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Franchising Laws Amendment (Fairness in Franchising) Bill 2020

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2019-2020

 

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

 

SENATE

 

 

 

 

 

FRANCHISING LAWS AMENDMENT (FAIRNESS IN FRANCHISING) BILL 2020

 

 

 

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

(Circulated by authority of Senator Deborah O’Neill)

 



 

Fairness in Franchising Bill 2020

 

OUTLINE

 

This Bill amends the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Franchising Code) to address the power imbalance in franchising.

The Bill comprises two Schedules.

Schedule 1 - Franchising Code amendments

This Bill seeks to address the power imbalance in franchising, that is quite different from other small businesses, by offering an optional binding alternative dispute resolution that is determined by an expert in that field.

This Schedule does this by giving the Australian Small Business and Family Enterprise Ombudsman (the Ombudsman), in circumstances where mediation has failed or if both parties to a franchising dispute otherwise agree, the power to assist with having matters resolved by arbitration. It does this by establishing a mediation and franchising adviser within the Ombudsman with the power to appoint arbitrators to resolve the disputes.

Lastly, amendments under this Schedule will enable multi-party resolution of franchising disputes and give the Ombudsman the power to assist with multi-party mediation and arbitration. This is relevant to franchising, where multiple parties can have the same issues that require resolution.

Schedule 2 - Quantum of penalties for breach of the Franchising Code of Conduct

The amendments under this Schedule will significantly increase the quantum of penalties available for breach of the Franchising Code of Conduct, to ensure that penalties are a meaningful deterrent.

 

 

NOTES ON CLAUSES

Clause 1: Short Title

1.              This clause is a formal provision specifying the short title of the Bill. Once enacted it may be cited as the Franchising Laws Amendment (Fairness in Franchising) Act 2020 .

Clause 2: Commencement

2.              This clause provides for the commencement of the entire Act to be the day this Act receives Royal Assent.

Clause 3 - Schedules

3.              Each Act specified in a Schedule to this Act is amended or repealed as is set out in the applicable items in the Schedule.  Any other item in a Schedule to this Act has effect according to its terms.

4.              The note to clause 3 clarifies that, subject to item 27 of Schedule 2, the provisions of the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 that are proposed to be amended or inserted by this Bill, and any other provisions of that instrument, may be amended or repealed by a future instrument.

Schedule 1 - Franchising Code Amendments

Part 1 - Main amendments

Items 1 and 4

5.              These items replace references to ‘mediation’ in clauses 21 and 36 of the Franchising Code with ‘mediation or arbitration’.

Item 2 and 3

6.              These items amend clause 35 the Franchising Code to allow for multi-party resolution of disputes. If two or more franchisees have a dispute of the same nature with a franchisor they may ask the franchisor to deal jointly with the franchisees.

Items 5 to 7

7.              Franchise agreements under the Franchising Code must provide for complaint handling procedures that comply with Division 2 of Part 4 of the Code.

8.              Items 5 to 7 amend clause 38 (within Division 2 of Part 4) which relates to the notification of disputes.

9.              I tem 5 inserts new subclause 38(2A) to specify that parties to a dispute must try to resolve the dispute amongst themselves before seeking mediation or arbitration of the dispute.

10.          Item 6 amends subclause 38(3) to require the internal complaint handling procedures of franchising agreements to allow, as an alternative to resolving disputes by mediation, for arbitration. All parties to a dispute must agree to it being resolved by arbitration.

11.          Item 7 amends existing subclause 38(4) to reflect that parties may now jointly choose to resolve a dispute by arbitration. Where the parties seek to mediate the matter first, the existing provisions will continue, whereby either party may ask the mediation and arbitration adviser to appoint a mediator if the parties cannot agree on the identity of the mediator.

12.          New subclause 38(5) provides that, if the parties have agreed to resolve the dispute by arbitration, the identity of the arbitrator will be a person from the list of arbitrators put together by the mediation and arbitration adviser. The arbitrator will either be chosen by the parties to the dispute or, if the parties cannot agree, by the adviser.

13.          Subclause 38(6) allows for the party that made the initial complaint to withdraw it at any time during the dispute.

Items 8, 14, 17 and 22

14.          These items are technical amendments to reflect the name change of the adviser to the mediation and arbitration adviser.

Item 9

15.          Clause 39 of the Franchising Code sets out the requirements for mediation within the internal complaints handling mechanisms of franchising agreements.

16.          Item 9 inserts new subclause 39(7), which specifies actions that a mediator must take after an agreement is reached in relation to the dispute. The mediator must, within 14 days of agreement, set out in writing the terms of the agreement, give a copy of the agreement to the parties, and also notify the mediation and arbitration adviser that an agreement has been reached.

