Franchisor acting at the expense of the franchisee

Monday, 27 July 2009

In Montedeen Pty Ltd v Bamco Villa Pty Ltd [1999] a franchisor, Delta Car and Truck Rental, was found to have breached an implied term of the agreement by directing some of the calls within and around the franchisee's territory to its own branch located within 200 meters of the franchisee's territory. The franchisor was unsuccessful in establishing that it had acted in the overall interest of the network, although the Court of Appeal did agree that the franchisor's conduct was not intended to compete with the franchisee's business.

Another example of a Franchisor acting in its interest at the expense of the franchisee was in Dymocks Holdings Pty Ltd Ors v Top Ryde Booksellers Pty Ltd Ors (2000). In 1996, three Dymocks franchisees contributed small amounts of money for a subscription to the Dymocks web-site, supplemented by annual fees. In consideration for these payments, all profits from the web-site were to go to the Advertising Fund, which would operate the site in trust for all franchisees. In 1998, it was found that the Fund was not resourced to manage the site and the responsibility was proposed to be re-assigned back to the franchisor.

The franchisees were asked to sign a deed confirming that any right they may have had in the site would be transferred to the franchisor. The franchisees refused to sign this deed and sought to establish an equity interest in the site proportional to their contributions. The estimated value of the Dymocks domain name and web-site was $50m. The Court found that the franchisees were entitled to compensation putting them in the position had the site continued to belong to the Advertising Fund between the date of termination of the agreement by Dymocks and the date of expiry of the existing individual franchise agreements (with no option to renew).