On 24 July, the Federal Labor Government released its response
to the latest review of the Franchising Code of Conduct (Code) by
the Department of Industry, Innovation, Climate Change, Science
Research and Tertiary Education.
The Coalition has yet to reveal if it will follow the previous
government's response but franchisors and franchisees should be
aware of the potential changes, as they indicate a number of
significant amendments to the current law.
The Minister for Small Business, the Honourable Bruce Bilson,
emphasised at the recent National Franchise Convention that small
business requirements are high on the Coalition's agenda.
The review made 18 recommendations to Government. A summary of
some of the more critical recommendations and responses from the
previous government are set out below.
Recommendations relating to disclosure that the previous
government have accepted include:
amendments that require a franchisor to disclose the rights of
both the franchisor and franchisee to conduct online sales;
consultation on a proposal to allow a foreign or master
franchisor to provide a short-form of disclosure to a
sub-franchisee instead of the greater level of disclosure usually
the removal of the short form disclosure document available to
smaller franchises; and
a new requirement that a summary of key risks be disclosed by a
franchisor to its franchisee.
An express obligation to act in good faith for both a franchisor
and franchisee is also suggested by the review. The obligation
could extend further than the performance of obligations under the
Code to the negotiation of the franchise agreement, the performance
of the agreement and the resolution of any disputes between the
parties. The obligation would not prevent a party from acting in
its legitimate commercial interests but good faith could not be
limited or excluded by contract.
The former government had accepted this recommendation in part
but had raised concerns about the lack of legal knowledge of the
parties when dealing with the duty of good faith.
Restraint of trade
The previous government also accepted a recommendation that
restraint of trade provisions that prevent a franchisee from
carrying on a similar business in competition with the franchisor
become unenforceable when a franchisor decides not to renew a
franchise agreement. This would only apply in cases where the
franchisee wishes to have the agreement renewed and a number of
other conditions are met.
The review recommended that dispute resolution provisions be
amended to prevent:
franchisors from attributing legal costs of dispute resolution
to franchisees unless ordered by a court; and
franchisors from requiring franchisees to litigate in a
jurisdiction outside the jurisdiction the franchisee's business
The previous government accepted the costs recommendation and
indicated willingness to implement mechanisms in the Code to deal
with forum issues.
Penalties for breaches
Perhaps most importantly for franchisors, the review made a
number of recommendations relating to penalties for breaches of the
The previous government accepted that a civil pecuniary penalty
be available but stated that it would consult further before
determining an appropriate fine.
It was accepted by the previous government that the ACCC be
empowered to issue infringement notices for breaches of the
The review also proposes that the ACCC be able to conduct random
audits of a franchisor's compliance with all aspects of the
Code. The previous government also accepted this
Recommendations to enable courts to ban franchisors from
managing corporations and from implementing other
franchise-specific orders were however not accepted by the previous
Winner – EOWA Employer of Choice for Women Citation 2009,
2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and
2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best
Australian Law Firm (revenue less than $50m)
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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