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AUSTRALIAN RULING CONFIRMS CERTAINTY FOR FRANCHISE AGREEMENTS

by Simon Lord,
last updated 29/07/2009

in this article:

27 August 2008 - The High Court of Australia has overturned a decision by a lower court that had huge implications for the integrity of franchise agreements in that country and possibly beyond.

In the landmark Ketchell case, the NSW Court of Appeal had ruled that a technical breach of the Australian Franchising Code of Conduct (which governs franchise agreements in that country) rendered the whole agreement illegal, potentially opening the way for opportunistic litigation by a franchisor or franchisee. The High Court ruling effectively overturns that Court of Appeal ruling and restores contract stability to the sector.

Doubts had hung over the AUS$128 billion franchising sector across the Tasman since the unexpected ruling earlier this year in the Ketchell v Master Education Services case.

‘This decision means we can return to confidence in the pivotal contract which underpins franchising across Australia and all over the world - the agreement between franchisor and franchisee about how they will conduct business to their mutual benefit,' said John O'Brien, Chairman of the FCA.

The NSW Court of Appeal had ruled that a breach of the Australian Franchising Code of Conduct (which governs franchise agreements in that country) rendered the agreement illegal, potentially opening the way for opportunistic litigation by a franchisor or franchisee. The High Court ruling effectively overturns that Court of Appeal ruling and restores the contract stability the sector has enjoyed over the past 30 years.

The High Court ruled that a breach did not necessarily bring a franchise contract to an end, as other remedies were available - a position put by the FCA in its submission to the High Court ahead of its agreeing to hear the case.

FCA Executive Director Steve Wright said clarification provided by the High Court was exactly what the FCA had been seeking on behalf of the whole franchising community - franchisors, franchisees and advisers.

‘The unanimous five-nil judgement by the Full Court judges meant there was no room for ambiguity or ambit claims by any party seeking to exploit uncertainty,' Mr Wright said.

The High Court heard the case in June. It was a timely hearing because the Federal Court had added to uncertainty by rejecting the Ketchell case determination by the NSW Court of Appeal. In the case Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd, his Honour Justice Rares said that the NSW Court of Appeal was ‘plainly wrong' in its reasoning in the Ketchell case and that the judgement should not be followed.

Mr Wright said the FCA took the decision to fund the appeal after exhaustive consultation across the sector - in all state divisions and with the help of the FCA legal committee chaired by Stephen Giles, a partner at Law firm Deacons and the leading author on franchise law in Australia. Mr Giles managed the High Court appeal process to ensure that the costs of both franchisor and franchisee were met by the FCA .

‘The professionalism of the FCA submission, and the fact that the High Court recognised this in agreeing to hear the case, was testament to the thorough work which went into the preparation for the case and also into ensuring that a comprehensive summary of the facts and issues involved was presented to the High Court,' Mr Wright said.

‘The decision also will help clear up a number of cases in courts around the country - especially in NSW - where applicants have been waiting for a High Court ruling.'

Stephen Giles has also assisted the Franchise Association of New Zealand in preparing its submission to the Ministry of Economic Development regarding possible franchise regulation in this country .

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