Hi-Life International Co., Ltd. was complained for using false advertising and deceptive or obviously unfair methods to recruit and exclude its franchisees in violation of the Fair Trade Law

Chinese Taipei

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Summary:

1. Hi-Life International Co., Ltd. (Hi-Life) was accused of publishing false advertisements seeking to recruit franchisees to its chain, concealing important trading information during the recruitment process, and subsequently excluding the franchised stores while keeping their franchising fees.

2. Inquiries with Hi-Life chain members showed that they pay no up-front investment expenses, which are covered by Hi-Life, thus the phrase “We invest,” from the statement “We invest, you set up shop” contained in the disputed advertisement was factual. Further, the undefined “operating remuneration” contained in the disputed advertisement was defined in a Hi-Life corporate interview handbook and franchise contract provided by the complainant as “concession operating fees,” which in turn referred to a specific percentage of the enterprise's “gross profit” rather than “net profit” after expense deduction. Additionally, where the “operating remuneration” referred to in the advertisement in question fell below NT$1.3 million, Hi-Life would make up for the differences. As such it is difficult to believe that the advertisement in question was false and misleading.

3. The “drafting fee” paid at the time of signing the drafted franchise contract is defined and used by most chain store systems as a type of deposit. Hi-Life is no exception, and therefore is required to fully disclose all relevant important trading information prior to requesting that new members pay their “drafting fees.” It was found that the important trading information relevant to joining the chain was disclosed in writing in Hi-Life's procedures for expanding its chain of franchises and in its franchise business start-up seminars, and it was clearly stated that those wishing to join the chain had the right to review both the drafted and franchise membership contracts. Therefore, Hi-Life can be considered to have fully disclosed all the important trading information relevant to this franchise prior to the signing of the drafted agreement.

4. After investigation, it is also shown that the average annual exclusion rate of franchised stores for the years of 1996 through 2001 was 16.64%, with the excluded members having an average period of operation of 13.63 months. Comparing other chain convenience stores, its ratio was not the highest. The reasons asserted for contract termination are generally the same as those for other convenient store chains. Also, given that the average period of operation for terminated stores was over one year, it is difficult to believe the allegation that Hi-Life had excluded its franchised stores with a view to scalp their franchising fees.

5. After investigation, the Fair Trade Commission (FTC) made final decisions as follows:

(1) According to the results of the investigation, it was difficult to support the claim that Hi-Life's actions were in violation of Article 21(3) and Article 24 of the Fair Trade Law.

(2) With regard to Hi-Life's failure to refund the full amount of the drafting fees and the overly short period of time allotted for the perusal of the said contract, in order to avoid contractual disputes and injury to the rights of new franchisees due to an overly short period of time for inspecting the terms of the contract, the FTC's letter of response to Hi-Life recommended that Hi-Life prescribe an appropriate drafting fee refund ratio and provide those interested in joining the chain with a suitable period of time during which to peruse the contract. Further, the FTC resolved that when subsequent amendments are made to the FTC's “Standards Governing Disclosure of Information by Franchisers,” a comprehensive examination of said standards shall be conducted.

Appendix:

Hi-Life International Co., Limited's Uniform Invoice Number: 23285582

Summarized by Tai, Pei-Yi; Supervised by Chen, Yuhn-Shan