As the Review’s Discussion Paper by appointed reviewer Alan Wein outlines, the 2008 amendments were engineered to increase the transparency and quality of franchisor disclosure. The 2010 amendments consolidated this, and upped the ante, firstly by increasing regulation of franchisor-franchisee interactions in dispute resolution processes, and secondly by focussing on the undercurrent of good faith that is of paramount importance in what are often dealings involving disparate bargaining powers which risk the ‘information asymmetry’ often lying at the core of business relationship breakdowns.
The questions itemised for discussion number almost 30, and cover issues such as:
- have these increased franchisee awareness of the risk of franchisor failure?
- are franchisees provided with more transparent financial information?
- is it more effective to regulate behaviour on an ad hoc basis rather than attempting to prescribe broad-brush requirements to act bona fides?
- is any benefit to enure to the sector if a specific requirement to act in good faith were added to the Code (and if so, how would the term be defined and its scope determined? How would these requirements interact with the Australian Consumer Law?)
Certainly, it appears that the raft of actions at common law and in statute for misleading and deceptive conduct, unconscionable conduct, false representations and the finding of implied obligations of good faith, etc., sufficiently address unfair dealings, particularly when these are buttressed by governmental regulation in the form of bodies such as the Australian Competition and Consumer Commission. Whether the 2013 Review considers it appropriate to inject further good faith requirements into the Code will be of concern to practitioners, with the common consensus being that the franchising sector is in the throes of excess regulation and paucity of implementation.
Alternative Dispute Resolution
The 2010 amendments saw clause 29(8)’s introduction, requiring parties to attend mediation where the other requests it, and to do so in a ‘reconciliatory manner’ (the indicia of which are outlined in the provision).
The provision is arguably benign in increasing parties’ conduct at mediation. Reconciliatory conduct includes superficial ‘tick-the-box’ type requirements such as attendance at ‘reasonable times’, making intentions clear at the outset of mediation, and not thwarting the other party’s contractual performance by, for example, the provision of inferior goods for the duration of a dispute.
None of these provisions operate (nor, certainly could any further drafting operate) to regulate the willingness with which a party comes to the table to settle in mediation. Whether the party attends for the purposes of ostensible compliance only is a matter that no amount of legislative requirements can govern.
Interestingly, the 2010 amendments requiring disclosure as to end-of-term arrangements included (at clause 17C.1) a requirement that the franchisor provide an indication of whether the franchisee is entitled to exit payments upon a franchise agreement’s termination.
Given that franchising hinges on the advantage a franchisor enjoys having its franchise brand and reputation disseminated and developed while retaining all intellectual proprietary rights (and all developments and improvements made thereto) forming the basis of the brand’s success, the insertion of the requirement to indicate whether franchisees will receive any consideration for contributions to the franchise development seems to be at odds with the franchise concept. It will therefore be interesting to see the results of submissions made by the sector on the impact (if any) amendments such as 17C.1 have had.
Tony Conaghan, IDI franchising country expert for Australia