Reviewing the Franchise Industry Draft Code of Conduct

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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, 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, as determined by the Board of the Ombud, to be levied on franchisees and franchisors to fund the Ombud.

“In determining the level of the contribution, the Board will consider 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.”

In terms of the draft Code, the Ombud will have jurisdiction over the 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
  
• concerning the applicability or interpretation of the Code
  
• relating to the jurisdiction of the Ombud

“Where a signed franchise agreement already contains a dispute resolution clause, 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.”

In terms of the draft Code, franchisors are required to include in all disclosure documents and franchise agreements a notice stating that the provisions of the Code bind them and undertake to comply with the provisions of the Code. They must advise 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 concludes.