In late 2009, the Federal Government published its response to
the 2008 inquiry into the franchising sector, and indicated it will
accept a number of the recommendations made in the 2008
Increase in ACCC powers
The Federal Government proposes to increase the powers of the
ACCC, specifically by:
empowering the ACCC to undertake random audits
empowering the ACCC to seek redress on behalf of franchisees
who are party to a franchise agreement
empowering the ACCC to 'name and shame' rogue or
allowing the ACCC to issue a 'substantiation notice',
which will require businesses to provide the ACCC with information
to substantiate claims made by them
where a large number of franchisees are harmed by the behaviour
of a franchisor in breach of the Franchising Code of
Conduct (Code), allowing the ACCC to apply
for orders providing redress for that breach to all franchisees in
a franchise network, without requiring all franchisees to be party
to the litigation.
The Federal Government has however declined to introduce
specific financial penalties for breaches of the Code.
The Federal Government proposes to amend to the Code to
introduce a list of necessary and desirable behaviours to be
displayed by the parties to a dispute in relation to dispute
attending and participating in meetings at reasonable
making intentions clear at the outset of the mediation (that
is, if the aim is to negotiate an exit arrangement rather than a
resolution to enable continued operation, this should be
observing confidentiality obligations during and after the
not damaging the franchise brand during the dispute, including
by providing inferior goods, services or support.
The Federal Government proposes that franchisors should be
required to disclose to franchisees the process that will apply in
determining end-of-term arrangements. This will involve, amongst
other things, requiring franchisors to:
disclose to franchisees whether or not there is some right of
renewal beyond the term of the franchise agreement
inform franchisees at least six months before the end of the
franchise agreement of the franchisor's decision to either
renew or not renew the franchise agreement.
It is proposed that these arrangements will not apply
retrospectively, however will apply to all franchise agreements
entered into after the Code is amended.
Good faith obligations
The Federal Government has declined to introduce into the Code a
general obligation of good faith in relation to franchising. It
proposes, however, to make clear that nothing contained within the
Code should limit any common law requirement of good faith in
relation to a franchise agreement.
Despite this, a further inquiry to be conducted (see below) may
identify specific behaviours that are inappropriate in a
franchising relationship to be included in the Code.
In addition to the remedies currently available under the
Trade Practices Act 1974 (Cth) (TP Act),
the Federal Government proposes to introduce penalties of up to
$1.1 million for a corporation, or $220,000 for an individual, who
has breached the unconscionable conduct provisions of the TP
In addition, the Federal Government has maintained its direction
to the ACCC to continue to initiate proceedings for the purpose of
developing further judicial guidance on what constitutes
unconscionable conduct under the TP Act.
Where to now?
The Federal Government has established a panel of experts in the
area of trade practice law and policy to consider the need to
include in the TP Act a list of examples or statement of principles
outlining 'unconscionable conduct', and to consider the
need to introduce into the Code a list of examples of specific
behaviours that are inappropriate in a franchising relationship.
Particular reference will be made to:
unforeseen capital expenditure
unilateral contract variation
attribution of legal costs
franchisor-initiated changes to franchise agreements when a
franchisee is trying to sell the business.
This panel is expected to release its report some time this
It is expected that legislation to give effect to the Federal
Government's response to the 2008 inquiry will be introduced
early this year.
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.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
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