The operation and effectiveness of the Franchising Code of Conduct
In Australia, the Franchising Code of Conduct (‘Code’) is a mandatory industry code pursuant to Part IVB of the Competition and Consumer Act 2010 (Cth). The Code regulates conduct amongst franchising parties. The Code has been subject to six Federal or State reviews in the past 12 years. Most recently, in 2013, there was a comprehensive review to analyse the implemented recommendations of previous reviews in addition to other focus areas, including provisions for enforcement, the rights of franchisees at the end of the term of their franchise agreements and obligations of dealing in good faith. Significant recommendations for these areas were provided in the review and were subsequently incorporated in the Franchising Code of Conduct 2015.
The 2013 Review noted that implemented recommendations should be provided with adequate time to take effect before further reviews are conducted, a minimum five year moratorium was suggested. Despite the changes only being adopted in 2015, a new Review has already been scheduled. Senator John Williams has proposed an inquiry into the operation and effectiveness of the Franchising Code of Conduct to the Parliamentary Joint Committee on Corporations and Financial Services. This proposition was passed by the Senate on 22 March 2018 and a final report is set to be published on 30 September 2018.
The scope of the inquiry is broad and include the following matters that have been referred to for open consultation:
the operation and effectiveness of the Franchising Code of Conduct, including the disclosure document and information statement, and the Oil Code of Conduct, in ensuring full disclosure to potential franchisees of all information necessary to make a fully-informed decision when assessing whether to enter a franchise agreement, including information on:
(i) likely financial performance of a franchise and worse-case scenarios,
(ii) the contractual rights and obligations of all parties, including termination rights and geographical exclusivity,
(iii) the leasing arrangements and any limitations of the franchisee’s ability to enforce tenants’ rights, and
(iv) the expected running costs, including cost of goods required to be purchased through prescribed suppliers;
the effectiveness of dispute resolution under the Franchising Code of Conduct and the Oil Code of Conduct;
the impact of the Australian Consumer Law unfair contract provisions on new, renewed and terminated franchise agreements entered into since 12 November 2016, including whether changes to standard Franchise Agreements have resulted;
whether the provisions of other mandatory industry codes of conduct, such as the Oil Code, contain advantages or disadvantages relevant to franchising relationships in comparison with terms of the Franchising Code of Conduct;
the adequacy and operation of termination provisions in the Franchising Code of Conduct and the Oil Code of Conduct
the imposition of restraints of trade on former franchisees following the termination of a franchise agreement;
the enforcement of breaches of the Franchising Code of Conduct and the Oil Code of Conduct and other applicable laws, such as the Competition and Consumer Act 2010, and franchisors; and
any related matter.
The Parliamentary Joint committee has encouraged all relevant stakeholders to make submissions.
We will keep you advised as to future developments. Should you have any questions, please let us know.
Tony Conaghan, IDI franchising country expert for Australia