Brett Bolton, Special Counsel
Kate Williams, Solicitor
Recent court action taken by the Australian Competition and
Consumer Commission should serve as a timely reminder to
franchisors of the obligations they owe to franchisees and
potential franchisees under the Franchising Code of Conduct. The
Commission took court action in relation to alleged breaches of the
Franchising Code of Conduct and the 'unconscionable
conduct' provisions of the Trade Practices Act.
The Franchising Code of Conduct is a mandatory code of conduct
that has the force of law under the Trade Practices Act 1974. It
applies to franchise agreements entered into, renewed or extended
on or after 1 October 1998.
The purpose of the Code is to regulate franchising
participants' conduct towards each other, and to ensure that
franchisees are well informed about a franchise before entering
into it. The Code also provides a cost-effective dispute resolution
scheme for franchisees and franchisors to resolve disputes.
The Code defines "franchise agreement" very broadly,
and this broad definition is perhaps the most important feature of
the Code. The definition is wide enough to catch agreements that
previously would not have been considered a franchise agreement,
including some distribution agreements, motor vehicle dealership
agreements and software licensing agreements.
Under the Code, franchisors must provide a prospective
franchisee, or a franchisee proposing to renew or extend a current
franchise agreement, with a disclosure document, a copy of the Code
and a franchise agreement at least 14 days before the franchisee
enters into, renews or extends the agreement, or pays a
non-refundable deposit in relation to the agreement.
The purpose of this requirement is to provide potential
franchisees with the information they need to make an informed
decision, and to give existing franchisees current information from
the franchisor that will help them run the franchise.
The Code also sets out the franchisee's rights and
obligations in relation to a franchise agreement - for example, the
right to terminate the franchise agreement in certain
circumstances, and the prohibition on franchisors trying to prevent
franchisees from forming a franchisees' association for certain
What is the Australian Competition and Consumer
The Australian Competition and Consumer Commission's role is
to help people understand their rights and obligations under the
Code and the Trade Practices Act. The Commission does this by
developing and distributing educational material through its
outreach programs in each state and territory.
The Commission also has a role in investigating potential
breaches of the Code and is responsible for enforcing the Code when
a breach occurs.
The Commission has recently taken a renewed interest in
Franchising Code of Conduct matters. It has begun proceedings in
the Federal Court of Australia against two companies for alleged
breaches of the Code.
Allphones Retail Pty Limited
The Commission alleges that Allphones engaged in misleading or
deceptive conduct towards potential and current franchisees by
misrepresenting the way in which it operates its franchise system,
in particular misrepresenting the way in which profits are shared
The Commission also alleges that Allphones engaged in
unconscionable conduct, which included forcing franchisees to bow
to Allphones' demands by threatening or engaging in harsh
conduct towards franchisees, and failing to disclose or pay certain
income to franchisees.
On 19 January 2009, the Federal Court granted an injunction
until trial, which prevents Allphones from indicating to
franchisees that it plans to prefer the interests of franchisees
operating under the new franchise agreement when allocating stock
to its stores. The matter is awaiting a final decision from the
Seal-A-Fridge Pty Ltd
The Commission alleges that Seal-A-Fridge engaged in
unconscionable conduct towards its franchisees by, amongst other
things, unreasonably withholding its consent to the transfer of
franchises, and disconnecting franchisees from the national
Seal-A-Fridge telephone number to force them to agree to increased
fees for services associated with that number. Mr Nigel Rooney, a
director of Seal-A-Fridge, is also alleged to have knowingly
participated in the alleged breaches.
The Commission also alleges that Seal-A-Fridge had breached the
Franchising Code of Conduct by failing to provide adequate
disclosure to potential franchisees, and failing to provide current
disclosure documents to franchisees despite written requests for
On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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”
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).