A recent case, Fresh Cut Flower Wholesalers Limited v The Living and Giving Gift Company Limited, shows the importance of ensuring that a franchise agreement is watertight and of always acting in accordance with its provisions.


Fresh Cut Flower Wholesalers Limited trades in New Zealand as All Seasons Flowers. The Living and Giving Gift Company Limited was a franchisee for about two years. During this time the franchisee struggled financially due to poor management. The franchisor had taken a head lease of the premises and granted a sublease to the franchisee which also executed the franchise agreement.

The franchisee refused to apply the All Seasons Flowers system operating in nine other franchised outlets, which had previously worked for the franchisee. The franchisor had a number of meetings with the franchisee on this issue.

Finally, the franchisor decided to act and issued a notice for breach of the franchise agreement terms. This default notice related to the non-payment of accounts and cheques given by the franchisee to the franchisor which had subsequently bounced.

When the franchisee failed to comply with the breach notice, the franchisor issued a termination notice. After the close of business on the expiration date of the termination notice, the franchisor changed the locks of the premises. However, the franchisee broke in the next day and re-secured the premises. This was an illegal act, since the sublease had been validly terminated.

Subsequently the premises were re-taken by the franchisor and a trespass order was issued on the directors of the franchisee, who were forbidden to come near the premises. The franchisee later sued the franchisor for wrongful termination and for damages.


At the Auckland High Court Justice Paterson found that all procedures had been properly carried out, all notices were valid, and the franchise agreement and sublease were properly terminated. He decided that there was no reason for the court to prevent the winding up of the franchisee. The judge also confirmed that the clauses in the franchise agreement were unequivocal and clear.


The case is a good illustration of the following guidelines, which the franchisor should always bear in mind:

  • Pick the right franchisees, as problems with individual franchisees can be costly and time consuming;

  • Where problems arise, take swift action;

  • Consult a lawyer before key decisions are made;

  • Have a concisely drafted franchise agreement which contains clauses to protect the franchisor;

  • Take comprehensive notes of all meetings with a franchisee (copying these notes to the particular franchisee after the meeting to confirm that the franchisee accepts them as accurate);

  • Try to obtain a resolution before court action has to be taken; if this seems unlikely commence legal proceedings where necessary; and

  • Consider all other franchisees when dealing with a problem franchisee.

This case involves a number of common situations which occur from time to time in franchising. There are no strict rules as to how people will react when pressure is brought to bear. The franchise agreement must be carefully drafted and concise, and should protect the franchisor if a decision must be made to terminate a franchisee in the best interests of all franchisees and the franchise system.

For further information on this topic please contact Stewart Germann at Stewart Germann Law Office by telephone (+64 9 308 9925) or by fax (+64 9 308 9922) or by email ([email protected]).