Assignment instructions:

Review the materials (see "Facts") provided below carefully.

WRITE A Report to Sally advising her as to the matters she has asked about.

Who am I writing the Report for?Your Report is addressed to Sally Everest, who has asked for your advice (see facts below).

Facts

Sally buys a home cleaning service franchise which operates under the brand "CleanNut" directly from the national franchisor in 2017. She agrees to become one of its franchisees in a non-exclusive territory in a fairly new Auckland suburb where new housing is being built. The term is for three years with a right of renewal for a further three years. There is an initial franchise fee and royalties are a percentage of turnover. There is also an advertising levy that has to be paid twice each year.

Prior to her purchase, Sally is told by the franchisor that there is considerable room for expansion of the franchise within New Zealand, especially in new housing areas. Existing franchisees such as Sally will be given preference when new territories are allocated. However, Sally has found the franchise agreement does not contain a first refusal clause giving any such right to her as a franchisee.

Following the COVID-19 pandemic of 2020 there is a huge increase in the demand for home cleaning services. In addition, during the Stage 2 lockdown a new housing development is constructed immediately next to her own territory and it appears likely CleanNut will seek to capitalize on it through appointing franchisees to service it.

In promotional material she was given prior to purchasing the franchise, Sally was told the CleanNut system was unique and pioneered by its founder who has since expanded it throughout New Zealand and Australia. Sally has recently discovered, though, that all the techniques are based on a popular 1990's book which is available in the public library.

After becoming a franchisee Sally finds that under the operating manual all franchisees must buy their cleaning supplies from a supplier approved by the franchisor. Officially, the reason for this is stated to be that franchisees can benefit from bulk purchasing discounts from the authorized supplier. Sally now discovers that the supplier is instead a subsidiary of and owned by the franchisor's own company.

Sally is disappointed with the profits she has derived from her investment in the franchise. She wants to know if she can hold CleanNut to the promise to allocate her one of the new territories in the recently completed housing development. She also wants to know if she has grounds to complain about the extra amounts she has paid for cleaning supplies.

Sally intends not to exercise her right to renewal of the three year term when it ends in 2020. Instead, she puts together a business case for setting up her own cleaning business under a completely different brand. She intends to re-paint her van and adopt a uniform different to CleanNut's design. She believes she can obtain superior cleaning materials for a cheaper price from a friend who is a wholesaler of such products.

Assume that clause 13 of the franchise agreement states:

(1)The Franchisee shall comply with the terms of this agreement and the manual in the conduct of the franchised business and the use of the image.

(2)The Franchisee agrees to:

(a)use its best endeavours to comply with the image and branding requirements as set out in the manual;

(b)use its best endeavours to comply with the image and the system in selling the approved products and providing the approved products and the services.In addition the franchisee will not in the conduct of any other business or activities act in a manner which prejudices the good will or reputation of the franchisor, any member of the network, the image or the system; ...

Assume further that the following clauses also exist:

Clause 5 G Trade Secrets

The Franchisee acknowledges that its knowledge of the operation of the Business, the CleanNut System, its products and services is derived from information disclosed to the Franchisee by the Franchisor pursuant to this Agreement, during the training course and in the Confidential Operations Manual, and that such information is proprietary, confidential and a trade secret of the Franchisor. The Franchisee agrees that it will maintain the absolute confidentiality of all such information and not use any such information in any other business or in any manner not specifically authorised or approved in writing by the Franchisor.

Clause 5 P Covenant Not to Compete Upon Termination

Upon the termination of this Agreement for any reason whatsoever, the Franchisee agrees that for a period of five (2) years commencing on the effective date of termination of this Agreement, or the date on which the Franchisee ceases to conduct the Business, whichever is the later, it will not, either jointly or singularly have any interest:

(a) as owner (except of publicly traded securities where the Franchisee does not own more than 3% of the issued shares), partner, director, officer, consultant, representative or agent, in any home cleaning business (which could reasonably be regarded as a market competitor of CleanNut's Image, product or services) within:

(i) 20 kilometre radius of the Territory;

(ii) 10 kilometres of any other CleanNut business then in operation (whether franchised or not); or

(b) as employee or in any other capacity not specified in this clause in any similar business to that of the franchised Business within 20 kilometres of the Territory.

The provisions of sub-paragraphs (a)(i), (a)(ii) and (b) hereof are severable each from any other.

Clause 5 R Injunctive Remedy

Recognising that because of the Franchisee's access to confidential business information and its substantial training and experience in the CleanNut business methods, irreparable injury to CleanNut would be caused by any violation of any provisions of clause 5 G or 5 P, the Franchisee agree that in addition to and without limitation of any rights CleanNut may have under this agreement, any such violation shall be the proper subject matter for immediate injunctive relief.