The Western Cape High Court has ruled against former Cash Crusaders franchisees, upholding an interim order that prevents them from terminating their franchise agreements and mandates compliance with their contractual obligations while arbitration proceedings continue.
The dispute between Cash Crusaders Franchising (CCF) and its former franchisees revolves on the management of transactions called suspensive security buy (SSB) transactions, which allow franchisees to extend loans using movable property as collateral.
Initially supportive of the SSB system, the franchisees faced reduced profitability when CCF revised the system in 2021 to comply with the National Credit Act, limiting the fees they could charge, the court heard.
After sending a notice in September last year threatening to cancel their agreements due to unresolved grievances, the franchisees rebranded their stores as “Cash Xchange”.
CCF applied for an urgent interdict to maintain the franchise agreements, which the court granted on October 3, 2023, requiring the franchisees to continue operating under the Cash Crusaders brand until arbitration proceedings, already under way, were completed.
In their application, the franchisees argued that the interdict was overly restrictive and that reverting to the original system would lead to financial difficulties.
In its judgment last week, the high court rejected the franchisees’ argument that CCF had abandoned the interdict order through conduct, such as opening new stores near their Cash Xchange outlets.
For pre-emption to apply, there must be unequivocal conduct indicating an intention to abandon a judgment, which the franchisees failed to demonstrate, the court said.
CCF’s consistent opposition to appeals showed its intent to uphold the order. The court also rejected the franchisees’ argument that complying with the order was impossible, pointing out that they had seamlessly switched brands and that practical difficulties did not amount to an “impossibility of performance”.
The court found that while the franchisees might face financial and operational burdens in reverting to their Cash Crusaders outlets, this did not justify noncompliance with the order.
“None of the hardships that the affected franchisees raise indicate impossibility of performance. There may be expense, but this does not mean that the interdict order would be impossible to fulfil.”
The court acknowledged that CCF had offered assistance to the franchisees to help ease their concerns, including freeing them from certain obligations. However, the franchisees found this assistance to be unacceptable, saying that it amounted to CCF selectively enforcing parts of the interdict order.
None of the hardships that the affected franchisees raise indicate impossibility of performance. There may be expense, but this does not mean that the interdict order would be impossible to fulfil.
The court dismissed this argument, saying that the interdict order only referenced the franchise agreements and did not dictate how the parties should implement these agreements.
The court also said that if the franchisees did not want assistance or wished to retain their obligations, they could communicate this to CCF, and no-one was forcing the assistance on them.
However, it would be unfair to CCF if the franchisees were allowed to avoid complying with the order, as this would undermine CCF’s potential arguments for specific performance in the arbitration proceedings, the court said.
“The concerns of affected franchisees must be weighed against the ongoing harm suffered by CCF. Had the interdict order been respected, they would have received royalties from the affected franchisees. I see no reason to continue cosseting the affected franchisees and protecting them from any inconvenience, while CCF is deprived of the benefits it should have received under the interdict order.”
Ultimately, the court decided that the franchisees’ claims did not warrant relief and dismissed their application, ordering them to pay costs incurred by CCF, including for three counsel, on a standard scale.
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