Australia: With The High Court´s Ketchell Judgment On The Way, Should The Franchise Industry Fear Judgement Day?

Last Updated: 19 June 2008

The Australian recently reported that the High Court is currently considering an appeal in the Ketchell case that "could destroy the franchise industry of Australia". That's right, the franchise industry's own Judgement Day could apparently be on the way.

Is the situation really that dramatic? Not quite. However, for our franchise industry the High Court's decision will be important and franchisors and franchisees should take notice of what happens.

What is the Ketchell decision?

In Ketchell, a franchisee wanted to avoid the obligation to pay franchise fees under the franchise agreement. The franchisee successfully argued that the agreement was illegal and unenforceable, because the franchisor had not complied with clause 11 of the Franchising Code before entering into it.

Under clause 11 of the Code, franchisors are required to receive a signed statement from the franchisee to say that:

  • the franchisee has received, read and had time to understand the disclosure document and the Code; and
  • the franchisee has either obtained, or been told to but has elected not to obtain, independent advice.

This statement has to be received by the franchisor before they enter into the franchise agreement or accept payment from the franchisee.

Why is Ketchell so important?

If the High Court agrees with Ketchell, then the result applies to all franchise agreements now in place or entered into in the future.

There are fears that the Ketchell decision will be used by disgruntled franchisees to try to dodge their contractual obligations to franchisors. This could destabilise long-established franchise networks.

The Franchise Council of Australia (FCA) shares this concern. Given the threat that the decision poses to the stability of the sector, the FCA believes that it can not be allowed to stand unchallenged.

The FCA considers it "the biggest single legal issue the FCA has faced in its 25-year history". This is why the FCA is funding the High Court appeal.

The Federal Court (in another recent case called Hoy Mobile v Allphones) has also voiced its fears, commenting that the Ketchell decision is "plainly wrong" and refusing to follow it. It fears that "there would be commercial havoc where franchisors had perhaps innocently and inadvertently failed to do everything required by the Code." Perhaps the recent Federal Court decision will influence the High Court's thinking on Ketchell.

But is it really Judgement Day?

Though the Ketchell case might disrupt businesses, we don't think franchisors should fear Judgement Day for 2 reasons. Irrespective of the High Court's judgment, Ketchell highlights how important it is for franchisors to:

  1. comply with the Code; and
  2. build and maintain strong commercial relationships with franchisees.

Franchisors are and should always be in control of entering into their franchise agreements, and franchisors can prevent spurious claims by franchisees by complying with the Code.

Looking back, perhaps some franchisors will fear Judgement Day. We can expect these franchisors to be sharing thoughts along the lines of:

  • "did we send off that disclosure document far enough ahead of signing the agreement" or
  • "was our disclosure document accompanied by the Code" or
  • "did we receive a signed statement"

You get the drift.

It might be useful for franchisors to audit their agreements and measure the risk.

What Ketchell proves is that building and maintaining strong commercial relationships with franchisees is a far more effective tool for managing any "havoc" that a franchisee could cause.

The sobering fact is that by the time a franchisee tries to avoid its obligations under the agreement, the relationship between franchisee and franchisor has probably already reached its Judgement Day.

Newsflash For Franchise Industry

The appeal to the High Court was heard on Tuesday 10 June 2008. The judges have adjourned to consider their decision. The High Court's decision will be delivered in the next weeks or months.



Arthur Koumoukelis

t +61 2 9931 4873


Anna Fergusson

t +61 2 9931 4948




Michael Owens

t +61 7 3114 0146


Michael Wood

t +61 7 3114 0108




Chris Ludescher

t +61 3 9612 8280


John O'Callaghan

t +61 3 9252 2557


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