106
Legal advice
franchise advice
To be, or not to be...
Can you break an agreement once you’ve signed? Manzoor Ishani explains
I
F YOU sign a fi ve-year contract with someone, it means you have releasing each party from its respective obligations under the agreement?
a fi ve-year contract doesn’t it? I mean you’d think that if a bloke In these circumstances the common law Doctrine of Frustration could be
was given life for killing someone, he’d be in prison for life wouldn’t invoked to bring the franchise agreement to an end.
you? But, as we know, life doesn’t mean life and in the case of a franchise The exact legal theory upon which the Doctrine of Frustration is
agreement, fi ve years doesn’t mean fi ve years – in certain cases. based has been the subject of much debate over the years with no
Once a franchisor and a franchisee sign a franchise agreement fewer than fi ve theories being advanced at one time or another. It
they are inextricably locked in for the duration of the franchise is not possible to classify the circumstances to which the Doctrine
agreement – is that really the case? Or can the agreement come to of Frustration applies but it is safe to say that the courts will apply
an end before it has been allowed to run its full course? the Doctrine and hold a contract to be frustrated, and therefore
There is no legislation that will force both parties to continue under incapable of performance, if they consider that there has been such
the terms of a franchise agreement if one of them refuses to do so. a change in the circumstances that to insist on the performance of
Although there exists in equity the doctrine of specifi c performance, the contract would alter the fundamental nature of it. The Doctrine
whereby a court can order performance of a particular contract, of Frustration will usually come into play if the contract is silent as to
such an order is usually only made when it is not possible to award what is to happen in given circumstances. It has really been invented
damages for breach of contract or where damages
“There is no legislation
by the courts to supplement the defects of an
would be an inappropriate remedy. actual contract.
When a franchisor and a franchisee enter into
that will force both
Any termination of a franchise agreement must
a franchise agreement, it is potentially a double- parties to continue under be in the form and manner provided for in the
edged sword for both parties. Most franchise
the terms of a franchise
franchise agreement if it is to be effective and
agreements are for a fi xed term. From the be upheld by the courts. Where the franchise
franchisee’s point of view, they are unlikely to
agreement if one of them
agreement is not for a fi xed term and there is no
make an investment in a franchised business if the refuses to do so.” specifi c provision for notice to terminate, the law
terms of the franchise agreement are such that it requires notice to be of reasonable length and
can be terminated by the franchisor simply serving notice on him. suffi ciently clear and unambiguous in its terms if it is to constitute
Most franchisors enter into franchise agreements with the a valid notice.
intention of cultivating a long-term relationship. with the franchisee. It Where the party to whom notice is to be given goes bankrupt
cannot help a franchisor with planning if they have no idea how long (or if it is a company, goes into liquidation), the requirement to give
a franchisee will stay if all they have to do is leave by simply serving notice does not disappear. In these circumstances, notice needs to be
their notice. given to that party’s trustee in bankruptcy (or the liquidator as the
In being granted a franchise agreement for a fi xed term, both the case may be) in the same way as it would have been given to the
franchisor and franchisee have the comfort of knowing that each bankrupt party had he been in a position to continue performing his
is bound to the other for the duration of that term and each is obligations under the franchise agreement. However, in the case of
therefore able to plan his business strategy accordingly. the franchisee, where the franchisee’s bankruptcy makes him unfi t to
So far so good, but what happens when neither franchisor perform his duties, the franchise agreement will be terminated.
nor franchisee are able to carry out their obligations because of Both franchisors and franchisees should satisfy themselves at
intervening circumstances beyond their control? the outset that the franchise
Here’s an example. We have a franchise concept that involves a agreement not only makes
manzoor ishani is a
chemical process as a part of the service the franchisee is required adequate provision for its
senior consultant solicitor
to provide for its customers. New health and safety regulations now termination under certain
with Sherrards (Solicitors),
make it illegal for the franchisee to use the proprietary chemical foreseeable circumstances, but a commercial practice
(supplied by the franchisor), yet there is no alternative product, so also contains clear provisions
advising franchisors and franchisees
the franchisee can no longer conduct its business. regarding the service of any
in the UK and internationally (01727
Does the franchise agreement stay alive or can the agreement be notice of termination and its
832 830, mgi@sherrards.com; www.
sherrards.com).
lawfully terminated (even if it is expressed to be for a fi xed term) thereby receipt by the other party. ■
www.businessfranchise.com November 2009
BF109_Manzoor_Nov09 x.indd 1 15/10/2009 10:34
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