Fair Trading Act
There have recently been further High Court cases in which the franchisor has been found liable under the Fair Trading Act. In all cases the liability arose because the franchisor misrepresented to prospective franchisees financial information as regards sales, profitability or the potential of the franchise. While many overseas jurisdictions have similar laws, it is crucial for franchisors in New Zealand to ensure that they never overstate or misrepresent anything. The Fair Trading Act is very powerful and it is not only the franchisor company which will be liable, but also the company directors who actually make the misstatements, either orally or in writing, to prospective franchisees.
In the Overview (February 2001) reference is made to Dymocks Franchise Systems (NSW) Pty Limited v Bilgola Enterprises Limited. This case has already gone from the New Zealand High Court to the New Zealand Court of Appeal. The case has now been set down for an appeal at the Privy Council in London in late November 2001. A key feature of the appeal will focus on the relational aspect, which at present is not considered in New Zealand. In overseas jurisdictions the courts have deemed that the franchisor and franchisee are in a relationship and therefore relational principles apply, such as a duty to act in good faith, mutual trust and respect. It is hoped that the Privy Council will impute such relational aspects into the New Zealand franchising arena, as the principles they embody are valuable to all franchising agreements.
Victory for Franchise Association reported on the Franchise Association's success in knocking out proposed amendments to the Commerce Act 1986. The bill has now become law and there is nothing in it to endanger franchising, which would have been the case had the draft bill become law. The lesson here is that franchising players around the world must be watchful of possible legislative changes where the outcome would be detrimental to franchising.
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 e-mail ([email protected]).
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