South Africa

• Author: Lawrence Helman - Eugene Honey
• Pages: 412-431

412 International Franchise Sales Laws

South Africa

I. What Is a Franchise?

A. Scope of Law

For many years in South Africa, franchise agreements were dealt with only in terms

of our general common law. That changed, however, when our Consumer Protec-

tion Act No. 68 of 2008, including the Regulations promulgated thereunder (CPA),

came into force on April 1, 2011. Although April 1, 2011, is the general effective

date of the CPA, not all of the sections and the regulations came into force or effect

on this date. The CPA includes various provisions that relate to franchising, includ-

ing Regulations 2 and 3 thereof, which deal with what should be included in a

franchise agreement and a Disclosure Document, respectively.

If the agreement or arrangement between the parties falls within the definition

of a “Franchise Agreement” as set out in section 1 of the CPA, then the general

provisions of the CPA (including that agreements must not contain provisions that

the legislators have determined are excessively one-sided in favor of any person

other than the consumers (in this case, the Franchisees)), as well as the franchise

specific provisions thereof, apply. The CPA defines a “Franchise Agreement” as

follows:

“Franchise Agreement” means an agreement between two parties, being the

franchisor and franchisee, respectively

(a) in which, for consideration paid, or to be paid, by the franchisee to

the franchisor, the franchisor grants the franchisee the right to carry

on business within all or a specific part of the Republic [of South

Africa] under a system or marketing plan substantially determined

or controlled by the franchisor or an associate of the franchisor;

(b) under which the operation of the business of the franchisee will be

substantially or materially associated with advertising schemes or

programmes or one or more trademarks, commercial symbols or

logos or any similar marketing, branding, labelling or devices, or

any combination of such schemes, programmes or devices that are

conducted, owned, used or licensed by the franchisor or an associ-

ate of the franchisor; and

(c) that governs the business relationship between the franchisor and

the franchisee, including the relationship between them with respect

to the goods or services to be supplied to the franchisee by or at the

direction of the franchisor or an associate of the franchisor.”

South Africa 413

It is important to note that this is a very broad definition. As such, other agree-

ments, such as distribution agreements and retail agreements, which are not gener-

ally considered franchise agreements, may in some cases fall within the definition

of “Franchise Agreement” in the CPA. In addition, to the extent that such an agree-

ment is entered into in connection with a franchise agreement, regardless of the fact

that such an agreement does not constitute a franchise agreement on a stand-alone

basis, it may be considered as part of the actual franchise agreement, and the CPA

would apply.

The CPA does not apply to a transaction or an agreement where the consumer in

question is a juristic person with an asset value or annual turnover exceeding R2

million (2 million Rand). However, no such threshold or limitation applies in re-

spect of franchise agreements, regardless of the size or level of sophistication of the

Franchisee.

It is important to note that the following arrangements are also regarded as a

transaction between a supplier and consumer for purposes under the CPA in terms

of section 5(6) of the CPA:

(a) a solicitation of offers to enter into a franchise agreement;

(b) an offer by a potential Franchisor to enter into a franchise agreement with a

potential Franchisee;

(c) a franchise agreement or an agreement supplementary to a franchise agree-

ment; and

(d) the supply of any goods or services to a Franchisee in terms of a franchise

agreement.

Franchise arrangements in South Africa are also subject to other laws and regu-

lations. For example, to facilitate the payments to be made from a local Franchisee

or Master Franchisee to a foreign entity, it is necessary to obtain approval from the

South African Reserve Bank, an Authorized Dealer, or the Department of Trade and

Industry (as the case may be) for the payments set out in the agreement, including

particularly royalties.

The intellectual property laws in South Africa include the Trade Marks Act No.

194 of 1993 (Trade Marks Act), the Copyright Act No. 98 of 1978 (Copyright Act),

the Patents Act No. 57 of 1978, and the Registered Designs Act No. 195 of 1993.

These laws are in line with the international norms.

Know-how, trade secrets, and confidentiality aspects are dealt with in terms of

the common law.

In certain instances our Competition Act No. 89 of 1998 will also be relevant. It

is to be noted, however, that the authorities are more concerned with inter-brand

competition than intra-brand competition.

If data and information sharing between the Franchisee and Franchisor includes

“Personal Information” of the data subjects (e.g., customers), our Protection of Per-

sonal Information Act No. 4 of 2013 (the commencement date of this Act is still to