Legal Matters

by David Munn

last updated 27/06/2012

David Munn is a partner at Gaze Burt, one of New Zealand’s most experienced franchise law firms.

handling disputes via media

by David Munn

last updated 27/06/2012

David Munn is a partner at Gaze Burt, one of New Zealand’s most experienced franchise law firms.
June 2012 - Two franchise disputes have been featured on high-profile television programmes recently. Here, David Munn expands upon his comments in the latest issue of Franchise New Zealand magazine about what franchisors can and can’t do legally to protect their brand.

Allegations made by disgruntled former franchisee of Hell Pizza and Green Acres made the headlines after being aired on television. The franchisors involved declined to appear so, whatever the rights and wrongs of the issues, viewers heard only one side of the argument and were left with the impression that the franchisees had been unfairly treated. In the latest issue of Franchise New Zealand magazine, an article looks at what franchisors should and shouldn’t do to protect their brand. Here, prominent franchise lawyer David Munn expands on his comments in that article.

Preliminary Comments

Media law is in some ways a particularly complex area of law where specialist media lawyers practice. In addition, the areas covered in the following article centre around litigation and the judicial process. In some cases, comments from a barrister may be more appropriate than a commercial lawyer. This article is therefore restrained and rather generic as to the principles applicable.

Each case needs to be viewed on its own particular facts to establish ultimately what is the best response. Accordingly, both franchisors and franchisees should be very careful when they engage the media in any way where a dispute is involved. The best advice is take legal advice prior to engaging with media, if that is at all possible.

There are various areas of the law that may have some relevance to whether the media is engaged with and what is conveyed to the media particularly with regard to the other party and the dispute. This can include, the law of contract particularly as it relates to the terms of the franchise agreement ,defamation which is a serious risk , contempt of court , invasion of privacy , breach of confidence and a wrongful tort.

The questions posed below are based on the assumption that a court case has commenced and it is civil, as distinct from a criminal, case . If no court proceedings have been commenced or are imminent, then issues associated with contempt of court and sub judice generally do not arise.

Dispute or court case: does it make a difference?

Does it make a difference to what can or should be said to a reporter if any allegations may be brought up as part of a court case?

It may do, whether you are a franchisee or a franchisor.

In a purely contractual context, a franchisee making critical public comments to the media about a franchisor or franchise system may be breaching express obligations in their franchise agreement: for example, a covenant to at all times act loyally toward the franchisor or not to act in a way that is prejudicial to the good will of the franchisor or the brand. There may also be a confidentiality covenant in the agreement. Breaching any of these obligations, regardless of the existence of any court proceedings, may lead to a damages claim for breach of contract or even termination of the franchise. Such breaches may also have a prejudicial influence on a judge in a subsequent court hearing when the judge may be asked to exercise their discretion in favour of a party seeking an interim injunction.

From a franchisor’s perspective, pronouncements to the media about a franchisee’s conduct may also potentially breach obligations that they may have under the franchise agreement to act loyally and possibly in good faith toward a franchisee. It obviously depends upon what clauses and duties exist. It may also detrimentally reflect on a franchisor if they have not exercised a dispute resolution process in an agreement reasonably and fairly, particularly having regard to prescribed processes for resolving disputes by good faith negotiation, mediation and observing principles of natural justice.

Of course if the franchise agreement has already terminated then the contractual obligations may not be so critical, although there may still be some applicable post-termination duties – such as maintaining confidentiality ­– which a franchisee needs to observe.

Contempt of Court

There is also the need to avoid infringing the law of contempt of court when court proceedings exist where a matter is said to be sub judice. There are various ways that statements to and engagement with the media may fall foul of the law of contempt of court, particularly when actual court proceedings between the parties exist. In essence, the matter or comments published or broadcast must not in some way interfere with the administration of justice. Contempt of court involves an exercise of balancing the right to freedom of expression under the Bill of Rights Act with society’s interest to protect the administration of justice.

The law of contempt has particular relevance in criminal proceedings to ensuring a fair trial, but it also has relevance to civil litigants as well. Contempt of court has primarily developed over time through a body of rules and practices built up through case law to protect the administration of justice. Although it is also supplemented to some degree by statute law, it is essentially still found in the intricacy of developed case law principles. It is a criminal offence and can have serious consequences when breached, including a judge’s summary jurisdiction to impose a prison sentence.

So what constitutes contempt of court?

