The mandatory Franchising Code of Conduct (the 2015 Code) which
commenced on 1 January 2015, requires franchisors to provide a
disclosure document to prospective franchisees setting out, amongst
other things, the relevant experience of their officers.
The requirements for full and accurate disclosure of this type
of information under the 2015 Code are being tested for the first
time in proceedings in the Federal Court commenced by the ACCC
against Morild Pty Ltd (the current Franchisor of the franchise
known as "Pastacup") and Mr Stuart Bernstein, the
principal behind the franchisor.
The Wein Review, which preceded the introduction of the 2015
Code, found that there was a need to improve disclosure for
prospective franchisees. The Government accepted this
recommendation (and indeed the majority of the Wein Review
recommendations), which lead to many of the changes to the 1998
Code which are reflected in to the 2015 Code. In the context of the
Morild case, ACCC Deputy Chair Dr Michael Schaper said
"People who decide to buy
into a franchise system often put their savings on the line and, in
doing so, should be able to make informed business decisions on the
basis of full and accurate disclosure by the
In its case against Morild Pty Ltd and Mr. Bernstein, the ACCC
alleges that Mr Bernstein failed to disclose that he had been a
director of two previous franchisors of the Pastacup system that
The ACCC is seeking penalties of up to $54,000 against Morild
Pty Ltd and Mr Bernstein, which is ultimately determined by the
Court. Infringement notices can also be issued by the ACCC, where
the ACCC has reasonable grounds to believe that a person has
breached a penalty provision of the Franchising Code. The fines
that may be issued under an infringement notice can be up to $9,000
for body corporates or $1,800 for individuals per breach.
The ACCC's action is a timely reminder to all franchisors to
revisit their franchise documentation to ensure compliance with the
2015 Code, as the ACCC has publicly declared that enforcement of
the 2015 Code is currently a priority for it.
Corporate Advisory & Governance team have a deep
understanding of the legal and commercial issues facing the
franchising industry. Whether you are a franchisor, a franchisee,
or a potential franchisee, we can assist you. We will issue further
alerts as the ACCC's action winds its way through the legal
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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