Opportunity not opportunism: improving conduct in Australian franchising

1 December 2008

© Commonwealth of Australia 2008
ISBN 978-1-74229-017-1

Terms of reference
Relevant regulation and legislation
Conduct of the inquiry
Acknowledgement
Note on references
Report structure
Privilege issue

The franchise business model
Franchising appeal
Franchise contracts
Differing expectations
Power imbalance

The Australian franchising sector
   Franchise numbers and size
   Types of businesses
   Age of franchise systems
   Franchise system exit data
   Franchisee characteristics
   Franchisee turnover
   Dispute levels
Regulatory and representative bodies in Australian franchising
   Australian Competition & Consumer Commission (ACCC)
   Office of the Mediation Adviser (OMA)
   Department of Innovation, Industry, Science and Research (DIISR)
   Franchise Council of Australia (FCA)
   Franchisees Association of Australia Inc (FAAI)
Franchising regulation in Australia
   Franchising Code of Conduct
      Disclosure
      Conditions of the agreement
      Dispute resolution
   Relevant Trade Practices Act provisions
   Relevant case law
      Ketchell v Master Education Services Pty Ltd
      Hoy Mobile Pty Limited v Allphones Pty Ltd
      Implications for the franchising sector
   Other mandatory industry codes
      Oilcode
      Horticulture Code
   State regulation
Background to the current regulatory system
   Swanson and Blunt reviews
   Exposure drafts of a franchising bill
   Beddall Committee report
   Voluntary franchising code of practice
   Reid Committee report
   Mandatory code of conduct
   Matthews Review and subsequent amendments to the Code
   WA and SA inquiries
Franchise-specific legislation

Definitional issues: coverage of the Franchising Code of Conduct
Pre-contractual education
Pre-contractual advice
Due diligence and disclosure
   Length of disclosure documentation
   Accuracy and completeness of disclosure
   Frequency of disclosure
   Disclosure of leasing arrangements
   Disclosure of rebates and similar financial arrangements
   Disclosure of franchisor relationships with financial institutions
   Calls for the inclusion of risk statements
   Calls for registration or vetting of disclosure documents and standard form contracts
   Disclosure exemption for foreign franchisors

Challenges to the working relationship
Unilateral variation of franchise agreements
Compliance with the operations manual
Opportunism
Restraint of trade clauses
Confidentiality clauses
Advertising funds

Non-renewal
   Pre-contract disclosure
   Conditions of non-renewal
Termination
   Termination – breach by franchisees
   Termination – special circumstances
   Termination – no breach by franchisee
Exit arrangements
   Goodwill
   Market value
State inquiries

The need for a dispute resolution process
Existing mediation provisions
Statistical measures of disputation in franchising
Effectiveness of mediation
   Franchisee views
   Franchisor views
   Limitations of mediation
Suggested improvements to the mediation process
   Good faith in mediation
   Alternative dispute resolution mechanisms
      Pre-mediation processes
      Tribunal
      A franchising ombudsman
   Arguments for maintaining the status quo

Implied or explicit good faith
Good faith in section 51AC of the Trade Practices Act
Defined versus general good faith
Implications for current agreements and other sectors

Enforcement framework
ACCC investigation and enforcement activities
Barriers to effective enforcement
   Level of ACCC activity
   Prohibitive costs of independent litigation
Improving enforcement tools
   Pecuniary penalties
   Investigative power