Reform of Australian Franchising Laws

17 December 2009

The Commonwealth Government recently announced that amendments to the unconscionable conduct provisions of the Trade Practices Act 1974 (Cth) (TPA) and Franchising Code of Conduct (Franchising Code) would be made in 2010. The announcement follows the release of the government's official response to the Parliamentary Joint Committee on Corporations and Financial Services' inquiry into the conduct of parties to franchise agreements.

Expected key changes

New enforcement and investigative powers for ACCC to include:

Non-Party redress - A court may order redress for large numbers of businesses affected by a breach of an industry code without requiring that all affected businesses are party to the court proceedings.
Substantiation notices - The ACCC will be able to issue notices to persons subject to industry codes to substantiate claims made to promote their goods or services.
Public warning notices - The ACCC will be able to alert the public to conduct which may be in breach of an industry code, and impose targeted enforcement measures to deal with problems in the franchising sector.

Penalties

Penalties of up to $1.1 million for corporations and $220,000 for individuals engaging in unconscionable conduct or making false or misleading representations will be available under the reforms. These penalties will apply to the process of negotiating the contract as well as to the terms and conditions of the contract itself, and the ongoing behaviour of the parties. There will be more comprehensive disclosure obligations on franchisors in respect of end of term arrangements.

Necessary and desirable behaviours

A list of 'necessary and desirable behaviours' will be incorporated into the Franchising Code of Conduct to encourage parties to take a positive approach to resolving any franchise dispute. Examples of behaviours that are inappropriate in franchising relationships include unforeseen capital expenditure, unilateral contract variation, attribution of legal costs and confidentiality agreements.

Good faith

The Code will also be amended to state that it does not limit any common law requirement of good faith in relation to a franchise agreement to which it applies.

Disclosure requirements

There will be a requirement that franchisors disclose to prospective franchisees the process that will apply in determining end-of-term arrangements such as details of exit payments, arrangements in relation to unsold stock, and a franchisee's rights to sell the business at the end of the term.

What to expect

The government has established an expect panel which comprises Professor Bryan Horrigan, Mr David Lieberman and Mr Ray Steinwall to report on further amendments to the Code in January 2010. The full terms of reference are available online. The Panel will report in January 2010. A further review of franchising law has been scheduled for 2013.

The expected changes to the Franchising Code of Conduct and the TPA will have a number of implications for franchisors. Franchise documents will need to be reviewed and updated to comply with disclosure requirements and clarify end-of-term arrangements.

For further information, please contact:

Greg Shaw | Associate
MullinsLawyers
t +61 7 3224 0265
f +61 7 3224 0230
gshaw@mullinslaw.com.au