WNA Blog

Tue 6 Dec 2016

Franchising – Am I acting in Good Faith?


Legal Services

Good Faith is an important development within the Franchising Industry yet we still find some people confused by this concept and unsure how to ensure they are regarded as acting in Good Faith, especially when they need to make a decision that may have a negative impact on another party.

We have discussed Good Faith in prior blogs, and in particular confirmed that when determining whether a party is acting in Good Faith often depends on the circumstances of each case and that Good Faith does not necessarily stop a party acting in their legitimate commercial interests, even if this may negatively impact the other party.

Given the above, some factors people can consider to help them determine whether they are acting in Good Faith include:

  • Do they have a contractual right to act the intended way?
  • What are their legitimate commercial interests in respect to the relevant matter?
  • Have they considered the other party‚Äôs legitimate interests?
  • Have they been honest with the other party and not acted for an ulterior purpose when exercising any right?
  • If conditions are to be imposed are they necessary to protect their legitimate interest?
  • How have they treated other similar situations with other parties within the same group?
  • What, if any, consultation with the affected party or parties has taken place before any decision is to be made?

After having actively considered any risks, before announcing and/or acting on any decision that may result in a Good Faith debate, a party should ensure that they have then kept and thereafter maintain detailed records that set out the business objective for the making of your decision so this can be referred to later if required.

Finally, given the potential serious consequences of breaching the obligation of Good Faith and there is still much debate around this topic, before taking any action it is prudent to speak with your lawyer before any decision is made and/or the carrying out of the relevant decision.

Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.


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