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AUSTRALIAN REVIEW RECOMMENDS PENALTIES FOR BREACHES OF FRANCHISING CODE

by Simon Lord,
last updated 04/04/2018

The latest review of the Australian Franchising Code of Conduct has presented 18 recommendations to the Australian Government

The 2013 Review of the Franchising Code of Conduct is the fourth major review of the Franchising Code across the Tasman since 2006, although individual states have also held their own reviews. The independent review was conducted by Alan Wein, a lawyer, experienced franchise mediator and founder of the House homeware franchise.

The Review’s recommendations cover seven main areas:

  • Disclosure obligations
  • Franchisor failure
  • Transparency of financial information
  • Good faith obligations
  • Issues relating to the transfer, renewal or end of a franchise agreement
  • Dispute resolution
  • Enforcement of the Code

While some recommendations are aimed at clarifying or simplifying existing provisions, others could increase the burden upon franchisors. In addition, for the first time breaches of the Code could attract penalties of up to A$50,000 or allow the ordering of a royalty-free period for franchisees.

Implications for New Zealand

One recommendation that may be of particular interest to New Zealand companies intending to franchise into Australia is that the existing requirement that a foreign or master franchisor provide a long-form disclosure document should be replaced with a short-form disclosure document. This may result in a greatly-reduced regulatory burden for non-Australian companies. However, other recommendations may arouse more interest, particularly given the increasing rapport between Australian and New Zealand regulators. These include:

  • The obligation on franchisors to prepare for prospective franchisees a short stand-alone statement summarising the key risks.
  • The obligation of the franchisor to disclose rights associated with the conduct of online sales, including any ability of the franchisor to conduct online sales.
  • The detailed specification of how marketing funds are to be administered.
  • The introduction of penalties for breach of the Franchising Code as well as a general strengthening of the enforcement regime.
  • The express obligation to act in good faith – a term which will not be statutorily defined. This obligation will extend to the resolution of any disputes between the franchisor and franchisee irrespective of whether there is a valid franchise agreement at the time of the dispute.

Responses

The Australian Government is now considering its response to the Review and intends to prepare a Regulatory Impact Statement, which may involve further consultation with key stakeholders before any of the recommended changes are adopted. Once this review has concluded and any reforms are in place, it has been recommended by Mr Wein that any further review of the Franchising Code should not take place for a minimum of five years.

Michael Paul, chairman of the Franchise Council of Australia, has welcomed the report, saying, ‘We look forward to working with the Government to ensure the recommendations are implemented in a way that improves the regulatory framework, provides greater regulatory clarity and reduces compliance costs.  In particular we look forward to Governments at all levels uniting behind a single consistent Federal regulatory framework for our dynamic sector.’

More information

Regular Franchise New Zealand contributor Jason Gehrke has published a thoughtful review of the likely impact of the major changes. Read more.

And lawyers Judith Miller and Jennifer Tetsall of DLA Piper offer a clause-by-clause analysis. Read more. 

The full text of the 2013 Review of the Franchising Code of Conduct can be read here.

The Australian Government's consultation paper is here - the closing date for written comments on the paper is Tuesday 9 July 2013. The FCA brief is here.

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