If you are a franchisee or a franchisor, you should refer to your franchise agreement when any difficulties arise. This contract governs the specific terms of the relationship between the parties, including the complaint handling procedure. Consulting your agreement is a valuable preliminary inquiry that allows you to determine what, if any, grounds you may have for commencing franchise dispute resolution.

What Are the Express Terms?

For any contract, including a franchise agreement, it is important to look at the words of the contract itself. What do these words say – are they clear or are they ambiguous? Keep in mind that although certain words may seem obvious to you, a third party may have a different understanding of those same words.

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 the franchisee is meeting the minimum performance criteria – take a look at the clauses in the franchise agreement relating to this aspect of business activities. Is there a specified numerical value – such as a sales target a franchisee must meet in a given year? If so, what does the clause say about non-compliance?

Are There Any Implied Terms?

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

  • the factual 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 these representations are explicitly recorded in writing within the body of the agreement itself.

Pre-contractual Representations

If you are a franchisee, you should consider all the representations, comments or promises the franchisor made to you before you signed on the dotted line. If the franchise agreement itself is silent on these pre-contractual representations, franchisees may be able to rely on them when enforcing their rights. Further, even if the franchise agreement contains an ‘entire agreement’ clause, franchisees may be protected by clause 20 of the Code. 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 promised to them.

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. Therefore, certain rights can be introduced into the franchise relationship as a result of the operation of the Code, even where the parties do not explicitly capture these rights in the wording of the franchise 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.

Amritha Thiyagarajan

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