If you have a successful business then chances are one way to grow it could be through Franchising.

In this article we want to cover some of the key points that you need to know if you want to head down that path.

Franchising is a good alternative to consider because it can increase your brand recognition and you provide oversight while not actually running the branch. However, you can still benefit from payments and the exposure that a growing brand creates.

So what do you need to consider?

In helping our clients franchise we work closely to look at the following – working through these points below we would then put into a Franchise Agreement and Manual. Your answers will likely depend on the amount of control you want to have over the Franchisee’s business. The Manual will outline the rules and guidelines for operating a Franchisee Business. What you need to think through is the following:

The Territory the Franchisee can act in (eg. Canterbury vs Ashburton)
Opening hours
Advertising
- Who is responsible for doing this
- How will it to be done
- National or regional level?
Training course
- Additional/on-going training?
Number of employees
- Roles – Manager etc.
Minimum sales/performance criteria required for Franchisor to terminate agreement or revise territory
Inventory and supply specifications
Reporting
- How often?
- What form?
Grounds for terminating the Franchise agreement
Restraint of Trade terms (e.g. relating to termination, territory, goodwill etc.)
Insurance cover
Set up
- Conversions/Alterations/renovations required to initially set up premises
- Plans/drawings/specifications of the premises
- Fixtures, fittings etc.
- Initial stock required
- Initial advertising required
- Initial equipment provided by Franchisor
Continuing obligations
- How often will franchisor consult with Franchisee
- How will performance be monitored
- How will records be kept
- Code of Practice? (if member of Franchise Association of New Zealand)
Suppliers/Key Contracts needed
Stationery
Leases
Requirements for where shops are located
Intellectual Property – this will include considering:
- Exactly what the Company has as IP
- Whether trade marks are registered
- How trade marks can be used
- Licenses that may be in place
- Providing clear brand guidelines

Franchising is a definite option for a growing business.

If you would like input on franchising then we would be happy to provide you with input through an initial conversation about what you want to achieve. To discuss this or for further enquires please contact Steven Moe at stevenmoe@parryfield.com or Kris Morrison at krismorrison@parryfield.com

You might also appreciate our guides such as the Doing Business in New Zealand guide and the Start-ups Legal Toolkit. We also provide free templates for resolutions, Non Disclosure Agreements and other resources on our site as well as many articles on key topics you should know about.

Business can be complicated but it doesn’t have to be. We have helped thousands of clients and know about the key legal areas that will affect you and have just released our fully revised and updated “Doing Business in New Zealand” free handbook. You can download it here.

New Zealand consistently ranks as one of the most business-friendly nations in the world. Given this appealing status and the interest we receive both from local and international investors, as well as form businesses and entrepreneurs, we produced the “Doing Business in New Zealand” handbook a few years ago and now have fully updated it. It is intended to introduce and provide information for those who may be unfamiliar with how business is done here. The handbook provides introduction on business structures, investment rules, employment, disputes, property, intellectual property, immigration, privacy and social enterprise, just to name a few examples.

If you have further enquires please contact Steven Moe at stevenmoe@parryfield.com or on 021 761 292 or Kris Morrison at krismorrison@parryfield.com.

Be sure to check out our other free guides too, such as Startups: Legal Toolkit and Social Enterprises in New Zealand: A Legal Handbook. We also provide free templates for resolutions, Non Disclosure Agreements and other resources on our site as well as many articles on key topics you should know about.

Consequential loss is a loss that arises as a result of a breach of contract. In contracts, parties often exclude liability for consequential loss which is provided for in an exclusion clause.

If you are entering into negotiations for a contract, it is important that you understand what consequential loss is, when damages can be claimed for consequential loss, and how to effectively exclude liability.

A question that arises when dealing with consequential loss is how far you can actually go in claiming damages for a consequential loss? Where do you draw the line?

Say, for example, that Mrs Smith has purchased a freezer for her catering business from Mr Jones, which she has filled with ice cream. This ice cream is for a stall that she has been running at the local fair for a few years now, and is a favourite for many fair-goers. Unfortunately, the freezer broke the day before the fair causing all of the ice cream to melt and meaning that Mrs Smith cannot serve ice cream at her ice cream stall and would therefore not make any profit. The lack of ice cream at the stall meant that there were a lot of grumpy children, and grumpy children meant grumpy parents which resulted in a lot of backlash on the fair.