Item 10

17.          This item adds new clause 39A at the end of Division 2 of Part 4 of the Franchising Code. This sets out the requirements for arbitration within the internal complaints handling mechanism of franchising agreements. These requirements largely reflect the Code requirements under Division 3 of Part 4.

18.          If the parties to a dispute have agreed to resolve a matter through arbitration but cannot decide the identity of the arbitrator, they may request the mediation and arbitration adviser to appoint an arbitrator. Subclause 39A(1) provides that the adviser must do so within 14 days of receiving such a request, unless convinced of particular matters.

19.          An arbitration must be conducted within Australia (subclause 39A(3)) but the method by which the arbitration will be conducted as well as the place and date of commencement will be determined by the arbitrator (subclause 39A(2)). Arbitration may be conducted in person, or by electronic means, including by videoconference or teleconference.

20.          Clause 39A also requires the attendance at arbitration of each party to a dispute, either in person, or by other means if allowed by the arbitrator (subclause 39A(5)). Subclause 39A(6) clarifies that parties may send a representative with authority to settle the dispute, or another representative, if a person with authority to settle is contactable by that representative at the time of the arbitration.

21.          Subclause 39A(7) specifies actions that an arbitrator must take after a dispute is resolved. The arbitrator must, within 14 days of agreement, set out in writing the terms of the resolution, give a copy of this to the parties, and also notify the mediation and arbitration adviser that the dispute has been resolved.

Items 11 to 13

22.          As an alternative to the internal complaints handling mechanism of a franchising agreement, participants in franchising may seek to have disputes resolved under Division 3 of Part 4 of the Franchising Code (the Code complaints handling mechanism). Clause 40 of the Franchising Code sets out the requirements for notifications of disputes under this mechanism. Items 11 to 13 of the Bill modify these requirements.

23.          Item 11 inserts new subclause 40(2A), which adds a further requirement that parties must attempt to resolve the dispute before taking action to resolve it by mediation or arbitration.

24.          Item 12 amends subclause 40(3) to provide that either party to a dispute may seek to have the dispute resolved by mediation or both parties may agree to have it resolved by arbitration.

25.          Item 13 amends existing subclause 40(4) to reflect that parties may now jointly choose to resolve a dispute by arbitration. Where the parties seek to mediate the matter first, the existing provisions will continue, whereby either party may ask the mediation and arbitration adviser to appoint a mediator if the parties cannot agree on the identity of the mediator.

26.          New subclause 40(5) provides that, if the parties have agreed to resolve the dispute by arbitration, the identity of the arbitrator will be a person from the list of arbitrators put together by the mediation and arbitration adviser that is either chosen by the parties to the dispute or, if the parties cannot agree, by the adviser.

27.          Subclause 40(6) allows for a party that made a complaint to withdraw a complaint at any time during the dispute.

Item 15

28.          Existing clause 41 of the Franchising Code sets out the requirements for mediation undertaken under the Code complaints handling mechanism. Item 15 inserts new subclause 41(7), which specifies actions that a mediator must take after an agreement is reached. The mediator must, within 14 days of agreement, set out in writing the terms of the agreement, give a copy of this to the parties, and also notify the mediation and arbitration adviser that an agreement has been reached.

Items 16 and 18

29.          Existing clause 42 of the Franchising Code provides for the termination of mediation undertaken under the Code complaints handling mechanism. Subclause 42(4) sets out the steps the mediator must take after a mediation has been terminated.

30.          Item 16 adds new paragraph 42(4)(e), which will require the mediator to include in a certificate, provided to the mediation and arbitration adviser and the parties, the fact that the parties may agree to refer disputes to arbitration when mediation has been terminated.

31.          Item 18 inserts new subclauses 42(6) and (7), which specify that, after a mediation is terminated, the parties may jointly agree to refer the dispute to arbitration. The steps parties must take to choose the arbitrator mirror the steps taken if they had initially decided to have the dispute arbitrated.

Item 19

32.          This item adds new Subdivision C of Division 3 of Part 4 of the Franchising Code.

33.          New clause 43A sets out the requirements for arbitration conducted under the Code complaints handling mechanism.

34.          The mediation and arbitration adviser must appoint an arbitrator within 14 days after receiving a request unless satisfied of particular matters (subclause 43A(1)).

35.          An arbitration must be conducted within Australia (subclause 43A(3)) but the method by which the arbitration will be conducted as well as the place and date of commencement will be determined by the arbitrator (subclause 43A(2)). Arbitration may be conducted in person, or by electronic means, including by videoconference or teleconference.

