by Simon Lord

last updated 29/07/2009

Regulation - Hints and Concerns

by Simon Lord

last updated 29/07/2009

June 2008 - Work is proceeding behind the scenes on the preparation of a regulatory framework for the franchise sector in New Zealand

The Ministry of Economic Development is investigating the franchising sector and preparing a report on the introduction of franchise law in New Zealand. Rumour has it that the Government is keen to see this introduced before the general election, although the timing for that would seem to be impossibly tight.

The Franchise Association (FANZ) took the wise step of commissioning Stephen Giles to prepare an independent report on the topic and this has been well-received by the Ministry. Stephen Giles is a former chairman of the Franchise Council of Australia. The current feeling seems to be that the Australian legislation is over-complex and over-proscriptive (something admitted behind closed doors even by some key figures there) and would not be suitable for New Zealand. In his presentation to the recent National Franchise Conference in Rotorua, current FCA chairman John O'Brien suggested that the Australian legislation's latest requirements to disclose details of supplier agreements to prospective franchisees could even be anti-competitive, thereby bringing it into conflict with other legislation.

In her speech at the same conference Judith Tizard, the Associate Minister of Commerce and Minister of Consumer Affairs, spoke positively about the franchise sector in general and described the FANZ report as ‘extraordinarily helpful'. Her overall message was that the government will want to ensure that compliance costs are kept to a minimum and nothing is done to restrict franchise businesses, but that at the same time they wish to reduce the risks involved in buying a franchise.

Ms Tizard's speech contained a number of comments that may give a hint of current thinking. These include:

  • Disclosure, as already required by FANZ, is good. There may need to be a standard template for disclosure, including a requirement to show the basis for any estimates.
  • This should also show how long the business has operated, perhaps with a statutory minimum period.
  • There might be a requirement for franchisors and franchisees to act in good faith.

This last point is of particular interest and was later commented upon by John O'Brien. Good faith is a concept not yet recognised in New Zealand law, although it is being increasingly accepted in other jurisdictions. At the moment, Australia has a requirement that franchisors do not indulge in unconscionable conduct. ‘Although it is up to the Courts to define what this means in any particular case, they know it when they see it,' Mr O'Brien said. ‘Basically, it smells and it is off. The concept of good faith is a positive obligation that is much harder to define and would be up to judges to interpret. It would have particular implications for the renewal of end-of-term franchise agreements.'

The timing of the release of the Ministry report has not yet been disclosed, but Ms Tizard had advised that interested parties - franchisors, franchisees, advisors and suppliers to franchises - will all be consulted.

There has been no announcement yet on the timing of the release of the SFO report on the Keith Lapham/Green Acres ironing franchise issue. However, this is thought to be due in mid-to-late July.

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