The thesis is divided into six Chapters.
Chapter One – This chapter states the thesis that although franchising makes a substantial
contribution to the single market, it has failed to fulfil its potential in the EU. It suggests that this under performance is in part due to the regulatory environment in the EU and that this failure can be remedied by re-engineering the Regulatory environment in the EU.
It briefly considers the Regulatory environment in the EU and establishes the objectives and scope of this study.
The methodology, sources and limitations of the thesis are detailed, terminology considered, the approach of each chapter outlined and existing research on the regulation of franchising in the EU considered.
Chapter Two – This chapter deals with the first objective of the thesis. It seeks to show that
although business format franchising has developed over the centuries into a specific, distinct and uniform form of commercial activity that is well established in the European Union and can assist businesses to expand their networks within and beyond member states, so contributing to the further development of the Single Market, it is under contributing
compared to its role in the USA and Australia. In order to understand the reasons for this under performance in the EU and the way in which the regulatory environment might be re- engineered to improve franchising’s contribution to the single market, it endeavours to better understand what franchising is by examining both the economic and legal features of the architecture of franchising, distinguishing it from agency and distribution, identifying the tensile stresses that arise within franchising. It deconstructs both the economic and sectoral contextualisation of franchising and its economic rationale and risks. It concludes that, despite the impact of variable determinants such as the value of the investment required from franchisees and the commercial sectors in which the business operates, the architecture of franchising comprises six fundamental features that are always present. These are independence of the parties, economic interest, use of a brand, use of a business format, control of the franchisee by the franchisor and assistance provided to the franchisee by the franchisor. This architecture withstands the tensile stresses placed upon franchising by its long term and dynamic nature.
It also suggests that those economic drivers that constitute the commercial rationale for franchisors using franchising as part of their business strategy are distinct from those which attract franchisees to buy a franchise and that the risks inherent in franchising also differ between the parties.
Chapter Three – This chapter deals with the second objective of the thesis. It considers
whether the regulatory environment of the EU is in any way responsible for the under achievement of franchising in the single market. It does this by first considering the different approaches of EU member states to constructing the contractual environment and whether that resulting contractual environment adequately supports and re-enforces the economic drivers in the franchise relationship and reduces its inherent consequential risks to an appropriate level. The reasons for and consequences of the contractual asymmetry in the architecture of franchise agreements are examined. The self regulatory environment and the legal regulatory environment of the EU are considered in detail as regards their support of the relevant economic drivers and reduction of the consequential inherent risks in the precontractual, contractual and termination stages of the franchise relationship.
It suggests that the economic determinants and the interparty dynamics of the franchisor/franchisee relationship lead to a contractual environment that transcends sectoral divergence and the differing legal traditions of EU member states. This contractual environment tends to support and re-enforce the economic drivers that encourage franchisors to become involved in franchising and reduces their consequential inherent risk to a reasonable level. However, although it tends to re-enforce some of the economic drivers that
encourage franchisees to become involved in franchising it does not re-enforce them all and it fails to reduce all the consequential inherent risks for franchisees to an adequate level.
It then suggests that the regulatory environment in the EU within which franchising operates (which comprises a series of legal eco-systems), does not adequately protect and reinforce the economic attractions that drive franchisors and franchisees to become involved in franchising. Nor does it adequately reduce the consequential risks. It concludes that the regulatory environment is therefore to some extent responsible for the under achievement of franchising in the EU.
Chapter Four – This chapter considers through which catalyst the regulatory environment
can be best re-engineered. It considers the precedent set by commercial agency in harmonising member state laws and then compares and contrasts the relative advantages and disadvantages of some form of European Civil Code. Having considered the proposals of the Amsterdam Group for a Common Frame of Reference, it proposes the adoption of a directive instead. It then considers the problems likely to be encountered in re-engineering the EU’s regulatory environment and what lessons can be learned from the USA and Australia.
Chapter Five – This chapter deals with the third objective of the thesis. It discusses how
best to define franchising and what the foundations for re-engineering the regulatory environment should be. It concludes that the EU’s regulatory environment should be re- engineered in accordance with three commercial imperatives. These are maintaining market confidence, ensuring pre-contractual hygiene and incorporating certain mandatory terms in the franchisor/franchisee relationship which will re-enforce the relative economic drivers and reduce the consequential inherent risks to an appropriate level.
Maintaining market confidence leads to several proposals. The adoption of an “Exchange of Benefits” approach to regulation seeks to encourage companies to franchise their business in return for certain benefits; pre-contractual disclosure by potential franchisees, exempting certain types of franchise from pre-contractual disclosure and allowing franchisors to impose both a pricing policy and a multi channel sales strategy on their franchisees. Pre-contractual hygiene leads to proposals for the education of potential franchisees about franchising, the need for them to take and follow quality professional advice, the imposition of a pre- contractual disclosure regime and the prohibition of misleading or deceptive behaviour. The imposition of mandatory terms on to the franchise relationship lead to the identification of relevant terms and the prohibition of unconscionable conduct. It proposes a draft Franchise Directive (the text of which is detailed in Appendix 1) that would enable the EU Commission to implement these recommendations.
Chapter Six – This chapter summarises the conclusion of the thesis. It concludes that this
study proves the hypothesis that franchising has failed to fulfil its potential in the EU, that this is in part due to the regulatory environment and that this failure can be remedied by re- engineering the legal eco-systems that comprise the regulatory environment in the EU by accentuating the impact of three commercial imperatives; market confidence, pre-contractual hygiene and a mandatory taxonomy of rights and obligations.
Chapter 2 Deconstructing the Contextualisation, Architecture, Rationale