A common question we receive from our clients is how the franchise agreement will protect a franchisee in dispute with their franchisor. This agreement sets out the terms of the franchise relationship and as such, is one of the most important reference points in any franchise dispute. Below, we look at how these terms can assist you in determining what, if any, grounds you have to take the matter further.

What Does the Agreement Say?

For any contract, including a franchise agreement, it is important to look at the what the words of the contract say – are they clear or are they ambiguous? Remember that although certain words may seem obvious to you, a third party may interpret them differently.

This misunderstanding can arise where you frequently interact with the other party. You may have an accepted way of going about things that deviate from the actual wording of your written agreement. This behaviour isn’t always intentional. Sometimes parties adopt a particular course of conduct, which they believe to be consistent with their written agreement.

It’s always a good idea to read carefully over your agreement and consider the plain and ordinary meaning of the clauses. For example, if you’re having a dispute over whether you’re meeting the minimum performance criteria, look at the clauses relating to this aspect of business activities. Is there a specified numerical value, such as a sales target you must meet in a given year? If so, what does the clause say about non-compliance?

Does the Agreement Contain Any Implied Terms?

Even if the franchise agreement is silent on a particular issue, in certain circumstances, the parties can imply a term into the agreement. As a general rule, parties can imply terms as a result of:

  • the circumstances surrounding the contract;
  • how the law operates; or
  • a particular custom or practice in the franchising industry.

It may be difficult to prove that you should imply a term in the contract. The existence of an ‘entire agreement’ clause can further complicate the matter. These are clauses that state that any provision, except what is explicitly set out in the franchise agreement, does not form part of the contract. In this way, ‘entire agreement’ clauses seek to prevent a party implying additional terms into the contract.

However, you must consider the operation of ‘entire agreement’ clauses in the context of clause 20 of the Franchising Code of Conduct (the Code). This clause will apply if you entered into, or otherwise varied or transferred your franchise agreement after 1 January 2015.

Under this clause, a franchisor cannot force a franchisee to exclude any of their representations in the franchise agreement. That is, except to the extent that the parties explicitly recorded these representations in writing in the agreement.

What Did the Franchisor Say Before Signing the Agreement?

As the franchisee, you should consider all the representations, comments or promises the franchisor made to you before you signed the contract. If the agreement itself is silent on these pre-contractual representations, you may be able to rely on them when enforcing your rights.

Further, clause 20 of the Code may protect you even if your franchise agreement contains an ‘entire agreement’ clause. For example, if the franchisor promised a certain quality or standard in the products that they supply to their franchisees and the franchise agreement is silent on this issue, franchisees may be able to rely on the pre-contractual representations to enforce the quality the franchisor promised.

How Does the Code Apply?

If parties have explicitly agreed on a particular point which is inconsistent with the Code, then that aspect of the franchise agreement will be void and cannot be enforced. For example, if a franchise agreement requires a franchisee to pay the franchisor’s costs of settling a dispute, it would be contrary to the Code and void. Parties can then introduce certain rights into the franchise relationship as a result of the Code’s operation, even where you have not explicitly agreed to capture these rights in the wording of the agreement.

Key Takeaways

Read over your franchise agreement and consider whether the express terms, implied terms or the operation of the Code provides you with clarification around your legal rights. You should seek expert legal advice where you need clarification. If you need any assistance interpreting your franchise agreement, get in touch with our franchise lawyers on 1300 544 755 or fill out the form on this page.

Amritha Thiyagarajan

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