Can Franchise Agreements Provide for Relief Against Franchisor Failure in the Context of the Common Law?

Abstract

Franchise arrangements are based on a contract between the franchisor and franchisee; the franchise agreement. This paper examines whether franchise agreements, as a genre, can be routinely drafted to provide for relief against franchisor failure for the network’s franchisees. The current regulation of franchise agreements under the common law in Australia is set out. The assumptions that underpin the current law are stated and examined. An investigation of the allocation of risk in franchise agreements, in particular the risk of franchisor failure is conducted. The desirability of certainty is acknowledged. This is followed by a short examination of the adequacy for the franchisee of the most common remedy for breach of contract - damages - in the light of franchisor's insolvency. Finally, I propose some tentative contract based solutions.

Keywords: franchise agreement, Franchising Code of Conduct, Australia, franchisor failure, franchisor bankruptcy, insolvent franchisor, franchisee protection, allocation of risks, certainty, remedy, damages

JEL Classification: D81, K00, M55, K12, K29