A company, which is considering cancelling the franchise agreement, would therefore do well to make sure that it has a valid, good and proper ground for cancellation. Indeed, "there are times when the injured party mistakenly thinks that he has at his disposal a cause for cancellation, when in fact, there is no legal ground for cancelling the contract. This case does not give rise to any particular difficulty; it is clear that the erroneous cancellation was done unlawfully, and therefore the cancellation notice given will be void of any validity" (Shalev and Adar, at p. 659). In such a situation, in which the cancellation is done without a justified cause, the company is liable to become the one who breached the agreement, and subject itself to a significant financial risk of awarding substantial damages. And the broader and more significant economic activity from the perspective of the franchisees, the heavier the risk becomes.
In these circumstances, the canceling company must check that its cause of action is sufficiently founded. Even if it is not obligated to provide a plea, it would do well to clarify the matter with the other party. It would do well to make sure that the evidentiary basis at its disposal is sufficient to take the dramatic step involved in ending the relationship with the alleged infringing franchisee.
- It should be noted here thatour contract law links the obligation to give reasons for the cancellation and the collection of the appropriate infrastructure that can justify it.
In accordance with the customary case law, if a party to the agreement gave reasons for its cancellation, and it turned out that this reason was unfounded, then it must be meaningful. Thus, for example, the Honorable Justice, as described at the time, ruled in Beinisch that "once the reason was damaged by the cancellation notice, he is not entitled to rely on a cause of cancellation that did not appear in his reasoned notice, unless he lawfully gave a new notice of cancellation" (Civil Appeal 3940/94 Shmuel Ronen Building and Development Company Ltd. v. S.A.L.R. Construction Company Ltd., IsrSC 52(1) 210,224 (1998)). This approach has been criticized in the academic literature (see Friedman and Cohen's discussion, at p. 351; and see also Shalev and Adar's discussion at p. 660), and this is still the existing law. Therefore, a full investigation of the matter in advance can reduce the risk of providing an erroneous reason for the cancellation; and even if it is provided, an adequate infrastructure can lead to the rapid identification of the justified reason, in a way that will enable the provision of an up-to-date and quick cancellation notice, saving precious time and many unnecessary costs.
- And after we have delved into all of this, we will focus our attention on Mr. Max and the Max-Stock Company, and see whether they acted in good faith when they sent the cancellation notice to the defendants, and whether it was lawful.
Max did not present sufficient infrastructure to claim that Mr. Shimshon had become a partner in a competing chain
- Max cancelled the franchise agreements on January 13,2018. The cancellation letters detailed the reasonfor the cancellation. It noted that it had "become aware and accumulated unequivocal information and evidence that in direct contravention of the provisions of the franchise agreement, Mr. Naftali Shimshon is, in practice, a partner in the competing 'Super Stock' chain, which, like the Max Stock chain, is engaged in the sale of discounted products for the home" (see above in paragraph 10).
Thus, Max Stock met the requirement of reasoning and gave the reason for the cancellation in a sharp and clear manner. It further added that it had unequivocal information and evidence to substantiate the matter. On the basis of this evidence, it claimed that not only did Mr. Shimshon become a partner in the Super Stock chain, but that he tried to disguise his tracks, when he was well aware that such a thing should not be done. Therefore, he tried to hide behind his brother, who is nothing but a "straw man" in whose name the shares of the Super Stock Company were registered, while Mr. Shimshon is the living spirit behind the activities of the competing company.