A recent action commenced by the Australian Competition and
Consumer Commission in the Federal Court against a franchisor
could potentially become a landmark case on the issue of
withholding consent to the transfer of a franchised
The ACCC is alleging that the actions of the franchisor in
withholding its consent to the proposed transfer of franchised
businesses within its network, among other things, was both
unconscionable under section 51AC of the Trade Practice Act and
in breach of the Franchising Code of Conduct
Regulation 20(2) of the Code provides that a franchisor must
not unreasonably withhold consent to the transfer of a
franchise. Regulation 20(3) then goes on to provide a
non-exhaustive list of circumstances in which it is reasonable
for a franchisor to withhold consent. A franchisor is taken to
have given consent to the transfer under Regulation 20(4) if
the franchisor does not, within 42 days after the request was
made, give to the franchisee written notice:
that consent is withheld; and
setting out why consent is withheld.
The manner in which Regulation 20 of the Code is drafted
means that a franchisor will be obliged to establish reasons
for consent being withheld if it receives a request for consent
that it does not want to proceed with.
If a franchisor intends to rely on factors outside those
listed in Regulation 20(3), even if the specific factors are
listed in the franchise agreement, a franchisor needs to ensure
that the reasons given for withholding consent are
Given that some of the grounds for withholding consent will
be subjective, such as the suitability of the proposed
transferee, consideration should be given to having formal
policies in place that can be relied on to support a decision
if challenged. If a franchisor has policies in place which it
follows, including selection criteria for prospective
franchisees, these policies can be used to support a decision
to withhold consent. Even if the policies are not publicly
available, these policies can assist a franchisor to argue that
it has acted fairly and consistently in relation to all
requests for consent. Particular care should be given when
formulating such policies to ensure that they do not become a
rod for the franchisor's back.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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