Legal & Financial Advice

by Simon Lord

last updated 22/09/2019


Standard franchise agreement row rumbles on

by Simon Lord

last updated 22/09/2019


April 2011 - Opposition to the Auckland District Law Society’s plan to launch a standard form franchise agreement has drawn support from overseas.

The World Franchise Council, which represents franchise associations from over 40 countries, is to issue a communique opposing the ADLSi's plans, while respected international franchise lawyer Stephen Giles has written directly to the ADLS and urged them to reconsider. Mr Giles wrote the authoritative Australian text Franchising Law & Practice and is chairman of the Franchise Council of Australia.

In his letter (quoted by permission), Mr Giles writes:

‘Although it is intuitively appealing to try and create templates and precedents, such documents are really only useful where the subject matter is standard and the template is essentially a codification of existing documentation. The other use of templates is for expert practitioners, who are capable of appreciating the caveats and warnings that accompany the templates and use them as a starting point. This is the approach we took when drafting, at the request of the publishers, the precedents for Franchising Law & Practice. Even then we prepared the template with extensive disclaimers, warnings and notations concerning the utility of the document, and I believe the template has been of very little use to the subscribers to the publication.’

‘I believe the area of franchising carries special risks that are difficult to accommodate in the context of your proposal. Indeed far from assisting practitioners I think the proposal is more likely to create an increased risk of professional negligence. This outcome would obviously be seriously at odds with the aims of the Law Society. The standard form could easily encourage inexperienced practitioners to think they have at their disposal a comprehensive tool that enables them to capably advise on a matter that in reality is beyond their expertise and experience. Although some efforts could be made to qualify the wording in the form, the more serious concern would be what is not in the document but should be in the context of a specific transaction. There would be numerous situations where it would be negligent for a practitioner to use the form. That is a most undesirable result.’

He notes, ‘There are at least two parties to every franchise agreement. If you attempt to draft some standard form document you will by necessity need to make judgement calls on issues that may favour one party or another. Unlike in other areas where templates essentially codify existing practices, in franchising you will by necessity {be} taking a bias of some form. Do you include a post-termination restraint of trade clause? What sanctions should apply for breach of the Franchise Agreement? How is the marketing fund to be operated? On what basis can the franchise agreement be transferred? What are the grounds for termination? What dispute resolution mechanisms should be adopted?’

And he concludes, ‘To my knowledge no law society anywhere in the world has seen fit to embark on such a project. In my view that is probably as a result of the reasons I have outlined above. I urge you to reconsider your proposal. I doubt it would be of much utility to your members, and it has in my view the potential to create additional professional indemnity liability for inexperienced practitioners, and even arguably the Law Society.’

The ADLSi currently plans to release the standard form mid-2011. It remains to be seen whether the growing opposition from overseas as well as New Zealand practitioners will cause it to change its plans.

Read more on the plan and add your comments here.

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