Australia: Consent Must Not Be Unreasonably Withheld To A Transfer Of A Franchise

Last Updated: 18 November 2008
Article by Anna Trist

Originally Published 7th October 2008

In May 2008 in the case of Masterclass Enterprises Pty Ltd v Bedshed Franchisors (WA) Pty Ltd the Supreme Court of Western Australia (the Court) dealt with the issue of whether a franchisor's consent was unreasonably withheld to a transfer of a franchise.


The franchisor, Bedshed, was engaged in a business with approximately 42 retail stores nationally. In 2003, Masterclass (the franchisee) agreed to purchase the Claremont Bedshed franchised business and entered into a non-exclusive franchise agreement on 12 September 2003 for over 17 years. That franchise agreement said that the business and the premises must at all times be under the direct supervision of the franchisee (or in the case of a corporate franchisee, someone having a substantial interest in the corporate franchisee) and that the franchise cannot be transferred by the franchisee without the written approval of Bedshed, which could not be unreasonably withheld. In effect, the agreement also provided that Bedshed's approval of a transfer was subject to the transferee meeting Bedshed's criteria for the selection of new franchisees and of the transferee being capable of operating the business as a franchisee.

Masterclass sought to sell Bedshed Claremont to a corporate franchisee, which proposed to have a manager operate the business on a full time basis. Initially the manager had no interest in the corporate franchisee, but was later given a minor interest (of 5%) in the corporate franchisee (and an indemnity in relation to her guarantee and liability as a director). Bedshed refused its consent to the transfer on the basis that it was not satisfied that Bedshed Claremont would be under the direct supervision of a person with a significant stake in the business. Masterclass argued that this was unreasonable and that the clause was an unlawful restraint of trade. Further issues arose as a result of the form of the franchise agreement undergoing changes.


The case dealt with three issues, namely:

  1. Was the consent of Bedshed to the transfer of the franchise unreasonably withheld?
  2. Was the requirement that the business be at all times under the direct supervision of the Guarantor (clause 6.2), an unlawful restraint of trade?
  3. Was the form of the franchise agreement that Bedshed proposed its 'then current franchise agreement'?


1. Consent was not unreasonably withheld

The Court held that the franchisor could withhold its consent to the transfer in accordance with the provisions of the Code. Clause 20 of the Code lists circumstances in which a franchisor is entitled to withhold its consent to the transfer of a franchise, however, the Court found this list was not exhaustive. The Court also established that there is an overriding requirement that consent to the transfer of a franchise not be unreasonably withheld.

It was found that the franchise agreement between Bedshed and Masterclass involved a continuing close commercial arrangement over its term. Due to the nature of this franchise agreement, the Court found it was not unreasonable to withhold consent to the transfer on the basis that the business must be supervised by someone with a significant stake in the corporate franchisee.

2. There was no restraint of trade

Although the effect of clause 6.2 of the franchise agreement was to require the franchise business to be supervised at all times under the direct supervision of the guarantor, the Court determined that the franchise agreement did not restrain Masterclass or its directors and shareholders from any other activity. The Court found that there was no basis for concluding that the clause was calculated to have the effect of limiting competition with Bedshed's business, and there was no illegal restraint of trade.

3. 'Then current franchise agreement'

The Court did not accept Masterclass' argument that the requirement that the purchaser sign the new franchise agreement proposed by Bedshed was contrary to the Code, but commented that it was contrary to the existing franchise agreement.

The Court briefly discussed the meaning of the phrase 'then current franchise agreement'. The franchise agreement between Bedshed and Masterclass required that a purchaser would sign the 'then current franchise agreement'. The Court expressed the view that the new agreement that Bedshed proposed to the purchaser was not the 'then current franchise agreement' (as defined in the existing franchise agreement). Contrary to Bedshed's argument, the Court noted that the phrase 'then current franchise agreement' described an agreement already in force between Bedshed and a franchisee, not one which Bedshed simply proposed to enter into in the future. This was not decided in the case and was merely a comment made by the Court. The Court's comment in relation to this point is contrary to the accepted practice of the franchising industry.

What this means for franchisors

The following conclusions can be drawn from this case:

  • The list of circumstances under the Code for which consent may be reasonably withheld is not exhaustive. Depending on the circumstances that arise, such as the close working relationship between the parties and the long term of the agreement, it may be reasonable for the franchisor to withhold consent to the transfer of a franchise.
  • Franchisors must consider the implications of the terms 'then current franchise agreement' in franchise agreements.


Franchisors should review the list of circumstances set out in their franchise agreement where they can withhold consent to a transfer and ensure they are reasonable and only apply that list where it is reasonable to do so.

Franchisors should discuss with an expert legal advisor the roll out of new franchise agreements to avoid any complications.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.