Answered>Order 18706

John is about to retire as the principal of a secondary school in one year’s time. After retirement, John plans to invest part of his pension fund in business.

His friend, Kelvin, is a retired teacher. Kelvin has been operating a convenience store under a franchise known as ‘7-11’ after his retirement. On referral, John approaches the franchisor, known as 7-11 Group Holdings Limited, for information. The franchisor is the parent company that allows individuals to start and run a business known as ‘7-11’ using its trademarks, products and processes.

The marketing manager of the franchisor company, Larry, interviews John. Larry tells John that there is good business potential to run a convenience store near John’s home.

John asks if there would be any potential competition and the estimated amount of profits. Larry replies that, as far as he knows, there is no convenience store within one kilometre of the vicinity. Larry also reassures John that the business will be a good investment for a retiree, as Kelvin is also a retiree.

John is excited about the new business venture and immediately signs the franchise agreement with Larry. It is a contract under which John agrees to set up a limited company to run the business of a convenience store with the brand name ‘7-11’, and in return John’s company will source the goods only from the suppliers approved by

the franchisor and will pay 10% of his gross income to the franchisor.

In fact, unknown to Larry, another staff member of 7-11 Group Holdings Limited signs a franchised agreement with another client in another office of the Group at the same time, who will open a convenience store within one kilometre of the site to be operated by John. With respect to the profitability of the franchised convenience

stores, the statistics of the franchisor reveals that around 30% of its franchisees are making a loss. However, Larry has not disclosed such information to John.

(a) What are ‘vitiating factors’? Please explain briefly in your own words. (5 marks)

(b) Can you identify any vitiating factor(s) in this question? Please identify them and explain in what circumstances it/they generally arise(s), and identify exactly the

facts from which it/they arise(s) in this particular case. (25 marks)

(c) John does not wish to open the store. What legal remedies are available to him? Please explain your answer by reference to the essential elements of the particular vitiating

factor(s) or the sub-category(ies) of such vitiating factor(s). (20 marks)