The ACCC has consistently stated that Franchisors cannot
circumvent the Code by simply claiming that the agreement is not a
franchise agreement. It took action recently against Australian
Loans Management (ALM) in connection with ALM's entry into
separate "licence agreements" with 3 parties for a
finance broking business called Active Money.
ALM did not provide the disclosure document or otherwise comply
with the Franchising Code of Conduct (the Code). ALM described the
agreements as "Licence Agreements", and published an
"Information Document" to accompany the Licence
Agreements which stated:
Not a franchise, a
This is not a franchise agreement. You hold an exclusive license to
operate the systems, facilities and branding of Active Money in
your designated area which is renewable each five years.
The ACCC considered that the ALM licence agreements constituted
franchise agreements, as all elements of the definition of a
franchise agreement were satisfied notwithstanding that the
arrangement was described as a licence. ALM was unable to convince
the ACCC that the arrangement did not have all of the salient
features of a franchise. ALM also ultimately conceded that its
statement in the Information Document potentially misled
franchisees into believing that they were not entitled to the
rights and remedies afforded by the Code.
ALM and Active Money entered into a written undertaking to
ensure future compliance with the Code, including providing
existing franchisees with a copy of the Code, a disclosure document
and a proposed franchise agreement that complies with the Code.
However ALM and Active Money were also required as part of the
provide existing franchisees with the opportunity to rescind
their existing licence agreement and obtain a full refund of all
monies paid to ALM; and
implement a Trade Practices Compliance Program for the
directors and employees of the business to minimize the risk of
future breaches of the Code.
For those experienced in franchising this case will come as no
surprise. However it does indicate that some business people and
their advisors remain unaware of the breadth of the definition of a
franchise agreement, which extends beyond pure business format
franchising into licensing and distribution agreements that satisfy
the definition, irrespective of their description. The case also
confirms the determination of the ACCC to ensure that any
arrangement that is marketed or structured as a franchise is
regulated by the Code.
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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We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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