Monday, March 23, 2009

As is perhaps known, the Bill was passed by Parliament on 11 November 2008, sent to the President, and now awaits his signature.  It is of value to note that some changes were made in relation to the scope of application of the Bill.  In particular, the threshold based on the size of a transaction has been removed, and replaced by the criterion of the size or turnover of the consumer.  For ease of reference, the position is summarised below.  Although the Bill applies to a broad range of transactions, it  does not apply to the following transactions— 
• in terms of which goods or services are promoted or supplied to the State
• in terms of which the consumer is a juristic person whose asset value or annual turnover, at the time of the transaction, equals or exceeds the threshold value determined by the Minister
• if the transaction falls within an exemption granted by the Minister
• a transaction that constitutes a credit agreement under the National Credit Act
• a transaction pertaining to services to be supplied under an employment contract
• a transaction involving certain collective agreements in terms of the labour law
• industry-wide exemptions relating to regulatory schemes
It appears that the threshold will be an annual turnover of about one million rand for the consumer entity.  If the turnover of the consumer entity is more than the threshold the transaction with this consumer entity will fall outside the Bill.
By way of clarification, the Bill specifies certain transactions, including some relating to franchising, that will fall under the eventual legislation.  They are:
• the supply of goods in the ordinary course of business to any of its members by a club, trade union, association etc
• a solicitation of offers to enter into a franchise agreement
• an offer by a potential franchisor to enter into a franchise agreement with a potential franchisee
• a franchise agreement or an agreement supplementary to a franchise agreement
• the supply of any goods or services to a franchisee in terms of a franchise agreement
• importantly, the Act will apply to a franchising agreement irrespective of whether the size of the juristic person falls above or below the threshold set by the Minister
• transactions not concluded for profit
• transactions concluded with an organ of state, or a public-private partnership
• a transaction with a supplier required by law to make goods or services available to the public
Parliament thus decided on a special dispensation for franchise agreements, in that there will be no threshold for franchises.  All franchising agreements will fall within the provisions of the Bill.  This probably flows from a perceived need for greater protection for franchisees.  As a result all the provisions of the Bill, including all the fundamental concepts thereof which incorporate fairness, equity reasonableness and no unjust prices, will be applicable to every franchise agreement and most transactions entered into between franchisors and franchisees.
By Eugene Honey director at Bowman Gilfillan and Wim Alberts consultant at Bowman Gilfillan