FCA to fund Ketchell appeal

The Franchise Council of Australia has taken the unprecedented decision to fund a legal case in the Court of Appeal.

The decision relates to the Master Education Services v Ketchell case referred to in our last newsletter and summarised here . Writing in a special release to all members, FCA Executive Director Steve Wright says. ‘This issue is of serious significance for the sector Australia-wide. It is the biggest single legal issue the FCA has faced in its 25-year history.'

‘At the centre of the Ketchell case is the ruling by the NSW Court of Appeal that a breach of the Code of Conduct disclosure requirements rendered a franchise agreement illegal. The FCA Board believes this ruling is a threat to the stability of the sector and can not be allowed to stand unchallenged. Should a franchise which has operated successfully for years suddenly be subject to legal claims because a disclosure document cannot be produced on demand? Already a member organisation in NSW has been "caught in the Ketchell net" and is a facing the need to appeal a District Court ruling based on the Ketchell precedent that will cost it several hundred thousand dollars if the precedent is not overturned. Legal committee members are concerned the Ketchell case could be a launching pad for a trend toward opportunistic litigation which could be time consuming, expensive and distracting, with serious negative impact on franchisors and franchisees.'

The FCA is careful to emphasise that it has not taken a decision to support a franchisor against a franchisee. 'We took no interest in the case when it was in the lower two courts, when it was simply a case over a fees dispute,' Mr Wright told Franchise New Zealand. 'The Court of Appeal changed all that with its unlawful agreement ruling. We will be covering the costs of both the franchisor and the franchisee in the High Court so we are genuinely tackling the issue, not supporting one side or the other.'

The total cost to the FCA, including the High Court appeal process and the costs of the Court hearing, is expected to be $175,000. The Council is asking for what it calls ‘a modest voluntary contribution' from all members which ranges from AUS$500 for affiliates and those systems with fewer than 25 outlets to AUS$1000 for those with over 100 outlets.

The precedent does not apply in New Zealand, where there is currently no franchise legislation; however, NZ franchisors will be watching developments in Australia with interest.