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Australian franchises fear dangerous precedent
Simon Lord
A recent court case in Australia has created such interest that the Franchise Council of Australia (the equivalent of our own Franchise Association) is looking at funding an appeal in the High Court.
In Ketchell v Master Education Services, the NSW Court of Appeal held that where a franchisor does not have a written acknowledgement that a franchisee has received, read and had an opportunity to understand the disclosure document, the franchise agreement is unlawful and unenforceable.
The Franchise Council of Australia was reported on the Smart Company website as saying this amounts to rendering a franchise agreement illegal for a technical breach of the country's mandatory Franchise Code and it is a decision that could create great uncertainty for 10% of franchise agreements or 5000 franchisees and their franchisors. ‘It impacts not only the ability of franchisors to effectively enforce their agreements, but the ability of franchisees to sell their businesses confident that they have a valid franchise agreement in place,' said the FCA's Stephen Giles.
The High Court has granted special leave to appeal against the NSW Court of Appeal's decision subject to the franchisor, Master Education Services, funding the legal costs of the franchisee - which it says it cannot afford to do. The FCA appealed to the ACCC and the Federal government to help fund the case, citing the almost $500,000 the ACCC was granted for fighting test cases when the mandatory Code was first enacted in Australia. However, the FCA now looks likely to have to provide the funds itself. Costs are estimated at A$200,000.
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