One basis for contempt of court in a civil context is where statements or a publication puts or seeks to put improper pressure on one of the parties to litigation or to a witness. The basic requirements underlying this form of contempt have been stated by one eminent judge to include:

  • A person should have unhindered access to the courts for the determination of disputes as to their legal rights and liabilities.
  • Be able to rely on the courts as free from bias against any party and for decisions based only on facts proved in evidence properly adduced; and
  • Once the dispute is submitted to the court, be able to rely upon there being no usurpation by any other person of the function of the court to decide it according to law.

He added, ‘Conduct calculated to prejudice any of these three requirements or to undermine the public confidence that they will be observed is contempt of court.’

Another judge has held that public statements relating to civil litigation will be contempt of court if they go beyond what is a fair and temperate comment that when viewed objectively can be seen to have a real likelihood of inhibiting a litigant of average robustness from availing itself of its constitutional right to have the case determined by the court, or which is intended to have an inhibiting effect on a litigant.

A further basis of liability for contempt of court in a civil proceedings context is prejudgment although it has been subject to some judicial criticsm. It relates to comment on pending legal proceedings which purport to prejudge the issues to be tried by the court. It is intrinsically objectionable as it usurps the proper function of the court.

The so called rule of sub judice addresses the question of the time at which the publisher of statements and comment is at risk of infringing the law of contempt of court in relation to either civil or criminal proceedings before the court. The real question to be asked in this context is whether a comment, even a detailed comment, creates a real risk of a prejudice. Any comment or reporting short of that risk is generally permissible.

Based on the considerations and principles outlined above, and even if proceedings have commenced, there is still opportunity to make comment to the media regarding a dispute provided it does not go beyond fair and temperate comment. The principles and parameters need to be carefully understood and complied with. To fail to do so is certainly a serious risk and for that reason considerable caution and advice is called for before media engagement takes place. The ideal is to be restrained and say nothing of a potentially prejudicial nature.

What harm can it do to defend yourself?

Why would a franchisor damage their case by defending themselves on TV?

It all depends upon each particular case, what they say and when they say it.

If court proceedings have commenced, then they may be in contempt of court if they infringe the principles outlined. However, carefully considered comments which do not create a real risk of prejudice may be acceptable, particularly if they are not intended to pressure the other party or prejudge the issues.

One can understand a franchisee venting their frustration and apparent lack of power by talking to the media regarding a dispute, but they do run serious risks. A franchisor may be best advised to respond in a measured and careful way rather than not at all. This is particularly relevant when public perceptions gained through powerful media exposure can rapidly do damage to a reputation and brand. However, I suggest the comments should be channelled toward genuinely allowing the issues to be resolved by the court process or through other appropriate processes such as the parties getting together to discuss them further or via mediation. It is best to avoid trial in or by the media.

I suggest it is in a franchisor’s interest to appear in the media as reasonable and fair; to be seen to be giving every proper opportunity to resolve matters and to be following processes that may exist or be prescribed in a franchise agreement. It is also in the interest of a franchisor to ultimately convey that perception and understanding to a judge. There exists an imbalance of power in a franchise relationship, usually for good commercial reasons. However, it can be abused and exploited by a franchisor. A franchise also involves a close long-term working relationship with considerable financial interests at stake for both parties and that can at times be abused by either party. By the time an issue gets before a judge, the reasonableness of conduct by both parties will come under the spot light of the judge. Ill-considered conduct displayed through media engagement is hardly going to help the perception of reasonableness and fairness. It could influence the judge in a direction not desired or expected.

Do franchisees run the same risk?

If a franchisor would damage their case by talking to the media, doesn’t the same apply to a franchisee’s case?

Potentially, yes it does.

The principles of law generally apply to both parties but depend upon particular facts and circumstances in each case. A franchisor should strive to maintain the integrity and value of the franchise system and brand at all times , not only for its own sake but also for the benefit of all franchisees in a network.

Prejudicial comments by a franchisee may, as indicated above, be a potential breach of contractual terms. They also have the potential to damage the value and goodwill of the very system and business a franchisee is a part of, or may be trying to sell. It is damaging to the franchisor, other franchisees and possibly to themselves. Of course, if they have already departed the system, then the impact on the value of their own business is less, if any.

Who started it?

Does it make a difference to who can say what to the media whether the franchisor or the franchisee brings the case?

No, the same principles apply to both parties no matter who instigated the proceedings.

More information:

For more information on other aspects of disputes in the media, read Publish and Be Damned in the latest issue of Franchise New Zealand magazine and Dealing With Bad Press on this website.

David Munn is a partner at Gaze Burt, one of New Zealand’s most experienced franchise law firms.
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