Franchising and the Code of Conduct
Are you in a Franchise?
How do you know if you are in a franchise relationship and not say a distribution arrangement? Only a court can authoritatively determine if the relationship is a franchise or not. To do this it will use the provisions of Clause 5 of the Code.
Even where the exact nature of the relationship is indeterminate, parties can still agree to treat their relationship as a franchise to bring it under the Code and use the dispute resolution procedures available to resolve the conflict between them.
The Franchising Code of Conduct
The Franchising Code of Conduct is a mandatory code which regulates the conduct of participants in the franchising industry in Australia.
Established in legislation under the Competition and Consumer Act by the Australian Government, the Code provides rules that govern the relationship between franchisors and franchisees.
Franchise businesses are in a unique position when problems or conflicts arise in their relationship as they have support available to them under the Franchising Code of Conduct.
You can consult the current Code here: Franchising Code
Notice of Dispute
Under the Franchising Code of Conduct the party raising a dispute must notify the other party in writing of the issues that concern them by sending a Notice of Dispute. The dispute resolution provisions are not activated until this is done.
The Notice of Dispute must state:
a) the nature of the dispute
b) the outcome the complainant wants
c) what action the complainant thinks will settle the dispute
We will professionally prepare your Notice for you. Just fill in the details on the on-line form provided on the website and we will email it, with your supporting documents, to all of the parties to the dispute.
Good Faith Conduct
Parties involved in a dispute governed by the Franchising Code of Conduct are under an over-riding obligation to act in good faith in relation to their dealings with each other.
The ACCC explains that “good faith requires parties to an agreement to exercise their powers reasonably and not arbitrarily or for some irrelevant purpose. Certain conduct may lack good faith if one party acts dishonestly, or fails to have regard to the legitimate interests of the other party.”
Australian courts have found business dealings to be not in good faith when they involve one party acting for some ulterior motive, or in a way that undermines or denies the other party the benefits of a contractual relationship.
The Franchising Inquiry
In March 2019 the Commonwealth Senate Joint Committee on Corporations and Financial Services released its report, Fairness in Franchising after a major parliamentary inquiry into the franchising industry.
The report calls for wide ranging changes to the Franchising Code of Conduct to improve the relationship between franchisors and franchisees.
In particular, the Report sets out new procedures to enhance the opportunity for the resolution of disputes that occur between franchisors and franchisees:
- The dispute resolution scheme under the Franchising Code include binding arbitration with the capacity to award remedies, compensation, interest and costs.
- The Franchising Code be amended to allow a mediator or arbitrator to undertake multi-franchisee resolutions when disputes relating to similar issues arise.