Franchisees break away
DISPUTE SEES 78 CASH CRUSADERS CANCEL THEIR AGREEMENTS Falling-out has led traders to operate under a new brand called Cash Xchange.
Adispute between Cash Crusaders Franchising and its franchisees has resulted in 78 of its 150 franchisees cancelling their agreements and commencing trading independently under the Cash Xchange brand.
The dispute was highlighted in a judgment handed down last week in the Western Cape High Court in Cape Town to an application lodged by Cash Crusaders against its former franchisees.
It was triggered by Cash Crusaders’ move to change its suspensive security buy (SSB) transactions system which are regulated by the National Credit Act (NCA).
These transactions are one of the three main income streams of the franchisees.
The others are the sale of new goods procured and provided exclusively to franchisees by Cash Crusaders Corporate and the purchase and sale of pre-owned products from and to the public.
At the end of the 30-day SSB transaction period, consumers often sought to extend their loan with the franchisee, with the extension regarded as a new rather than an extended loan, which entitled the franchisee to charge a further initiation fee.
Cash Crusaders now requires its franchisees to charge only a single initiation fee.
What does the law say?
Unhappy with the change in the system, the franchisees in September 2022 applied to the high court for declaratory relief regarding the interpretation of the NCA and whether it permitted repetitive charges of initiation fees for extended SSB transactions.
Cash Crusaders opposed the application, claiming the franchisees had not complied with the dispute resolution mechanism.
The franchisees responded by claiming that Cash Crusaders breached the franchise agreement when it introduced the changes to the SSB transactions.
Cash Crusaders’ legal representatives denied on 19 September, 2023 any breach of the franchise agreement and proposed the referral of the dispute to arbitration.
The franchisees did not accept this proposal and restated their
stance that Cash Crusaders was in breach of the agreement.
This led to Cash Crusaders launching an urgent application on 28 September, 2023, seeking an interim interdict restraining these franchisees from cancelling their franchise agreements.
This application was pending before the court and the 10 days stipulated by the franchisees in their letter of 18 September, 2023 had not yet expired when the franchisees cancelled their franchise agreements with Cash Crusaders on 26 September, 2023.
The franchisees further claimed that by cancelling their contracts “the horse had bolted, and the interdict application had become moot”.
The court interdicted the franchisees from cancelling the franchise agreements and further directed them to abide by and
comply with their obligations.
The franchisees applied for leave to appeal this court order on 4 October, 2023, claiming the court impermissibly exercised jurisdiction over the franchisees, thereby making the order final in effect.
This appeal was dismissed with costs on 25 October, 2023, with Cash Crusaders on the same day addressing a letter to the legal representatives of the franchisees to seek an undertaking that there would be compliance with the interim interdict.
The franchisees on 26 October, 2023 launched an application for leave to appeal to the Supreme Court of Appeal.
Judge James Lekhuleni on Friday dismissed the Cash Crusaders application with costs because in his view the 78 franchisees would suffer harm if the application was granted.