Australia's franchising community can breathe a sigh of
relief following the much awaited decision by the High Court in
Ketchell, which was handed down on 27 August 2008 and has brought a
welcome return to stability for the franchising community. This
follows a recent franchising case of Hoy Mobile v
Allphones where Justice Rares said the NSW Court of Appeal
decision in Ketchell was "plainly wrong".
This decision overruled the July 2007 orders of the NSW Court of
Appeal which held that a breach of the Code rendered a franchise
In a unanimous decision, the High Court held that non-compliance
with regulation 11(1) of the Code does not result in the automatic
illegality and unenforceability of a franchise agreement.
The High Court looked at the following matters to reach its
1. The purpose of the Code and the Trade Practices Act
Both the Code and the Trade Practices Act are intended
to regulate the conduct of persons in the franchising industry to
"improve business practices, provide protection to franchisees
proposing to enter into franchise agreements and to decrease
The High Court noted that to render void every franchise
agreement entered into where a franchisor had not complied strictly
with the Code would give the franchisor an opportunity to avoid its
obligations and at the same time place the franchisee in breach of
its obligations to third parties.
A preferable result is to permit the franchisee to seek relief
(as is appropriate in the circumstances of a particular case) as a
franchisee may not wish to be relieved of all of its rights and
obligations under the franchise agreement.
2. The provision of remedies under the Trade Practices Act
The detailed provisions of the Trade Practices Act
dealing with the consequences of non-compliance with an industry
code such as the Code, does not support the harsh conclusion of
automatic illegality and unenforceability.
The Trade Practices Act sets out a range of remedies
that deal with non-compliance with the Code, including injunctions,
damages, non-punitive orders and a range of other remedies (such as
those varying contracts, obliging compliance with certain
contractual terms and refusing to enforce any or all contractual
provisions of a franchise agreement).
It is sufficient that a franchisor is aware of the obligations
imposed by the Code and that action may be taken by a franchisee
under the Trade Practices Act with respect to a breach of the
The High Court's unanimous decision brings certainty to the
franchising community, rendering it unlikely that a breach of the
Code will lead to franchise agreements being struck down as illegal
Implications for Franchisors
Franchisors should continue to strictly comply with the Code, as
a failure to do so may attract the other remedies available to the
ACCC and to franchisees under the Trade Practices Act.
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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