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FCA Speaks on Australia's New Franchise Reforms

MELBOURNE, Australia — Former chairman of the Franchise Council of Australia, Stephen Giles, has been asked by Blue MauMau about the changes to Australia’s franchise laws that were announced on November 5 and what those changes mean.

Franchise attorney Stephen Giles is a director of the FCA, who leads the lobbying group’s industry regulation and government relations efforts. Based in Melbourne, Giles has been a past chairman of the FCA in 1998 and from 2000 - 2007.

BMM: After almost a year of deliberation, Dr. Craig Emerson, the federal parliament’s Minister overseeing small business legislation announced last week reforms to the existing franchise law. What are your thoughts on the new amendments?

stephengiles
Stephen Giles/Deacons

Giles: The vast majority of people in the franchise sector support the changes as sensible improvements to a system that is fundamentally sound and in my view world's best practice. The attached summary of the Code changes is fairly comprehensive, and I think paints a fair picture of how the industry views the matter.

BMM: Do you think that Australia’s Competition and Consumer Commission will receive more resources to handle the amended franchise regulation, their expanded duties and new authority?

Giles: The regulatory framework in Australia is extremely comprehensive, and the ACCC a well resourced and active regulator.  The existing broadly interpreted prohibition on misleading or deceptive conduct and the comprehensive Franchising Code requirements offer substantial protection for franchisees.  Add to this the prohibition on unconscionable conduct and I think the regulatory framework strikes an excellent balance between the legitimate interests of franchisors and franchisees.  These changes may useful improvements in the area of end of term disclosure and ACCC enforcement.

BMM:  You used the term “unconscionable conduct.” What do you make of such terms and tools in Australia’s legislation language—terms like good faith? Some of our readers have written that the ambiguousness of such terms will just serve to complicate legal battles and reward lawyers. Others say that the concept of good faith is critical for meaningful reform.

Giles: In relation to "good faith," in my view this term was in essence a blind used by some to try and secure some sort of sweeping new right to anchor a claim for compensation at end of franchise term, or blanket compensation should a franchised business fail for whatever reason. Indeed, as one State politician put it to me, "if it is a franchise and it fails, it must be the franchisor's fault, as it is a franchise".  Even in my observations of the arguments between franchisee and franchisor counsel in the US I have not heard anyone try that one on! 

UPDATED (7:10pm EDT): The real point is that there is already an implied duty of good faith and fair dealing which the courts are able to, and frequently do, imply into contacts such as franchise agreements.  This works well.  So, for example, if a franchisor refuses to consent to a transfer of a franchise, even though it has the power, because the franchisor wants to open their own outlet there, a court would almost certainly say that was a breach of the implied duty of good faith.  The current legal position gives the courts flexibility, a statutory duty will just create uncertainty.

I attach a detailed article I have written on good faith, as it is a hard concept to explain briefly.

AttachmentSize
Legal update on Australia's franchising reforms.pdf84.54 KB
Good faith creates uncertainty, doesnt solve problems.pdf122.44 KB
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