Franchise disclosure documents through the lens of the CPA and the Regulations

• Jurisdiction: South Africa
• Pages: 219-239
• Published date: 20 August 2019
• Date: 20 August 2019
• Citation: (2017) 29 SA Merc LJ 219
• Author: Lynn Biggs

FRANCHISE DISCLOSURE DOCUMENTS

THROUGH THE LENS OF THE CPA AND THE

REGULATIONS

LYNN BIGGS*

Lecturer, Mercantile Law Department, Nelson Mandela University

Abstract

The promulgation of the Consumer Protection Act 68 of 2008 and

Consumer Protection Regulations has resulted in the introduction of

the right to disclosure of information for franchisees and the obligation

to disclose information on the part of franchisors in terms of section 7

and regulations 2 and 3. The article examines whether and to what

extent regulation 3 provides clarity regarding the information to be

disclosed. Regulation 3 requires that every franchisor must provide a

prospective franchisee with a disclosure document and lists the type of

information the disclosure document must contain. It is submitted that

regulation 3 contributes to overcoming lack of pre-disclosure and

formal regulation experienced in franchise relationships in the past.

However, the wording of regulation 3 requires clarif‌ication. This article

proposes amendments to some of the provisions of regulation 3, with

the aim to further enhance the disclosure requirements. The article

furthermore identif‌ies and examines concerns regarding the conf‌identi-

ality of the information contained in the disclosure document especially

during the negotiation stages and the section 7(2) cooling-off period.

The signature of a conf‌identiality agreement is proposed as a solution to

overcoming these concerns.

I INTRODUCTION

The Consumer Protection Act (CPA),

1

which came into effect on 31

March 2011, is the f‌irst attempt in South Africa at regulating the

franchise relationship through legislation. The Act has changed the

landscape of franchising in South Africa substantially by entrenching

rights for franchisees as consumers, and obligations for franchisors as

*BCom (Law) LLB (UPE) LLM (NMMU) LLD (NMMU). This contribution is partly based

on the author’s doctoral thesis titled An Evaluation of the Impact of the Consumer Protection

Act 68 of 2008 on the Relationship between Franchisors and Franchisees (NMMU 2017)

supervised by Prof Henk Delport (BA LLD (UP) Emeritus Professor, Mercantile Law

Department, Faculty of Law, Nelson Mandela University).

219

(2017) 29 SA Merc LJ 219

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suppliers of goods and services. The CPA and the regulations

1

regulate

the franchise relationship by prescribing disclosure obligations for the

franchisor, including formalities for, and the minimum content of,

franchise agreements and disclosure documents.

2

The Act has in this

way concretised the rights of franchisees to access information and

imposed disclosure obligations on franchisors prior to conclusion of the

franchise agreement.

Franchisees have the right to disclosure and information (as set out in

ss 22–28). Franchisees also have the right to pre-disclosure of informa-

tion in terms of section 7 and regulations 2 and 3, which require

franchisors to provide written franchise agreements and disclosure

documents to prospective franchisees. The right to pre-disclosure of

information is a new form of protection for all franchisees in South

Africa. Previously only members of the Franchise Association of South-

ern Africa (FASA) were required to provide franchisees with written

franchise agreements and disclosure documents.

3

The CPA and the regulations require the franchise agreement and

disclosure document to contain certain minimum information. As long

as the minimum information is contained in these documents, the

parties are free to decide on the actual content of the documents.

4

However, the wording of regulation 3 is nebulous and vague. Further-

more, it provides little guidance or clarity regarding conf‌identiality of

the information contained in the disclosure document.

This article discusses the provisions of the regulation 3 prescribing the

required information to be contained in disclosure documents and

suggests amendments to the wording of some of its sub-regulations. The

article also analyses whether the regulation 3 adequately provides for the

conf‌identiality of the information disclosed in the disclosure document

1

Consumer Protection Act 68 of 2008, Regulations (hereafter the CPA Regulations).

2

See Visser, ‘South Africa — Developments in regulation of franchising’ (2011) 9

International Journal of Franchising Law 25; Versfeld, ‘Intellectual Property and Franchising’

October 2012 at 277, available at http://www.webberwentzel.com/wwb/action/media/

downloadFile?media_fileid=7560, accessed on 26 April 2013; International Franchise Associa-

tion, ‘Franchising Market Research’, available at http://www.franchise.org/sites/default/files/

ek-docs/html_page/Local-Franchise-Show–2010—doc–5.doc, accessed on 18 May 2015;

Kierkegaard (ed), ‘The Impact of the Consumer Protection Act 68 of 2008 on Franchise

Agreements’ in Contemporary Private Law (IAITL 2012) at 454; and Woker, ‘Establishing

When a Franchise is Actually a Franchise — ″If it Looks Like a Duck, Smells Like a Duck and

Quacks Like a Duck, it is Usually a Duck″’ (2010) 22 SA Merc LJ 12.

3

See FASA, The ‘99 Franchise Book of Southern Africa (Thirteenth Completely Revised

Edition Incorporating The Franchise Opportunities Handbook 1999) (FASA 1999) 110–111; and

FASA, How to Franchise Your Business 4 ed (FASA 2005) 118–119.

4

See Woker, The Franchise Relationship under South African Law (Juta 2012) 92.

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