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Changes are on their way for the Australian Franchising Sector

Malcolm Campbell ||

In our earlier articles, we identified some of the key changes to the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (the “Code”) that had been proposed by the Australian Government.

On the 22nd of February 2021, the first of these changes, in the form of the new Franchising Laws Amendment (Fairness in Franchising) Bill 2020 (“the Bill”) passed the Senate.

The Bill comprises two schedules and seeks to:

  • enable the Australian Small Business and Family Enterprise Ombudsman (the Ombudsman) to appoint a mediation and franchising adviser to assist in resolving franchising disputes where mediation has failed, or where both parties agree to arbitration;
  • give the Ombudsman the power to assist with multi-party mediation and arbitration in franchising disputes where multiple parties have identical issues that require resolution; and,
  • increase the civil penalties provisions for breaching the Code.

Dispute Resolution

Schedule 1 of the Bill seeks to address the unique power imbalance in franchising by offering an optional binding alternative dispute resolution that is determined by an expert in that field.

In circumstances where mediation has failed or if both parties to a franchising dispute otherwise agree, the Bill would give the Ombudsman the power to assist with having the matter resolved by arbitration by establishing a mediation and franchising adviser with the power to appoint arbitrators to resolve disputes.

The Bill will also enable multi-party resolution of franchising disputes and give the Ombudsman power to assist with multi-party mediation and arbitration in franchising disputes. These amendments should ease the financial burden on individual franchisees with regard to initiating and resolving disputes and assist franchise networks where there are systemic issues within the network.

Penalties

Schedule 2 proposes to increase civil penalties for breaching the Code, where corporations that breach the Code must face maximum penalties which are the greater of the following:

  • $10,000,000;
  • If a court can determine the value of benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the contravention – 3 times the value of that benefit; or,
  • If the court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the 12-month period ending at the end of the month in which the contravention happened or began.

The amendments will significantly increase the quantum of penalties available for breach of the Code, to ensure the penalties are a meaningful deterrent.

Future Proposed Changes to the Franchising Code

The Australian Government has also finished consulting on an Exposure Draft of changes to the Code, with the majority of the draft changes to come into effect from 1 July 2021.

The Draft proposes many changes including:

  • improved access to an early exit for franchisees;
  • penalties for franchisors relating to marketing funds;
  • a restriction on retrospective variations;
  • a new prohibition on passing on unknown legal costs;
  • improved disclosure by franchisors;
  • new conciliation;
  • voluntary binding arbitration and doubled penalties;
  • a restriction on retrospective variations; and,
  • extra notice provisions for termination in “special circumstances”.

Coleman Greig will continue to monitor the implementation of the proposed reforms and provide updates as they arise, so please stay tuned.

If you have a query relating to any of the information in this article, or you would like to speak with an experienced franchising lawyer regarding your own franchising matter, please don’t hesitate to get in touch with a member of Coleman Greig’s Franchising team, who would be more than happy to assist you.

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