By The Franchising Team
Today, 3 March 2010, the Australian Federal Government announced further reforms to the Franchising Code of Conduct (Code) and the Trade Practices Act 1974 (Cth) (Act). The Minister for Small Business, Independent Contractors and the Service Economy, the Honourable Dr Craig Emerson, addressing a franchising forum in Sydney, released the expert's report Strengthening Statutory Unconscionable Conduct and the Franchising Code of Conduct and advised of the Government's support for the panel's findings.
The major amendments are:
In relation to the Code
- The following behaviours would continue to be permitted subject
to the additional disclosure and comments described in paragraph
- unilateral variation of franchise agreement;
- capital expenditure requirements on franchisees;
- amendments to a franchise agreement where the franchisee is seeking to sell its business;
- clauses attributing legal costs; and
- confidentiality agreements requirements.
- Disclosure requirements for each of these should include:
- in relation to unilateral variation,
franchisor disclosure of the circumstances in which:
- unilateral variations can take place; and
- the franchisor has unilaterally varied a franchise agreement in the past 3 years;
- in relation to capital expenditure, franchisor
- the possibility of unforeseen capital expenditure by the franchisee, particularly as a result of a franchisor amending the operations manual; and
- whether significant capital expenditure would be a factor considered in deciding to renew the franchise agreement.
- in relation to amendments to a franchise agreement where the franchisee is seeking to sell its business, franchisor disclosure of that possibility;
- in relation to clauses attributing legal costs, franchisor disclosure of the cost-attribution of dispute resolution.
- in relation to confidentiality agreements, franchisor disclosure alerting prospective franchisees to the categories of information that cannot be discussed with existing and former franchisees.
In relation to the Unconscionable Conduct provisions of the Act
- in relation to unilateral variation, franchisor disclosure of the circumstances in which:
- To remedy the current uncertainty about what is unconscionable conduct for the purposes of the Act, a set of interpretative principles (rather than a list of examples) will be used as an aid to interpretation.
- The principles will recognise that the concept of unconscionable conduct under the Act will not be limited by equitable and common law doctrines of unconscionability.
- The principles will most likely include the following:
- the court may consider the terms and progress of a contract;
- the provisions may apply to systems of conduct or patterns of behaviour; and
- the identification of a special disadvantage is not necessary to attract the application of the provisions.
- In line with the single national law with respect to statutory unconscionable conduct under the Australian Consumer Law, the ACCC, ASIC and state and territory regulators should develop uniform national guidance on unconscionability, similar to the guidance being prepared for the new unfair terms regime.
- A short, simple, 'Plain English' document will be developed, to be provided to prospective franchisees before they are 'psychologically, financially and legally committed to entering a franchise agreement'.
© DLA Phillips Fox
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This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.