Australia's New Franchise Amendments

In looking at Australia changing its federal franchise law last week, I think a question has to be posed. How do you efficiently deal with situations of clear franchisor abuse, without trampling on the operations of those who competently follow the rules? Trying to analyze the significance of the recent changes to Australia’s Franchising Code of Conduct, we from the U.S. must be careful not to superficially impose our view of franchising to the situation in this other country.

My perception has been that the Australian Competition and Consumer Commission has been much more active in that country than the Federal Trade Commission has been in ours. I perceive that the ACCC  has been more aggressive in reviewing cases that are brought to its attention, and has probably brought a higher number of cases (proportionately speaking Australia is about 7% the size of the U.S. in population) than the FTC. I also suspect that the mandatory mediation provisions in the Australian Code have reduced the number of cases that have gone to litigation, although I have not seen any statistics to that effect.  I have heard it mentioned that in Australia, 80% of cases that do go to mediation have been resolved as a result of those proceedings, and the figures I have seen reported in the U.S. are in the same neighborhood.

Australia’s basic dilemma, however, appears to be similar to the one faced in the United States:  how do you efficiently deal with those situations of clear abuse, without trampling on the operations of those franchisors who competently follow the rules?

When I was in college, a European History professor at Michigan quoted King Karl XII of Sweden as saying, “Better that the innocent suffer than the guilty survive.”  I have never looked to see if Sweden even had a King Karl XII—much less Kings Karl I through XI—and even it did, I have no authority to show that he actually spoke or wrote these words.  But the philosophy in this statement is disturbing.  If there has been a clear, demonstrated and widespread pattern of abuse (as, for example, in the area of environmental preservation), then regulate it; if not, leave it alone and try to find a more rifle-like approach in dealing with the limited number of egregious situations that exist.  

I perceive that franchising is generally doing well in Australia, as it is here. But, in both countries,  there are occasions of abuse, and it is difficult for a franchisee whose business is failing to fight a franchisor in litigation. Litigation is a lousy way to resolve disputes, and arbitration is, in my opinion, not much better.  We can try to give meaning to phrases like “good faith” and “unconscionability,” but in the end all we accomplish is to create more legal battle fields on which the parties can feud. 

I think it was former Justice Potter Stewart who wrote in a Supreme Court decision, dealing with hard-core pornography, something like,  “I know it when I see it.”  The same principle holds true in franchising when dealing with abusive conduct.  But that, too, is not a good approach to giving certainty to the conduct franchisors should follow.  In the U.S. at the federal level, we have chosen disclosure as the method of limiting abuse;  Australia has also relied heavily on disclosure as a way to reduce abusive conduct. The new amendments to the Code on Conduct give the ACCC the power to shame and humiliate, and allows the imposition of substantial fines when unconscionable conduct, whatever that may mean, occurs. 

It will be interesting to see how both of these powers are applied in the upcoming years.

About the author: Attorney Rupert Barkoff is a partner in the Atlanta law office of Kilpatrick Stockton’s, where he heads his firm’s franchise practice. Having practiced franchise and distribution law for 36 years, he is recognized as one of the country’s leading franchise attorneys by The Best Lawyers in America, published by Woodward/White. He spends his time nowadays split between his native home of Atlanta and Australia.