Introduction
I represented a franchisor recently as the defendant in a franchise litigation where the plaintiff’s central claim was one of “wrongful termination” of the franchise agreement. The allegation was framed in familiar terms: the franchisor had issued a document described as a notice of termination, and the franchisee contended that this amounted to an unlawful and premature termination of the franchise relationship.
However, as the matter was analysed more closely, it became apparent that the real issue was not whether the termination was justified, but whether there was, in law, a termination at all. The franchise agreement in question was a fixed-term agreement. Renewal was not automatic. The agreement stated clearly that the franchisee had the option to renew, but only by giving at least six months’ written notice prior to the expiration of the franchise term.
Despite repeated communications from the franchisor to engage the franchisee on renewal, no such notice was given. The franchisee did not exercise the contractual option to renew within the stipulated timeframe. No renewal was concluded. The franchise term therefore ran its course.
The franchisor’s position was that the franchise agreement had ended by effluxion of time, and that the document relied upon by the plaintiff did not terminate a subsisting agreement, but merely recorded that the franchise relationship had come to an end following non-renewal. The plaintiff, on the other hand, treated the existence of the notice itself as conclusive proof that a termination had occurred.
That dispute illustrates a recurring misunderstanding in franchise litigation: the tendency to conflate termination, non-renewal, and expiration, and to assume that the use of the word “termination” automatically engages the statutory and contractual framework governing wrongful termination. In reality, the legal analysis is far more nuanced.
The above is a brief facts of the matter.
Section 31 and 32 comes into play in this case. Certainly, the Plaintiff will argue that the Defendant had committed and offence for failing to renew the franchise under section 31, claimed for wrongful termination and a claim for loss of profits and business opportunity. Allow me to reproduce both section 31 and 32 before I dissect each section and argue.
Termination of franchise agreement
31. (1) No franchisor or franchisee shall terminate a franchise agreement before the expiration date except for good cause as provided in subsections (2) and (3).
(2) “Good cause” shall include, but is not limited to—
(a) the failure of a franchisor or a franchisee to comply with any terms of the franchise agreement or any otherrelevant agreement entered into between the franchisor and franchisee; and
(b) the failure of a franchisor or the franchisee to remedy the breach committed by him or any of his employees within the period stated in a written notice given by the franchisor, which shall not be less than fourteen days, for the breach to be remedied.
(3) “Good cause” shall include, but without the requirement of notice and an opportunity to remedy the breach, circumstances in which the franchisor or franchisee—
(a) makes an assignment of the franchise rights for the benefit of creditors or a similar disposition of the assets of the franchise to any other person;
(aa) becomes bankrupt or insolvent;
(b) voluntarily abandons the franchised business;
(c) is convicted of a criminal offence which substantially impairs the goodwill associated with the franchisor’s mark or other intellectual property; or
(d) repeatedly fails to comply with the terms of the franchise agreement.
Non-renewal of franchise agreement
32. A franchisor commits an offence if he refuses to renew a franchise agreement or extend a franchise term without compensating a franchisee either by a repurchase or by other means at a price to be agreed to between the franchisor and the franchisee after considering the diminution in the value of the franchised business caused by the expiration of the franchise where—
(a) the franchisee is barred by the franchise agreement, or by the refusal of the franchisor at least six months before the expiration date of the franchise agreement to waive any portion of the franchise agreement which prohibits the franchisee, from continuing to conduct similar business
under another mark in the same area subsequent to the expiration of the franchise agreement; or
(b) the franchisee has not been given a written notice of the franchisor’s intent not to renew the franchise agreement at least six months prior to the expiration date of the franchise agreement.
Section 31 of the Franchise Act 1998: Termination Before Expiry
The starting point for analysing any claim of wrongful termination in a franchise context must be Section 31 of the Franchise Act 1998. This provision does not regulate every situation in which a franchise relationship comes to an end. It regulates one specific scenario only: the termination of a franchise agreement before its expiration date.
Section 31(1) provides that no franchisor or franchisee shall terminate a franchise agreement before its expiration date except for “good cause”. The language of the statute is deliberate. It presupposes the existence of a subsisting franchise agreement and addresses circumstances where one party seeks to bring that agreement to an early end. The statutory protection is aimed at preventing arbitrary or abusive termination of an ongoing franchise relationship, not at rewriting the contractual consequences of expiry.
Where termination is based on breach, Section 31(2) introduces procedural safeguards. In most cases, the terminating party must issue a written notice identifying the breach and allow the defaulting party a reasonable period — not less than fourteen days — to remedy that breach. Only if the breach is not remedied may termination take place.
