The Franchise Affair - Key Recent Developments Relevant To Franchising
Franchising has been a means of commercialising products and
services since the 1850s when Isaac Singer who had made
improvements to an existing model of a sewing machine wanted to
increase the distribution of his machines. His efforts, though
unsuccessful in the long run, resulted in some of the first
franchises. Today, franchising is used in more than 70 industries
and that generates more than $1 trillion in U.S. sales annually.
This article reviews some recent key legal developments relevant to
franchising.
The Nature Of A Franchise Agreement
The 'stand out' case in recent times is Jani-King GB v
Pula Enterprises (2007). This looked at the nature of a franchise
agreement in relation to the terms which might be implied into to.
It also considered the extent to which the franchisor is subject to
an obligation to act reasonably towards the franchisee.
Jani-King, based in the USA, is the world's largest
commercial cleaning franchise company and Jani-King GB is
responsible for its UK operations. Jani-King GB grants franchises
to UK franchisees and provides them with training in the Jani-King
cleaning system and a level of initial business from cleaning
contracts procured by Jani-King.
Pula Enterprises took a Jani-King franchise. Pula then purported
to terminate its franchise agreement for reasons which were not
clearly articulated but revolved around a series of alleged
breaches of the franchise agreement by Jani-King.
Pula argued for a very broad term to be implied in the franchise
agreement "as a matter of necessary implication and/or by
operation of law" that the franchisor would not act in such a
way as to "destroy or seriously damage the relationship of
trust and confidence" between the parties". This was
without reference to any of the express terms of the agreement.
The judge rejected this, for three separate reasons:
There was no necessity to imply such a term: the contract
worked perfectly well without it.
In any "complex commercial contract of this sort"
there is no room for such an implied term. Where the parties have
taken the trouble to spell out the terms of their contractual
relationship, the courts should be very slow to imply any
additional terms, particularly one couched in general terms.
The parties to a franchise agreement are in "a
relationship which is much closer to an ordinary commercial
relationship than one between employer and employee". The
judge cited with approval previous cases which held that the nature
of a franchise agreement is similar to the relationship between
lessor and lessee (Kall Kwik Printing) and close to a
...
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