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Franchisees as Consumers: The South African Example

Franchising is a system of marketing and distribution where an independent businessperson, the franchisee, is granted the right to market the goods and services of another, the franchisor. As a vehicle for entrepreneurship and investment, franchising allows for efficient expansion of good business practices, the development of intellectual property both domestically and internationally, and the promotion and growth of small businesses. Since the late 1950s, the franchising business format has rapidly expanded throughout the United States. Around the globe, the US concept of franchising is relatively new and has earned an increasing share of international commerce. Franchised businesses worldwide have steadily accrued hundreds of billions of dollars in annual sales — a record of growth that is likely to continue. Numerous countries have responded to this rise in franchising by enacting franchise disclosure laws and, sometimes, franchise relationship laws as well. The franchise sector was first regulated in the 1970s in the United States and Canada. By 1990, they were joined by France and Mexico. As of 2000, thirteen countries had enacted franchise legislation, including Australia, Brazil, China, Taiwan, Indonesia, Malaysia, Romania, and Spain. Currently, over thirty countries, representing about one-third of the nations where franchised businesses operate, have enacted franchise-specific regulation. Increased international franchise activity coupled with a growing recognition that franchising has its own distinctive business model has led the move toward more regulation. However, despite the tremendous growth of international commerce and an increasingly global business climate for which uniform laws would be a true boon, there has been no franchise law equivalent to the Convention on Contracts for the International Sale of Goods. Despite, for example, the creation of the International Institute for the Unification of Private Law (“UNIDROIT”) Model Franchise Disclosure Law in 2002, the laws vary from country to country. The Republic of South Africa is no exception. In comparing South Africa’s new franchising regulations against the regulations of older commercial regulations, this Article examines key features, such as cooling-off periods, the unconscionability doctrine, and penalties for violations, which together set the consumers’ rights orientation of the South African law far from that of other key countries.