36.          Clause 43A also requires the attendance at arbitration of each party to a dispute, either in person, or by other means if allowed by the arbitrator (subclause 43A(5)). Subclause 43A(6) clarifies that parties may send a representative with authority to settle the dispute, or another representative, if a person with authority to settle is contactable by that representative at the time of the arbitration.

37.          Subclause 43A(7) specifies actions that an arbitrator must take after a dispute is resolved. The arbitrator must, within 14 days of agreement, set out in writing the terms of the resolution, give a copy of this to the parties, and also notify the mediation and arbitration adviser that the dispute has been resolved.

38.          New clause 43B provides for the termination of arbitration under the Code complaints handling mechanism. An arbitrator must terminate an arbitration if the complainant requests them to do so (subclause 43B(1)) and then must issue a certificate stating particular matters (subclause 43B(2)) and provide this certificate to the mediation and arbitration adviser and the parties (subclause 43B(3)).

39.          New clause 43C provides that parties to a dispute are equally liable for the costs of arbitration but must pay for their own costs of attending an arbitration. Costs of arbitration include the cost of the arbitrator and matters such as room hire.

Items 20, 21 and 23

40.          Existing Division 4 of Part 4 of the Franchising Code provides for the appointment and responsibilities of the mediation adviser under the Code. Items 20 to 23 make changes to the existing arrangements to include matters relating to the appointment of arbitrators, the responsibilities of the adviser, and the identity of the adviser.

41.          Item 20 changes the heading to the Division to reflect the addition of arbitration as a mechanism for resolving franchising disputes.

42.          Item 21 replaces existing clause 44 (mediation adviser) with a new clause 44 reflecting the appointment of a mediation and arbitration adviser. It specifies that the adviser will be the Deputy Ombudsman, or equivalent position in the Australian Small Business, Family Enterprise and Franchising Ombudsman (subclause 44(2)).

43.          The mediation and arbitration adviser is required to compile lists of people who are to be mediators and arbitrators for the purposes of resolving franchising disputes (subclause 44(3)).

44.          The annual report of the Department under which the current Ombudsman operates is required to include certain material relating to the operation of the Ombudsman for that year. Item 23 proposes new clause 46 that imposes a similar transparency requirement for the report to contain certain material relating to the operation of mediation and arbitration involving the mediation and arbitration adviser.

45.          These matters include, in relation to the reporting year:

·         the number of requests made to the adviser for the appointment of mediators or arbitrators;

·         the number of occasions on which a request was received but the adviser decided not to appoint a mediator or arbitrator;

·         the number of certificates the adviser had received notifying them of the termination of mediations or arbitrations; and

·         the number of times that the adviser had been informed that a dispute had been resolved.

Part 2—Consequential Amendments

Items 24 and 25

46.          The existing definition of alternative dispute resolution under the Australian Small Business and Family Enterprise Ombudsman Act 2015 provides a non-exhaustive list of procedures and services for the resolution of disputes but explicitly excludes arbitration.

47.          These items amend the definition so that arbitration is included in the list of procedures and services, and are intended to clarify that the Ombudsman can assist small businesses (including franchisees, in relation to franchising disputes).

Part 3—Additional provisions

Item 26

48.          This item revokes the appointment of the Franchising Mediator Adviser that was appointed prior to commencement of this Bill.

Item 27

49.          This item ensures that any legislative instrument that has the effect of removing the availability of arbitration to resolve disputes in franchising or alternating who the mediation and arbitration adviser is, then that instrument does not come into effect until it has been approved by resolution of each House of Parliament.

 

Schedule 2 - Quantum of penalties for breach of the Franchising Code of Conduct

Item 1

50.        This item repeals the existing subsection (2) and replaces it with civil penalty provisions for Franchising Code of Conduct which is subject to subsection (2A). Subsection (2A) provides a maximum civil penalty for a contravention by a body corporate of the provision to a maximum of:

(a)            $10,00,00;

(b)           3 times the benefit obtained by any direct or indirect action found by a court;

(c)            If that benefit cannot be determined, then 10% of the annual turnover of the body corporate during the 12-month period the contravention happened.

This reflects the penalties currently available under the Australian Consumer Law.

 



 

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

Franchising Laws Amendment (Fairness in Franchising) Bill 2020

 

This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

 

Overview of the Bill

The purpose of this Bill is to address the power imbalance inherent in the franchising sector by providing arbitration as an alternative dispute resolution process.

 

Human rights implications

This Bill does not engage any of the applicable rights or freedoms.

 

Conclusion

This Bill is compatible with human rights as it does not raise any human rights issues.

 

Senator Deborah O’Neill