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 Code provides that a court can order a penalty of up to $66,600 for a breach of the “good faith” provision:

6 Obligation to act in good faith

(1) Each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to:

(a) the agreement; and

(b) this code.

This is the obligation to act in good faith.

Civil penalty: 300 penalty units.

The value of a Commonwealth penalty unit is prescribed by section 4AA of the Crimes Act 1914. As of 1 July 2020, the value of a penalty unit is $222.