Draft Franchise Industry Code of Conduct

Draft Franchise Industry Code of Conduct
09 Mar 2016

The draft Franchise Industry Code of Conduct of South Africa (draft Code), was published in the Government Gazette in late January 2016. Public comments on the draft Code had to be submitted by the end of February and they will now be considered by the National Consumer Commission.

According to Paul Hart-Davies, partner in the Corporate Department at Bowman Gilfillan Africa Group,

“The draft Code proposes to establish the Franchise Industry Ombud (Ombud) which will provide a mechanism of alternate dispute resolution for disputes between franchisees and franchisors. The draft Code also discusses the powers, functions and duties of the Ombud, the jurisdiction of the Ombud, the complaints process and the reporting obligations to the Commission of the Ombud.”

The draft Code makes provision for a financial contribution to be levied on franchisees and franchisors, as determined by the Board of the Ombud, so as to fund the Ombud.

“In determining the level of the contribution, the Board will have regard to, among other things, the number of franchisees and franchisors in the market and their relative market share, the number of complaints both received and anticipated, and the anticipated operational costs of the Ombud. The draft Code provides that the Ombud may take legal action for the recovery of any contribution owing to it,” he explains.

Hart-Davies says that in terms of the draft Code, the Ombud will have jurisdiction over any dispute relating to an alleged breach of the Consumer Protection Act (CPA) arising from a franchise agreement or disclosure document, or arising from any solicitation of any offer to enter into a franchise agreement; any dispute concerning the applicability or interpretation of the Code, and any dispute relating to the jurisdiction of the Ombud.

“It is also worth noting that, where a signed franchise agreement already contains a dispute resolution clause (ie which provides for dispute resolution other than in terms of the Code), that clause will continue to govern the resolution of any dispute provided that it is consistent with the CPA, and the applicability of the CPA is not excluded from the resolution of the dispute,” he explains.

In terms of the draft Code, franchisors are required to include in all disclosure documents and franchise agreements a notice stating that they are bound by the provisions of the Code and undertaking to comply with the provisions of the Code; and advising franchisees that they are entitled to refer any dispute to the Ombud, (providing the franchisee with the contact details of the Ombud). Franchisors are also required to ensure that a copy of the Code is made available on request to any potential franchisee and any existing franchisee.

“Once finalised, the Code will take effect on a date to be determined by the Minister of Trade and Industry,” Hart-Davies adds.

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(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)
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