In this issue...
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Total Tools
Total Tools was a co-operative of twenty four members in the industrial tools sector. The business wanted to grow and came to see franchising as the best means by which...
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Succession Plan
Yes it's great for a business to have a succession plan, but so many plans have the wrong focus. Adrian McFedries of DC Strategy makes that observation after advising many businesses big and small...
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Franchise Contract stability- the effect of “Ketchell’s case”
Contact Gabrielle Lourens at gabrielle.lourens@dcstrategy.com
The High Court’s unanimous Ketchell Case decision was handed down on 26 August 2008. The court’s decision has removed a great deal of ambiguity and provided the sector with greater certainty.
In February 2000, a franchisee (Ms Jean Ketchell), was provided with franchise documents for execution. When returning the documents to the franchisor, the franchisee did not provide the franchisor with the written statement confirming they had received, read and understood the documents, as is required by the Franchising Code of Conduct.
The franchisee sought to rely on this omission to avoid paying ongoing to the franchisor by claiming there had been a breach of the Code. When the matter was heard before the NSW Court of Appeal it was decided that a breach of the Code rendered the franchise agreement illegal. This decision created a significant grey area in franchise law and the potential for both franchisors and franchisees to seek to terminate an agreement based on a technical breach of the Code.
The recent High Court decision examined various factors including the franchisee’s position, the fact that the franchisee received adequate legal advice prior to entering into the agreement and the overall effect of the alleged breach. The decision not only overturns the Court of Appeal’s ruling but also restores the stability of franchise agreements in so far as a breach of the Code now does not necessarily bring a franchise agreement to an end.
The Ketchell decision has finally provided franchisors with a more definitive understanding of the circumstances in which a franchise agreement will be upheld by Australian Courts.
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Is a franchisor obligated to renew a lease prior to the completion of a sale of an existing franchise?
Contact Nicolas Rovolas at nicolas.rovolas@dcstrategy.com
In a recent DC Strategy case, the question as to how soon a franchisor must enter into a new lease or commence negotiations, in particular when there is uncertainty as to the lease being renewed was examined.
It became evident in these proceedings that following a strict recruitment process and ensuring that any discussions were well documented protected the franchisor from the allegations of misrepresentation.
DC Strategy was instructed to represent a franchisee where the sale of business was wrongfully terminated by the purchaser because the franchisor was unable to secure a lease for the premises for which the franchisor was the lessee.
The court held that the contract for sale of a franchise business was not conditional on the grant of a new lease by the lessor to the franchisor as this was not the responsibility of the franchisee selling the business and that the purchaser had acted hastily in terminating the contract prior to the completion of the sale being finalised. It was also held that the grant of new lease was at the lessor’s discretion and the franchisor had no obligation to enter into the new lease prior to completion of the sale.
More importantly as this was a prime location for the franchisor, ensuring negotiations take place well in advance of the expiration or renewal of the lease to secure the premises is paramount and to ensure that it has done all it can to protect the interests of the franchisee.
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Selecting a US Lawyer
Contact Patrick Holt at patrick.holt@dcstrategy.com
Whilst the US and Australia share a common language, similarities in the law essentially end there. Significant legal differences and complexities which can impact international expansion plans for Australian businesses must be considered.
The US legal profession does not separate its practitioners into the categories of solicitor and barrister. Rather, it is a combined practice where everyone is referred to as lawyers. US lawyers are generally admitted to practice in one or more states, in addition to the federal legal system. One of the first questions that must be answered is "….in which state will you initially focus your business activities?" This is an important question as the various states have often significantly differing legal practices and legislation.
Some things to consider when expanding your business to the US:
- Do you require a business presence and/or a new business entity in the US and, if so, where?
- Will you seek protection of IP, copyrights, trademarks or patents?
- Is the business activity going to be a single transaction, long-term relationship or business expansion that may extend across numerous states and legal jurisdictions?
- Will you have US employees?
- Are there unique aspects of your business or the transaction that may require special legal research and advice?
If the scope of the expansion anticipates broad geographical or national impact, creation of complex entities, or specialty tax advice, you may require the services of US lawyers. DC Strategy is a member of Unifran Alliance; an alliance of specialist franchise law firms around the world which provide franchise law, intellectual property, corporate and related legal advice to franchise systems which do business, or plan to do business internationally.
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Global Growth - The Path to Serious Enterprise Value
Contact Rod Young at rod.young@dcstrategy.com
While international expansion offers the opportunity of building a global brand, research shows that the vast majority of businesses are not profiting from international expansion.
Lack of experience, a legal rather than commercial approach, poor preparation and advice, a one-size-fits-all philosophy and over-optimistic assumptions lead the list of reasons why businesses which have attempted international expansion have failed to reap the benefits of global growth.
Many of the world’s most successful businesses have profitable global networks. Yet proven businesses with opportunities to create substantial income streams from overseas markets fail to even consider the possibilities because of a fear of the unknown and a lack of knowledge about how to go global. They also are unable to determine the magnitude of the Value Prize an international business may create.
DC Strategy has broad experience of many different business models and a methodology of how to determine the economic potential that can be used to establish a business in global markets.
Different countries may need different business models to make an effective market entry.
The possibilities may include direct entry, joint ventures and partnering, acquisition and /or conversion strategies, licensing, franchising, master franchising, area development agreements and distribution arrangements.
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Franchise Advisory Councils
Contact Nick Prohasky at nicholas.prohasky@dcstrategy.com
Open, honest and frequent communication between franchisees and franchisors is imperative in operating a successful owner-operator network. Franchise Advisory Councils (FAC) are a tool which facilitates involvement, consultation and participation.
In an environment where finding and retaining quality franchisees is difficult for most franchisors, it may come as a surprise that many FACs are failing to achieve their objective of developing harmonious relationships. Implementing and managing a successful and worthwhile FAC requires full franchisee and, importantly, franchisor support. If either party does not value and visibly commit to the process, it is destined to fail.
FACs fail to achieve their desired objectives for a number of reasons, including:
- Inappropriate level of leadership provided by the franchisor
- Failure to set strict guidelines around acceptable agenda items covered at meetings
- Allowing personal agendas or vendettas to be aired and discussed
- Failure to manage franchisee expectations on issues where a significant difference of opinion arises
- The number of participants is too large to manage an effective meeting process
A successful FAC requires more than just a sound constitution and prescribed meeting format. All participants must be clear on its objective and remove themselves from their single business mentality and take a holistic approach to the network. Participants should be chosen for their commercial savvy and ability to keep personal political motivations separate.
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