A franchise agreement that does not fully comply with the Consumer Protection Act (CPA) is not automatically void but is likely voidable at the franchisee’s discretion if material omissions or misrepresentations are present. Courts are likely to adopt a purposive approach, balancing consumer protection with contractual certainty.

Section 7(1) of the CPA, 68 of 2008, requires that a franchise agreement:

• Must be in writing and signed by or on behalf of the franchisee.
• Must include “prescribed information” as set out in the CPA regulations.

Regulation 2(3) provides a detailed list of required terms and statements, while Regulation 2(2) mandates that franchise agreements must:

• Include the exact wording of Section 7(2) of the CPA, which grants franchisees a 10-business-day "cooling-off" period to cancel the agreement without penalty.
• Prevent unreasonable fees, conduct unnecessary to business risks, and conduct that does not protect legitimate business interests.
• Disclose any direct or indirect benefits received by the franchisor from suppliers.

Regulation 3 further requires franchisors to provide a disclosure document containing financial and operational information at least 14 days before the franchisee signs the agreement.

Compliance Challenges and Legal Implications

Given the extensive regulatory requirements, compliance can be challenging, particularly with vague wording in some regulations. For example, it is not clear what wording would suffice to meet the requirements of Regulation 2(2)(b). These difficulties raise questions about whether an agreement missing prescribed information is automatically invalid.

To date, South African courts have not ruled directly on this issue. However, general legal principles governing statutory formalities offer guidance. Some statutes explicitly render non-compliant contracts void, such as:

• Section 2(1) of the Alienation of Land Act, 68 of 1981, which provides that: “No alienation of land … shall … be of any force or effect unless it is contained in a deed of alienation signed by the parties …”.
• Section 6 of the General Law Amendment Act, 50 of 1956, which provides that: “No contract of suretyship … shall be valid, unless the terms thereof are embodied in a written document signed by or on behalf of the surety”.

The CPA, however, does not explicitly state the consequences of non-compliance. Regulation 2(2)(e) contains the cryptic statement that “Any provision in a franchise agreement to which these regulations apply which is in conflict with this regulation is void to the extent of such a conflict”. This clearly does not cater for omission of information and raises the question: does omission of required information render a franchise agreement void?

Legal Precedents and Interpretation

The Supreme Court of Appeal in Gowar Investments (Pty) Ltd v Section 3 Dolphin Coast Medical Centre CC and Another ruled that the omission of a statutory cooling-off provision in a deed of alienation of land made the contract voidable, not void ab initio, as the provision existed for the purchaser’s benefit.

Applying this reasoning, a franchise agreement lacking the prescribed reference to the cooling-off period should similarly be voidable at the franchisee’s option. By extension, failure to include other prescribed information or provide a disclosure document should not automatically render the agreement void.

The Purposive Approach to CPA Compliance

Regulation 3’s requirement for a 14-day disclosure period before signing, combined with the 10-day cooling-off period under Section 7(2), aims to allow franchisees to assess the financial and legal implications of the agreement. Allowing a franchisee who neglects to take advantage of these periods and to terminate later, based on a technical omission, would not serve justice, public policy, or commercial efficiency.

Thus, post-cooling-off period cancellations should only be allowed if the omission of prescribed information resulted in the franchisee actually being misled in a material respect. Where there is no evidence that the franchisee was actually misled, they should not be allowed to cancel the agreement on the basis of a purely technical non-compliance.

Conclusion

Franchisors should strive for full compliance to avoid reputational harm and legal consequences. However, this does not mean franchisors are able to “play fast and loose” with compliance, as repeated deficiencies may damage their goodwill and attract sanction by the National Consumer Commission.

Written by Ian Jacobsberg, Fluxmans Attorneys