Role of Australia's ACCC in Resolving Franchise Disputes

Resolving Franchisor vs. Franchisee Disputes as of 2007

Australia's business regulator, the ACCC, receives 1,000 complaints about franchising systems each year.  But it has increasingly come under the spotlight for its apparent unwillingness to prosecute franchisors as vigorously as franchisees would like. 

In an attempt to address that criticism, the ACCC has now issued information about its policies, processes for investigating complaints about franchisors and successes in relation to franchise disputes.  

In Australia, franchise agreements must contain a complaint handling process that complies with Part 4 of the Franchising Code of Conduct 1998 (Code).  This process is designed to address complaints by the parties to the franchise agreement.

The procedure followed is thus:

1. Negotiate a solution without third party involvement, or
2. Either party to a franchise agreement may seek mediation under the Code.  This may be either:
   1. via the OMA or
   2. by privately appointed mediator, or
3. Court action may be commenced:
   1. privately by a franchisee, or
   2. by the ACCC in the public interest, or
   3. the ACCC may intervene in the private action under a right in s.87CA TPA  (Trade Practices Amendment Act (No. 1) 2001 (Cth).  This right is not available to private citizens. The ACCC has yet to exercise this discretion in the case of a franchisee prosecuting a franchisor.

The ACCC draws its consumer protection responsibilities from the Trade Practices Act 1974 (Cth) (TPA).  Franchise complaints that are within the ACCC’s jurisdiction fall into 4 broad categories:

1. Competition related (e.g.: third line forcing, price fixing) under Part IV TPA.  Part IV is not usually breached by franchisors but where breaches have occurred, they are typically successfully investigated and resolved with ACCC involvement.
2. Unconscionable conduct under Part IVA TPA.  ACCC has a low success rate at establishing unconscionable conduct. 
3. Breaches of the Code.  Generally these are ‘no brainer’ cases that the ACCC has pursued successfully. A breach of the Code constitutes a breach of s. 51AD TPA.
4. Misleading and deceptive conduct under Part V.  This area of law is well settled in Australia and successfully argued by both franchisees and the ACCC.

Some franchise disputes are believed by the ACCC to be outside its jurisdiction, most notably those where the franchisor is in liquidation (bankrupt). 

On reading the details about individual cases in ‘Franchising complaints, investigations and outcomes’ (first link above), it is clear that the ACCC strongly favours the ‘enforceable undertaking’ and the ‘declaration by consent’ as the preferred methods of resolving matters which make it through a full investigation.

Enforceable undertakings are posted on the ACCC website

The declaration/ order by consent is made by the Federal Court and avoids a long trial. 

The numerous benefits of the processes used by the ACCC (mediation, enforceable undertakings and consent orders) include the realities that they are relatively cost effective and speedy.  They also permit the parties to keep much information about the disputes confidential.  These benefits should not be discounted.

A significant disadvantage of keeping robust argument out of the courts is that the law is not tested by the courts, and thus one of the key elements of the Westminster system of justice (legislature, judiciary (courts) and executive), is denied its full role in the process.   So long as this persists there will be uncertainty in Australia about the doctrine of good faith in franchise contracts, and about unconscionable conduct in business to business transactions. Both of these concepts are central to successful franchising.  Neither has been exposed to the rigors of judicial examination and determination in the High Court. 

Franchisees and former franchisees that seek the assistance of the ACCC are often stretched for resources (financial, physical, emotional, information).  A compelling contribution the ACCC can make to create an environment of commercial certainty in the franchise sector going forward is to identify and prosecute franchise cases that will enable the courts to:

1. clarify the existence or non-existence of a duty of ‘good faith’ in the performance of contracts, and
2. test the effectiveness of unconscionable conduct as regulated by s 51AC TPA. The ACCC stated in July 2007: 

 “We are pushing the boundaries on matters of unconscionable conduct, pushing more cases to test the law and firm up definitions that assist traders.” (speech about ‘Competition and fair trading:  a fair go for small business’, delivered to the National Small Business Summit on 3 July 2007.)

Both ‘good faith’ and unconscionable conduct should be tested all the way to the High Court, Australia’s highest judicial authority.