On 5 November 2009, in its formal response to the 2008 Franchising Code Inquiry, the Federal Business Minister Craig Emerson announced that the Government will strengthen the Franchising Code of Conduct (the Code). The inquiry proposed 11 changes to the Code and the Trade Practices Act 1974 (Cth) (the Act) in a bid to reform the laws designed to protect franchisees.

The most contentious of the recommended changes was the proposed inclusion of a broad and general good faith provision. The Government did not adopt this recommendation, explaining that the law on good faith is still evolving. Because there is no single accepted definition or standard set of behaviours that constitutes good faith, it would be difficult for parties to know whether they had breached any such obligation. The inclusion of a statutory duty of good faith in the Code would increase uncertainty in franchising and could have adverse commercial consequences for franchisees. While the reforms will not include a "good faith negotiations" clause, a statement that nothing in the Code limits any common law requirements of good faith in relation to a franchise agreement will be inserted.

The key reforms to the Code and the Act include:

  • a requirement that franchisors disclose the processes that will apply in determining end of term arrangements, including whether or not there is a right of renewal beyond the term of the franchise agreement
  • the introduction of fines of up to A$1.1 million for companies and A$220,000 for individuals who engage in unconscionable conduct or make false and misleading representations
  • the establishment of an expert panel to inquire and report on the need to introduce into the Code any further provisions to prevent specific behaviours that are inappropriate in a franchising arrangement. The panel will report on whether a list of examples of unconscionable conduct or a statement of principles of what constitutes unconscionable conduct should be incorporated in the Act by the end of January 2010
  • the Australian Competition and Consumer (ACCC) will be empowered to conduct 'random audits' of franchise businesses
  • the ACCC will be authorised to issue public warnings regarding rogue and dishonest franchisors
  • identifying a list of behaviours expected under the Code to enhance the dispute resolution process, including attending and participating in meetings, making intentions clear at the outset of the mediation, observing confidentiality obligations during and after the mediation process and not damaging the franchise brand during the dispute by providing inferior goods, services and support.

It is anticipated that these changes to the Code will be introduced in early 2010.

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