Changes to the Franchising Code of Conduct – Part 3

Racha Abboud

In our final article on the Wein review, we look at the last few recommendations made.

Recommendation 11

That subclause 20(4) of the Code be amended to read:

a) The franchisor is taken to have given consent to the transfer or novation if the franchisor does not, within 42 days after the request was made, or all information reasonably required by the franchisor under the franchise agreement has been provided, whichever is the latter, give to the franchisee written notice:

i. that consent is withheld; and

ii. setting out why consent is withheld

b) The franchisee should take all reasonable steps to provide all information required under the franchise agreement to enable the franchisor to be able to properly evaluate the request.

The Government has accepted this recommendation in principle. Despite the proposed introduction to act in good faith, various issues surrounding the suggested wording arise, for example, if a franchisor does not provide consent does it mean that they are not acting in good faith?
The intent of the recommendation is to ensure that a franchisor has the information reasonably required to make a decision about the transfer or novation of a franchise agreement. Ultimately, the 42 day period for the decision process will only commence when the franchisee has provided all the information the franchisor reasonably requires under the franchise agreement to make an informed decision. However, any amendment to the Code needs to ensure that it doesn't give an unintentional right to one party to frustrate or delay the transfer or novation by making multiple requests for additional information from the other party, in effect restarting the 42 day period again and again.
Subsequently, the Government has suggested that the clarity of franchisee agreements should be improved through the standardisation of paragraphs concerning the information that should be provided when a franchisor or franchisee seeks a transfer or novation of the agreement, which would help thwart any franchisor’s unreasonable delay in considering and granting consent.
Recommendation 15(a)

The Competition and Consumer Act 2010 (the CCA) be amended to:

a) allow civil pecuniary penalties to a maximum of $50 000 to be available as a remedy for a breach of the Code

b) allow the ACCC to issue an infringement notice for a breach of the Code;

c) allow the ACCC to use its powers under section 51ADD of the CCA (its random audit powers) to assess a franchisor’s compliance with all aspects of the Code, not just to require the production of documents created under the Code.

The Government has agreed to give the ACCC powers to seek pecuniary penalties for Code breaches. Some suggestions have been made that a breach for failing to prepare a disclosure document would incur a fine of $50 000 whilst failing to update a disclosure document would incur a fine of $5000. However, the Government has clearly stated that it will reach its own conclusion on the amounts to be fined for the various breaches. Further any penalties imposed under the Code, will not apply to other industries– just franchising!!
The Government believes that a combination of infringement notices along with penalties will encourage further compliance with the Code. It is important to ensure that these penalties are not too severe as there are genuine interpretational difficulties with quite a number of aspects of the Code.  In order to ensure certainty within the sector there would be a need to clarify these interpretational uncertainties and the ACCC may also be granted the ability to make interpretational rulings and publish clear enforcement guidelines.

Recommendation 17

There should not be another review of the Code for a minimum of five years after any amendments to the Code take effect in response to this report.

The Government has accepted this in principle as the multiple reviews, including this review, have generated uncertainty and fatigue within the industry and it is agreed that some time needs to be given to the sector before the effects of the amendments can be seen.

If you need further advice on how the Code may affect you please contact:

Racha Abboud, Senior Associate
Phone: +61 2 9895 9283