The Commonwealth Government yesterday released its long-awaited response to the report of the Parliamentary Joint Committee on Corporations and Financial Services on franchising in Australia.
The Government has announced that it will adopt measures to protect small business and franchisees from anti-competitive conduct of larger businesses.
ACCC granted greater powers
The Government will grant the Australian Competition and Consumer Commission (ACCC):
- power to conduct random audits under the Franchising Code of Conduct (Code) and other mandatory codes of conduct;
- wider powers to issue public warnings for breaches of the Code and other mandatory industry codes (ie to name and shame wrongdoing franchisors); and
- power to apply for an order that provides relief to all franchisees where a large number of franchisees have suffered harm as a result of a franchisor's conduct.
Good faith obligation
The Government has decided not to implement a general good-faith obligation in the Code.
Rather, the Government will identify specific franchising behaviours that it considers would be inappropriate in a franchising agreement and will implement policies to address such behaviours.
The behavioural issues the government has identified relate to:
- end-of-term arrangements; dispute resolution;
- unforseen capital expenditure;
- unilateral contract variation;
- attribution of legal costs;
- confidentiality agreements; and
- amendments to the franchise agreement when a franchisee is attempting to sell the business.
The Government will also establish an expert panel to deal with these behavioural issues and make recommendations on amendments to the Code, which is expected to report in January 2010.
To ensure that the application of a good faith obligation remains, the Government will amend the Code to state that nothing in the Code limits any common law requirement of good faith in relation to franchise agreements.
Unconscionable conduct
The Government intends to strengthen the unconscionable conduct provisions in the Trade Practices Act 1974 (Cth) (TPA) to specify that protection is afforded for the process of entering into a franchise agreement as well as the terms and conditions of the agreement and the parties' ongoing behaviour.
The expert panel will be asked to consider whether examples of unconscionable conduct or a statement of principles should be inserted in the TPA.
Pecuniary penalties
Significant penalties will apply for breaches of these provisions of the TPA, being:
- $1.1 million for corporations; and
- $220,000 for individuals.
We will continue to monitor these changes and will keep you updated as the amendments to the TPA and the Code are implemented.
For further information, please contact: