Franchising, law and the north/south divide - is there much of a difference?

Article by Martin O'Neill

WJM

Franchising (or rather “business format franchising” as we know it) generally means the same thing in Scotland as it does in England. Neither jurisdiction has a body of “franchising law” as such.

Whilst commercial law is broadly the same north and south of the border, there are some important differences between Scots and English law that can lead to confusion, or complications, for both franchisors and franchisees.

Parties to franchise agreements can inadvertently contract on terms which are not fully understood, or which don’t reflect the parties’ intentions, owing to the differences between the Scottish and English legal systems, and the relevant terminology.

Take for example law relating to property: there are important differences between English and Scottish property law, and great care should be taken to ensure that contractual terms achieve the desired outcome.

Some differences relate largely to terminology, and don’t have any significant practical effect. For example the English notion of the “surrender” of a lease, broadly equates to a Scottish “renunciation”. However at a more fundamental level the statutory controls that govern aspects of the landlord and tenant relationships in England, do not exist at Scots law, and various other fundamental differences exist in relation to property law as a result of the historical separation of the two legal systems.

Another significant difference between the two legal systems relates to what might happen in the event of a dispute between a franchisee and franchisor. Generally an aggrieved party at Scots law has had an easier task asking the court to order the party in breach to perform its obligations under the agreement, rather than seek damages, when compared to an English counterpart.

Some other examples of peculiarities that do not reside on both sides of the border include the following:

• In England, the use of the words “executed as a deed” have special legal significance. Amongst other things they render the need for a consideration (e.g. a payment of money) in a contract, unnecessary. In Scotland however a consideration is not required to create a legally enforceable contract, and the use of the words “executed as a deed” do not trigger the legal consequences that occur south of the border.
• In Scotland the law has historically recognised that a party can in some circumstances bind itself by way of a unilateral promise, without the need for an acceptance from the other party. This concept has however not been similarly recognised in English law.
• In England the use of the phrase “subject to contract” has generally been accepted, although not always, as meaning that a contract has yet to be formed between the parties. The position in Scotland however is less clear, and the courts will construe the use of the words “subject to contract” on a case by case basis.

These are just a few of the very many examples of the nuances between Scots and English law, which can often have significant contractual implications on the franchisee/ franchisor relationship.

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