The following year, the fair suffered a 50% reduction in attendance as a direct result of the grumpy children and the lack of ice cream, and the organisers then had to cancel the fair in subsequent years and claimed the amounts they lost from poor Mrs Smith.

Mrs Smith now wants to sue Mr Jones in damages for the loss of profit and the amounts claimed by the fair organisers, which were losses resulting from the breaking of the freezer. But how far can Mrs Jones actually go in claiming these damages? Let’s look at some cases and see what they say.

Hadley v Baxendale

In an 1854 English Court of Exchequer decision Hadley v Baxendale, Alderson B famously established the remoteness test, which is a two-limb approach where the losses must be:

Considered to have arisen naturally (according to the usual course of things); or
Reasonably considered to have been in the contemplation of the parties at the time when they made the contract as a probable result of the breach of it.

Alderson B said that in order for a party to successfully claim damages on the grounds of consequential loss, the loss must fall into either of those two categories.

McElroy Milne v Commercial Electronics

In 1992 in New Zealand, Cooke P said this test no longer applied in modern law, and he established a multi-factorial discretionary approach in which a range of factors are to be taken into consideration, including foreseeability.

Transfield Shipping v Mercator Shipping (The Achilleas)

This is more recent English House of Lords decision concerning the late return of a ship. In this case, the judges established that while Hadley v Baxendale is generally a good approach, there are certain circumstances where it may not necessarily apply.

These judgments create confusion in determining what actually constitutes a consequential loss and where to draw the line. Generally speaking, however, the loss must have been in the contemplation of the parties for it to amount to a consequential loss.

A way forward: What should the clause say?

In our view there are three ways forward:

No exclusion of consequential loss – this means that the parties are leaving it up to the interpretation of the Courts;
Include a general consequential loss clause; or
Incorporate a bespoke clause for the specific contract.

Where possible, we recommend a general exclusion of consequential loss with some examples of specific situations (essentially a bit of both 2 and 3 above).

Other options available:

Remember that a contract is ultimately a give and take from each side and another way that a party can limit liability in a contract is by putting a total cap on their liability.

Another option is that a party could limit liability by stating a time period in which the other party can bring a claim. A small company negotiating with a large multinational will have less scope and a template agreement is much more difficult to get changes made to it.

Ultimately, whichever route is taken depends on the preference of the parties, and their negotiations will also play a role in determining what liability is excluded.

Every situation is unique and how much Mrs Smith could claim for will depend on what the contract said and the circumstances of the situation. Whatever your scenario, we have a dedicated commercial team at Parry Field Lawyers who can give you personalised advice on all aspects of your business ventures. This article is also based on a more detailed analysis of the cases mentioned above – contact us if you would like a free copy of that.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Kris Morrison or Steven Moe at Parry Field Lawyers (348-8480).

Restraint of Trade and Conflict of Interest Clauses

Restraint of Trade Clauses

There is a legal assumption that a restraint of trade is unenforceable unless the employer can prove they have a legitimate proprietary interest and that the restraint of trade is reasonable with regard to the circumstances. This typically requires the employer to establish a link between their proprietary interest and the duties and responsibilities of the employee who deals with those interests and the risk of breach. If the employer has proven these two elements, the burden then falls to the employee to show that the restraint is contrary to their personal interest and the general public interest.

The definition of proprietary interest includes three main categories: trade or customer connections, the stability of the employer’s workforce, and trade secrets.

When considering whether a restraint of trade is reasonable, the Court will consider the context of the whole of the agreement between the parties and against the background of the circumstances in which the contract was entered into. In general, a restraint of trade will be reasonable where it grants adequate, but no more than adequate, protection for an employer.

Reasonableness – Duration and Geographical Location

When determining reasonableness, the Court will additionally consider how long the restraint of trade lasts for. When considering the validity of the restraint’s duration, the Court will look at the facts and circumstances of the relevant company’s business, the nature of the interest to be protected, and the potential effect of an ex-employee opening their own business. Industry practice will also be taken into account. In general, the Court will rarely find a restraint of trade clause that lasts for longer than one year to be reasonable.

The geographical coverage of a restraint of trade is also relevant when determining reasonableness. Worldwide restrictions are typically found to be invalid, unless the restriction requires worldwide coverage to be reasonably effectual. The Court has upheld restraint of trade clauses where worldwide coverage was necessary because of the nature of the industry in question and the impracticalities of enforcing a less onerous restraint of trade clause; however, this is the exception, rather than the general rule.

