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Franchisee in Dispute - Case Study

Posted by Elizabeth Gore-Jones on 29 January 2015
We were recently involved in a case where a franchisee had left a franchise system believing they had been released from the franchise agreement by the franchisor.  This was not the case.  The franchisor was pursuing them legally for franchise fees they would have paid to the end of the term of the franchise agreement plus other costs they had incurred.

When the franchisee called us they were understandably upset.  They had been to another lawyer who, not being a franchise lawyer, had not progressed their case and a debt collector had been appointed to pursue the franchisee for the debt.

The franchisee was at the point where it had decided it would just enter into payment terms with the franchisor and pay off the money the franchisor claimed was owed.

Background

We took our client's instructions and noted a number of things, including:

1. the debt collector was pursuing the wrong entity.  The debt collector was pursuing the franchisee's company but the franchisee had entered into the franchise agreement as an individual;

3. the franchisor had made a number of representations to the franchisee to entice them to enter into the franchise agreement.  These representations were not true and the franchisor had no grounds to believe they were true; and

2. in our opinion, the franchisor had acted unconscionably and had misled and deceived the franchisee in a number of ways.  For example, the franchisor had sat down with our clients and agreed to terminate the franchise agreement.  The franchisor did not tell our client it would have to pay the franchise fees to the end of the term.  Our clients believed the matter was at an end until they received an invoice from the franchisor to pay it a lot of money in order to secure a release from the franchise agreement.

What we did

We took the following action:

(a) we wrote to the debt collector and advised they had the wrong party and advised our client would be defending the proceedings and counter-claiming; and

(b) we wrote to the lawyers for the franchisor and outlined all of the behaviour which infringed the Competition and Consumer Act together with breaches of the contract by the franchisor and other matters.

What happened

Within 24 hours we were advised by the debt collector that it had withdrawn from acting for the franchisor and it would not be pursuing our client.

Within 5 days the solicitor for the franchisor offered to release our client from any claim provided our client released the franchisor from any claim.

Our client did not have to pay a cent to the franchisor and was released from the franchise agreement.

What we can learn

We need to start by stating we can't guarantee this will happen in your case.

However in this case, by engaging a franchising lawyer, the matter was able to be quickly and conveniently settled because the franchising lawyer understood the law governing franchising in Australia and could isolate the legal issues quickly and cost effectively and assist in resolving those issues.
Author: Elizabeth Gore-Jones
About: Elizabeth specialises in franchising law. She lectures at Bond University PLA in franchising, she sits on the Queensland Law Society Franchising Committee, she is a past member of the Women in Franchising committee and a past member of the Franchise Council of Australia.
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