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Opportunity not opportunism: improving conduct in Australian franchising.

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1 December 2008

Opportunity not opportunism: improving conduct in Australian franchising

Following a five-month inquiry, more than 150 submissions from franchisees, franchisors, representative organisations and academic and legal experts, and four public hearings in Sydney, Brisbane, Canberra and Melbourne, Mr Bernie Ripoll MP, Chair of the Parliamentary Joint Committee on Corporations and Financial Services, today tabled the committee's report entitled Opportunity not opportunism: improving conduct in Australian franchising.

The Parliamentary Joint Committee on Corporations and Financial Services inquired into the operation of Australia's Franchising Code of Conduct (the Code) with a view to identifying justifiable improvements to the Code. The committee has made eleven recommendations which are consistent with its overall aim of raising the standard of conduct in Australian franchising.

Variable contracts underpinning the franchising relationship can impair the viability and success of individual franchise agreements for the following reasons:

• differing expectations about the obligations of each party to the agreement; and • an asymmetric power dynamic within franchise agreements, with potential to lead to abuse of power.

"Although many franchise agreements result in successful and profitable ongoing business relationships, issues arising during the term of the agreement can cause tensions with the potential to escalate into disputes," Mr Ripoll said.

Franchise agreements should clearly stipulate what the end of term arrangements and processes are, and these arrangements should be fully and transparently disclosed to prospective franchisees.

Suggestions for improving dispute resolution outcomes included: an increased focus on pre-mediation strategies; the creation of a tribunal to make determinations; or the introduction of a franchising ombudsman. But inserting another layer into the resolution process between mediation and the courts would most likely add another layer of complexity and expense to the process without achieving materially improved outcomes.

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Instead, Mr Ripoll stated that "the committee is of the opinion that the optimal way to provide a deterrent against opportunistic conduct in the franchising sector is to explicitly incorporate, in its simplest form, the existing and widely accepted implied duty of parties to a franchise agreement to act in good faith."

Other key recommendations include: • a requirement that franchisors disclose to franchisees, before a franchising agreement is entered into, the process that will apply in determining end of term arrangements (rec 5) • that the Trade Practices Act 1974 be amended to include pecuniary penalties

for breaches of the Code (rec 9). • the government consider the benefits of developing an online registration system for Australian franchisors (rec 2) • disclosure documents include a clear statement by franchisors of the liabilities

and consequences applying in the event of franchisor failure (rec 1) and the government explore ways to better balance the rights of franchising parties in the event of franchisor failure (rec 4) • consideration be given to amending the Trade Practices Act 1974 to provide for pecuniary penalties in relation to breaches of section 51AC, section 52, and the other mandatory industry codes under section 51AD (rec 10) • the government consult with the ABS to develop mechanisms for collecting and publishing relevant statistics on the franchising sector (rec 7).

The committee's report is available on the committee's website at: or from the Committee Secretariat on 02 6277 3543.

For further information, contact the committee Chair, Mr Bernie Ripoll MP, on 02 6277 4934.