Consideration

If an employee signs an employment agreement containing a restraint of trade provision, it is assumed there is consideration for the restraint of trade as this was part of the bargaining process. Therefore, a restraint of trade included in an employment agreement at the outset will not necessarily be unreasonable.

Restraint of Trade Clauses – Court Powers and Contracting Out of the Court’s Jurisdiction

If a party cannot prove that a restraint of trade clause is enforceable, the Court has a jurisdiction to alter a restraint of trade to make it enforceable or to delete it from the employment agreement. This typically involves reducing the geographical coverage and/or the duration of the restraint. We are unsure whether parties can later agree to alter an invalidated restraint to make it enforceable, as we have not been able to find any case law on this point.

If the Court finds that an employee has breached a valid restraint of trade clause, it may require the ex-employee to pay exemplary and/or compensatory damages. It may also issue an injunction preventing an ex-employee from carrying out the conduct which constitutes a breach of the restraint of trade.

Conflict of Interest Clauses

Case law seems to be silent as to the effect of conflict of interest clauses after the termination of an employment agreement. Therefore, if an employment agreement does not mention the effect of a conflict of interest clause post-employment, there is an argument that the conflict of interest clause no longer applies.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Should you need any assistance with this, or with any other Employment matters, please contact Hannah Carey – hannahcarey@parryfield.com or any of the team at Parry Field Lawyers should you need assistance – 03348 8480

When purchasing a property, it pays to investigate the history of the buildings on the land. If there are no records of building consents having been issued by the council, then at best the buildings may have been constructed without council approval and may not comply with the building code. At worst, they may be dangerous for use and occupation.

Background To The Building Consent Process

The Building Act 2004 (“the Act”) governs all building works in New Zealand. It states that such work must comply with the building code. The code is made up of regulations which prescribe the functional requirements for buildings and the performance criteria they must meet for their intended use.

Before undertaking building work, the owner of the property must obtain approval from a building consent authority. Usually, the building consent authority is the local council. Council approval for building work is known as a “building consent”.

During construction and once construction is complete, the council will inspect the work to ensure compliance with the conditions of the building consent and the building code. If the council approves the work, then it issues a code compliance certificate. It is an offence to carry out any work requiring a building consent if the work is not in accordance with the terms of the building consent. Also, subject to some exceptions, until such time as a code compliance certificate has been issued, it is an offence to occupy the building.

What Happens When Building Work Has Been Done Without A Building Consent?

Building consents cannot be issued retrospectively. However, if the work has been completed and a building consent was required but not obtained, then an application to the council for a “certificate of acceptance” may be made. This involves the council inspecting the work to determine if it complies with the building code. If it does, then it may issue a certificate of acceptance. However, such a certificate cannot be issued if the building work was carried out prior to 1992 as the building code was not in existence prior to that date.

It is not uncommon to come across properties where the buildings on the land have been constructed with a building permit or consent but the work has either never been completed, or if it has, the council has not approved it. If the work was carried out prior to 1 January 1993 and provided that the building is not “dangerous” or “unsanitary” as defined in the Act, then the council cannot take any action to require the owner to complete the work in accordance with the original building permit.

Make Sure Your Contract is Conditional on Approval of a LIM Report

The best way to check that there are no unauthorised buildings on a property is to obtain a Land Information Memorandum (known as a “LIM report”) before you buy it. This includes a summary of all records held by the council in relation to the property including details of building permits, consents, code compliance certificates and certificates of acceptance. To protect your position, any sale and purchase agreement you sign should be subject to approval of a LIM report for the property.

It is worth remembering that although the absence of permits or consents may not pose a problem while you live in the property, it may well become a problem once you decide to sell it. For that reason, a LIM report is money well spent. It could save you a great deal more at a later date.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com

“An ounce of prevention is worth a pound of cure.”

For most small businesses, your lease will be one of your most important contractual documents. Get it wrong and the profitability of your business may be seriously affected. Even so it is common for business to sign up agreements to lease without getting legal help. The lawyers at Parry Field have considerable experience in helping tenants to negotiate lease terms that fairly protect the tenant from undue risk and cost.

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New Zealand’s Building Act 2004 (“Act”) impacts on vendors selling properties on which building work has been undertaken. Purchasers now often request evidence of compliance with the Act. Parry Field Lawyers provide legal advice on a range of property matters including buying and selling property.