LEGISLATION: HELP OR HINDRANCE? - YOUR COMMENTS
September 2005 - Readers respond to the article in our latest issue on the possibility of franchise regulation with their comments, experiences and suggestions.
I believe this (regulation) is essential, especially if it is to make thing a bit more fair and beneficial for the franchisee, especially in cases of disputes. I bought a home services franchise from a well-known company and they failed to deliver on their work guarantee. As a consequence, I lost a great deal of money.
This experience has put me off all franchise business. Legislation is imperative to ensure this does not happen again. Guidelines need to be in place and if necessary a third party mediator to settle disputes like this, as for obvious reasons the franchise operator, whoever it is, will of course rule in their own favour and make no effort to assist.
Kris Baxter, former franchisee
The industry (in Australia) opposed the compulsory code right up to its inception.
It now claims it as a virtue for the industry. A small number of firms and individuals supported the code and have been proven correct. The industry has grown by around 8% per annum compounding ever since it was brought in. The very much exceeds the total Australian economy. NZ should do itself a favour, work with the government and bring in a
sensible compulsory code.
Grant Garraway, The Franchise Company, Australia
- Franchising is a method of doing business.
- Remedies currently available in law are Contractual Remedies Act, Fair Trading Act, Illegal Contracts Act.
- All methods of doing business need to operate on a regulatory level playing field.
- If legislation is considered then it should also be considered for all methods of doing business.
- Therefore the concept of "good faith" and "unconscionable conduct" would need to be defined for all the methods of doing business at all levels of transactions.(retail, banking, advertising, B to B, wholesale, etc etc)
- No individual industry described as a method of doing business should be singled out by legislation under the guise of regulating that particular business without factoring in all other methods of doing business.
- With the trend to globalisation and the import and export of Franchise systems around the world a move to international regulations as proposed by The International Institute for the Unification of Private Law would seem to be the most sensible path to explore.
Laurie Jones, UVTec
I have read the learned article by Simon Lord and David Munn and am delighted that Munn concludes that legislation is not necessary at present. That has been my view since the Code of Practice became mandatory on all Franchise Association of New Zealand members on 2 July 1996 when the FANZ was “born” and I have not changed that view. Why?
1. As a franchising lawyer with over 25 years’ experience, I contend that there are enough teeth in existing NZ legislation to attack bad or dishonest franchisors. I have successfully used the Fair Trading Act and the Contractual Remedies Act to either get a franchisee its money back or terminate a franchise agreement, re-brand and continue trading the same business.
2. The Code is working in NZ and is well understood. The number of franchisor members joining the FANZ continues to increase. In my opinion the FANZ must get over two-thirds of existing franchisors belonging to it then we will be able to demonstrate both the power and success of self-regulation.
3. An ex-franchisee has commented that because a franchisor would not honour a financial guarantee as to minimum turnover legislation must be introduced. With respect, that would not produce a different result for any legislation would only cover a mandatory disclosure regime. As a lawyer I have successfully attacked franchisors who refuse to “top up” income when an open guarantee is given, and no law change is needed to produce that result.
4. The FANZ Code requires a disclosure document to be produced and that document is both comprehensive and revealing. Any legislation would merely repeat that exercise.
5. Because Australia does something is no reason to say that NZ must follow suit. The mandatory disclosure regime in Australia came in because of the amount of franchising litigation (eg. Cut Price Deli case) and the fact that the government had taken a great interest in franchising with so many complaints and bad press: such is not the case in NZ.
6. The UK does not have legislation, only two states in Canada have it and there are still many countries without it.
7. The Fair Trading Coalition has its own agenda and completely ignored the FANZ until recently. Why contact FANZ now? Because the Association brings credibility and high standards to franchising which the Coalition does not have.
8. David Munn mentioned “unconscionable conduct”, which Australia has. Ask any Australian lawyer and, if he is honest about it, he hates it because it gives the court too much power. Also, it is like a gun to a franchisor’s head which is unfair, in my opinion. I don’t want that concept here because the current laws go far enough without going overboard. As a lawyer, I would be delighted to have the concept because it means more work – however, it goes against franchising in NZ and that is my main focus.
9. David also mentioned the concept of good faith. Now that is quite different and franchise agreements that I prepare have a mutual covenant that “each party must act loyally and faithfully towards the other party”. That good faith concept was mentioned in the Dymocks litigation Bilgola Enterprises Limited & Ors v Dymocks Franchise Systems (NSW) Pty Ltd but unfortunately, on appeal, the Privy Council at London side-stepped the issue and enforced the agreement against the franchisee following contractual principles. I predict that the good faith concept will be developed by the NZ courts and it will become an implied term in all franchise agreements because of the strong relationship between the parties, and that would be a very good development.
10. Legislation is not needed in NZ at present. That could well change in five to ten years, but I hope not.
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