At the same time, the Act recognises that not all breaches are equal. Section 31(3) expressly identifies categories of serious misconduct that constitute “good cause” for termination without the requirement of notice or an opportunity to remedy. These include insolvency, voluntary abandonment of the franchised business, criminal conduct that substantially impairs the goodwill of the franchisor’s intellectual property, and repeated failures to comply with the franchise agreement. In such cases, immediate termination is legally permissible.
What is critical, however, is that all forms of termination under Section 31 — whether with notice or without notice — are still terminations before expiry. They operate only where the franchise agreement is still alive and capable of being terminated. Section 31 does not apply where a franchise agreement has already expired by effluxion of time.
Section 32 of the Franchise Act 1998: Non-Renewal Is Not Termination
The analysis is often complicated by Section 32 of the Franchise Act 1998, which deals with non-renewal of franchise agreements. This provision is frequently misunderstood as converting non-renewal into termination. It does not.
Section 32 proceeds on the express premise that the franchise agreement has reached its expiration date and that the franchisor has elected not to renew or extend the franchise term. It does not prohibit non-renewal. Instead, it regulates the consequences of non-renewal in limited circumstances.
Under Section 32, a franchisor commits an offence if he refuses to renew or extend a franchise agreement without compensating the franchisee, where either the franchisee is contractually barred from continuing a substantially similar business after expiry, or the franchisee has not been given at least six months’ written notice of the franchisor’s intention not to renew. The notice contemplated here is a notice of non-renewal, not a termination notice.
Crucially, Section 32 does not deem a non-renewal to be a termination, nor does it revive an expired agreement. It assumes expiration by effluxion of time and regulates fairness, notice, and compensation after that expiration. Any failure to comply with Section 32 may give rise to regulatory or compensation consequences, but it does not engage the statutory regime governing termination before expiry under Section 31.
Read together, Sections 31 and 32 form a coherent statutory structure. Section 31 governs early termination of a subsisting agreement. Section 32 governs non-renewal following expiry. Neither provision collapses termination, non-renewal, and effluxion of time into a single legal concept.
Applying the Law to the Case: A Practitioner’s View
Against that statutory framework, my view in relation to the case in which I represented the franchisor is that the plaintiff’s claim of wrongful termination was misconceived at its foundation. The dispute was framed as a termination case, but the contract and the facts pointed firmly in a different direction.
The franchise agreement was fixed-term. Renewal was conditional and required affirmative action by the franchisee through the giving of six months’ written notice. That option was not exercised. In those circumstances, the franchise agreement did not come to an end by termination within the meaning of Section 31. There was no termination before expiry, whether with notice under Section 31(2) or without notice under Section 31(3). The agreement simply expired by effluxion of time following non-renewal.
The plaintiff’s reliance on the existence of a document described as a “notice of termination” did not, in my view, alter that legal reality. A notice cannot terminate an agreement that no longer subsists. The legal character of how a franchise agreement ends depends on the contract and the passage of time, not on the label used in subsequent correspondence.
Section 32 also did not convert the dispute into one of wrongful termination. Even if questions were raised regarding notice of non-renewal or compensation, those issues fall within a separate statutory regime and do not revive the termination protections applicable to a subsisting agreement.
Once termination, non-renewal, and expiration are properly disentangled, the wrongful termination claim loses its footing. The correct legal question was not whether the termination was justified, but whether there was any termination at all within the meaning of the Act. On the facts, there was not.
Conclusion
Franchise disputes are often framed in dramatic terms, with allegations of wrongful termination taking centre stage. Yet, as this case illustrates, not every end of a franchise relationship is a termination in law. A fixed-term franchise agreement may come to an end quietly, but decisively, by effluxion of time where renewal is not exercised.
The Franchise Act 1998 recognises and preserves this distinction. Section 31 regulates early termination of a subsisting agreement. Section 32 regulates the consequences of non-renewal after expiry. Neither provision converts non-renewal or expiry into termination.
For franchisors, the lesson is one of clarity and discipline: precise renewal mechanisms, proper documentation of renewal communications, and careful characterisation of how a franchise relationship ends. For franchisees, the lesson is equally important: renewal rights must be actively exercised, silence carries consequences, and a fixed-term franchise is not a perpetual entitlement.
Ultimately, allegations of wrongful termination must begin with a threshold inquiry: was there a termination at all? Where a franchise agreement has expired by effluxion of time following non-renewal, the answer may well be no. Recognising that distinction is essential to sound legal analysis — and to avoiding disputes built on the wrong premise from the outset.