a Disclosure Document, which
must be furnished to a Franchisee in advance of signature of
the Agreement
3. Definition of Franchise Agreement
“Franchise agreement” means an agreement between two parties, being the franchisor
and franchisee, respectively –
a)
in which, for consideration paid, or to be paid, by the franchisee to the
franchisor, the franchisor grants the franchisee the right to carry on business within all or a
specific part of the Republic under a system or marketing plan substantially determined or
controlled by the franchisor or an associate of the franchisor;
b)
under which the operation of the business of the franchisee will be substantially
or materially associated with advertising schemes or programmes or one or more trade
marks, commercial symbols or logos or any similar marketing, branding, labelling or
devices, or any combination of such schemes, programmes or devices that are conducted,
owned, used or licensed by the franchisor or an associate of the franchisor; and
c)
that governs the business relationship between the franchisor and the
franchisee, including the relationship between them with respect to the goods or services
to be supplied to the franchisee by or at the direction of the franchisor or an associate of
the franchisor.”
4. Definition of a Franchise Agreement
1. The Definition is broad and includes agreements and
arrangements in the nature of a franchise, license,
distribution, agency and any similar agreement.
2. Includes: Full business concept franchises, broad enough to
include:
- Hotel
- Motor vehicle dealer
- Car Rental
- Product Distribution
- Agency Arrangements
- similar arrangements
5. Consumer Commission
1.
2.
3.
4.
Insufficient funding
Under staffed
If a complaint is filed, it is not clear when a response would be received.
There are difficulties with the Act and the Regulations:
Regulation 2 : Inconsistencies, duplication
Eg: Termination, Renewal, Goodwill,
certain requirements should be in the
Disclosure Document
Regulation 3: Difficulties include SA generally accepted
accounting standards
6. Franchise Developments
1.
Developing a Code for the Franchise Industry in South Africa
- Enforce provisions of CPA and good practice
- Alternative Dispute Resolution Process
2.
Developing a Pan Africa Franchise Federation:
Initial member countries include:
South Africa, Egypt, Nigeria, Tanzania, Uganda, Kenya, Ethiopia,
Ghana, Zambia and Mauritius
3.
Training and establishment of local franchise associations in each
country.
7. Opportunities and Challenges in Africa
1. Register, protect and Enforce IP
- Keep the markets open for expansion
- small cost to register in comparison with:
the cost of litigating without protection
the potential income stream from that country
review this regularly
2. Challenges: there are certainly challenges: - Where proper
preparation has been done can be very profitable for
Licensors, Distributors and Franchisors
8. Recent legal Developments
SOUTH AFRICA
1.
WOOLWORTHS (PTY) LTD VS DULA INVESTMENTS (PTY) LTD
The conditions for renewal included that the franchisee had not been in breach of the agreement
during the initial period. The franchisee had in fact breached the agreement on a number
of occasions and was denied the right of renewal
2.
TH RESTAURANTS (PTY) LTD vs RANA PAZZA (PTY) LTD
The franchisor had failed to carry out certain obligations including to supply marketing
materials, assist with the marketing plan, update the manual, provide product and pricing
information and do regular visits. In view of the franchisor’s breaches, the franchisee
withheld the payment of royalties. The court held that the obligations of the Parties were
reciprocal and that termination by the franchisor on the basis of non payment of royalties
was not valid, due to the non performance of the franchisor.
9. Recent legal Developments
INTERNATIONAL
1.
SOUTH KOREA: AMENDMENT TO FAIR TRANSACTIONS IN FRANCHISE BUSINESS ACT
The amendments include:
Franchisor must bear up to 40% of store remodelling cost
Franchisee must have a protected Territory
Disclosure requirements include provisions of projected sales revenue and the method of
calculation.
Reasonable business hours restrictions: if not profitable a franchisee need not be open for
extended hours, such as at night.
2.
DUNKIN DONUTS, INC. vs PRIYA ENTERPRISES, INC.
The Franchisor was successful in a matter to enforce compliance with system standards
and clear obligations in the agreement. Where provisions are vague or insufficiently clear
the franchisor may be unsuccessful
10. Recent legal Developments
INTERNATIONAL - contd
3.
CURVES INTERNATIONAL, INC vs ST PAUL UNGEVITTER, INC.
The franchisor was successful with a restraint of trade. Curves would incur irreparable harm if the franchisee
continued with their own business, using Curves’ equipment and Curves’ customers, as well as the phone
number associated with the Curves franchise. The franchisee also failed to return the Operations Manual.
4.
AUTORAMA LIMITED vs AUDI OF AMERICA, INC.
Audi entered into a dealer agreement in relation to premises in close proximity to existing dealers. It was
alleged by the Dealer that Audi had breached its fiduciary obligations to the Dealers. A court found that there
was a conventional business relationship and without anything further this was insufficient to create a fiduciary
relationship.
This must be compared to the Woolworths matter in South Africa, which had a “good faith: clause.
5.
ALASKA RENT – A – CAR, INC vs AVIS BUDGET GROUP, INC
Avis’s purchase of Budget Rent A Car out of bankruptcy breached an exclusive Territory arrangement and
reduced the profits. Avis liable for damages
Be very careful around any exclusive rights provisions
