Case Study Of Lean Club

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The Degree of Control over a Franchisee
To: Ella Saunders
From: Michael Liew
Date: 14/05/2014
ID number: 1632456
Course number: ComLaw 304
Word Count: __________

Executive summary

The purpose of this report is to advise Ella in whether she can legally achieve her desires if she decides to franchise Lean Club. Sections 27 and 37(3)(b) of the Commerce Act 1986 highlight the fact that Ella is unable to legally enforce a rule that requires franchised businesses to charge the same price that Ella does for Lean Club’s Smoothie Mix due to the prohibition of resale price maintenance. Sections 27 and 38 relate to franchisees not being able to charge less than the Wellington Lean Club due to lessening competition. A clause has been drafted to incorporate the business model of clients paying fortnightly. A restraint in trade is unenforceable unless deemed reasonable by the courts. A clause has been drafted and once a franchise agreement comes to an end, that franchisee will not be able to continue to run a gym that would compete with Lean Club.

1 Introduction
1.1 Purpose
The purpose of this report is to advise Ella in whether she can legally achieve her desires if she decides to franchise Lean Club. Draft clauses will also be included in order to cater towards such goals.

1.2 Scope
This report will address four key objectives surrounding franchisees:
1) Charging the same price.
2) Membership fee.
3) Business model / structure.
4) Restraint of trade.

2.0 Discussion
2.1 The franchised businesses charge the same prices as Ella does for the 1 kg containers of Lean Club’s Super Smoothie Mix.
Resale price maintenance occurs when a supplier attempts to prevent goods being resold at a predetermined price. Section 37(1) of the Commerce A...

... middle of paper ...

...ble to continue to run a gym that would compete with Lean Club if this clause is implemented and deemed reasonable by the courts.

3.0 Conclusion

Ella is unable to legally enforce a rule that requires franchised businesses to charge the same price that Ella does for 1 kg containers of Lean Club’s Super Smoothie Mix. A clause cannot be added to enforce franchised businesses to not charge less for membership than Ella does at the Wellington CBD Lean Club. A business model clause may also be integrated and enforceable if agreed upon by the franchisee. This will improve consistent and uniform level of quality. Lastly, Once a franchise agreement comes to an end, that franchisee will not be able to continue to run a gym that would compete with Lean Club. This is assuming that a suitable restraint of trade clause is implemented and deemed reasonable by the courts.

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