Franchisor v Franchisee in Worldsites’

In addition, the franchisees allegedly created a web page which transformed Worldsites' three-globed logo into three lemons, and changed the "Worldsites" name to read "Worldshits." Worldsites says the franchisees also transformed the company legend of "Specialised Internet Business Solutions” into "Specialised Internet Business Scams."

The Independent New Zealand
August 8, 2001

Franchisor v Franchisee in Worldsites’
‘McDonald’s of the internet’ wrangle
Jon Stephenson

Thirteen New Zealanders are battling a gagging order barring them from criticising Worldsites International, a Canadian-based franchisor they say ripped them off.

One of the franchisees claims to be $88,000 out of pocket.

Justice Robert Chambers issued the ex parte injunction on 5 June in the High Court at Auckland, after Worldsites said the franchisees had breached their agreement by levelling allegations of misrepresentation and poor management at the company. The critical comments were published on the internet.

Worldsites also charged the franchisees with breaches of the Fair Trading Act, malicious falsehood, unlawful interference with trade or business, and defamation.

The franchisees head to the High Court at Auckland this afternoon, in a bid to have the gagging order set aside.

The franchisees have also filed a counterclaim against Worldsites, alleging the company breached the Fair Trading Act by misrepresenting the system of developing and marketing internet web pages promoted in this country and internationally.

Worldsites International is incorporated in the Bahamas, has its head office in Toronto, and wants to have the franchise dispute arbitrated in the US state of Delaware.

The franchisees will be seeking to have the matter determined here.

Worldsites franchised its system to the group between September 1999 and November 2000. The Independent understands the majority of the franchisees paid around $80,000 plus gst for the franchise. Things apparently turned sour after none was able to trade profitably.

The franchisees are alleging Worldsites' representatives told them the production costs of each website they sold would be 20% of the retail price of that site.

They claim this implied that, if a site was sold by a franchisee for, say, $5,000, the Worldsites' production centre in Toronto would charge the franchisee only $1,000 for production.

However, the group says that, after paying in full for their franchises, they discovered the cost of production was not 20% of retail but a fixed price per product. They claim this fixed charge was unrealistic, and made it impossible to operate the franchises at a profit.

The group maintains a greater degree of technical know-how was needed to successfully operate the franchises than was suggested during franchisee selection interviews.

The franchisees also point to statements by Worldsite representatives that the company's franchise system was regarded as the "McDonalds of the internet" - a claim they argue implies that Worldsites is a successful franchise system which is spreading rapidly.

But the group claims McDonalds' franchises in New Zealand have around a 95% success rate compared to what they allege is Worldsites' zero success rate in this country.

According to the franchisees, Worldsites' statement of income for 1999 and 2000 lists income gained from royalties internationally as zero. This suggests Worldsites' web page franchise system is unsuccessful, the group says.

Worldsites went to court claiming that in May this year, the 13 franchisees threatened a "well planned programme to cover the globe" with their allegations of misrepresentation and poor management if it didn't pay them $US 707,881 by way of settlement.

Worldsites alleges the disgruntled franchisees said they would see it "buried" if the company failed to pay.

It says the group followed up these threats the following month by sending an email to Worldsite employees in Toronto stating they had been misled by the company.

In addition, the franchisees allegedly created a web page which transformed Worldsites' three-globed logo into three lemons, and changed the "Worldsites" name to read "Worldshits." Worldsites says the franchisees also transformed the company legend of "Specialised Internet Business Solutions” into "Specialised Internet Business Scams."

A spokesman for the franchisees said they were forced to take action when their concerns about the Worldsite system's poor performance were not addressed by the company.

Group members have contacted Worldsites' franchisees overseas who appear to have had similar experiences to their own.

The lawyer representing the 13 franchisees, Phillip Rice of Auckland law firm Grove Darlow, declined to comment on the case.

However, he said it was vital that anyone considering buying a franchise sought professional advice before signing an agreement.


Risks: McDonald’s of…, Internet information sharing, Hates publicity, Gag order, court-mandated, Disputes heard on franchisor’s home turf, Canada: white-collar crime haven, New Zealand, 20010808 Franchisor v

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