Statutory Reforms Franchising Code of Conduct Australian Competition and Consumer Law Elizabeth Gore-Jones Special Counsel Bywaters Timms, Lawyers

Franchising Code of Conduct Amendments 1.Warning Statement “ Franchising is a business and, like any business, the franchisee (or franchisor) could fail during the franchise term. This could have consequences for the franchisee.” 2. Item 13.6A “ each recurring or isolated payment, that is within the knowledge or control of the franchisor or reasonably foreseeable by the franchisor, that is payable by the franchisee to a person another than the franchisor or an associate of the franchisor.”

3. Item 13A – Unforeseen capital expenditure not disclosed before the franchisee entered into the Franchise Agreement. 4. Item 13B – Cost of dispute resolution. 5. Item 17A – Rights of the franchisor to unilaterally vary the Franchise Agreement. 6. Item 17B – Confidentiality obligations in relation to: (a) Outcomes in mediation; (b) Settlement; (c) Intellectual Property; (d) Trade secrets; (e) Particular aspects of individual agreements, such as fees.

7. Item 17C – Arrangements to apply at the end of the Franchise Agreement: (a) Options to renew, or extend, or extend the scope of the Franchise Agreement or enter into a new Franchise Agreement at the end of the Franchise Agreement; (b) Entitlement to an exit payment; (c) Arrangements to apply to unsold stock, marketing martials, equipment and other assets purchased when the Franchise Agreement was entered into; (d) Franchisee’s right to sell the business at the end of the Franchise Agreement; (e) Right of first refusal of franchisor if franchisee can sell the business at end of Franchise Agreement; (f) If franchisor will consider any significant capital expenditure. 8. Item 17D – Amendments of Franchise Agreement on transfer or novation of franchise.

Further changes to the Code Clause 5 (1) Code applies to franchise agreements entered after 1 October, 1998; (2) An amendment to the Code commencing after 1 March, 2008 applies to an agreement after that date; and (3) An amendment to the Code commencing after 1 July, 2010 applies to an agreement after that date. Clause 20A The franchisor must notify the franchisee at least 6 months before the end of the term if the franchisor will be renewing the franchise agreement or entering into a new franchise agreement.

Clause 23A Nothing in the Code taken to limit any obligation of good faith Clause 29 Each of the parties must make their intentions clear as to what trying to achieve through mediation process. parties must refrain from behaviour that may affect the reputation of the franchise system.

Australian Competition and Consumer Law 1 Overhaul of the Trade Practices Act Aligns various State law with Commonwealth law 3 Reaffirms many of previous TPA provisions 4 Introduces unfair contract term provisions 5 Introduced in 2 rounds: (a)Trade practices Amendment (Australian Consumer Law) Act (No. 1) - commenced 15 April, 2010 but some provisions commenced on 1 July, 2010; and (b)Trade practices Amendment (Australian Consumer Law) Act (No.2) –commenced on 1 January, 2011.

Round 1 1 New civil pecuniary penalties of up to $1.1 million for corporations and $220,000 for individuals 2 New enforcement powers for the ACCC: (a) Substantiation notices; (b) Infringement notices; and (c) Public warning notices.

Substantiation Notices 1 Requiring giving of evidence or documents 2 Not required to provide if may incriminate 3 Must comply within 21 days 4 Non compliance penalty of up to $3,300 for a body corporate or $660 for an individual 5 ACCC may seek order from court for payment of pecuniary penalty of up to $16,500 for a body corporate or $3,300 for an individual

Infringement Notice 1 Reasonable grounds to believe infringement of the laws 2 Must be issued within 12 months of a contravention 3 Fines payable. In most cases fixed at $6,600 for a body corporate or $1,3250 for an individual 4 Must comply within 28 days 5 If elect not to pay the fine then the ACCC can commence Court proceedings 6 If pay the fine then no court action BUT will appear on public register on ACCC’s website

Public Warning Notices 1 Alert consumers of suspected breach 2 Reasonable grounds to suspect conduct is a contravention of the act 3 It is satisfied one or more persons has or may suffer a detriment 4 It is in the public interest 5 May issue if fail to respond to a substantiation notice

Unfair Contract Terms 1 A term in a consumer contract is void if it is unfair and the contract is a standard form contract 2 Applies to contracts “made, renewed or varied” after 1 July, Not business contracts but only contracts for the supply of goods and services for personal, domestic or household use

Standard Form 1. Not defined 2. Presumed to be standard form 3. Court must consider: (a) If one party has the bargaining power; (b) Contract prepared before any discussion; (c) “take it or leave it” (d) Terms of the contract (apart from the upfront price and main subject matter) take into account the specific characteristics of the other party or the particular transaction.

Unfair 1 Significant imbalance to the party’s rights and obligations and not reasonably necessary to protect legitimate interests of party who would be advantaged by the term and would cause detriment to a party if it were relied upon. 2 Presumed not to be reasonably necessary unless proved otherwise. 3 Contract continues to bind to extent capable without the unfair term. 4 Doesn’t relate to a disclosed payment. 5 3 limbs: (a) Significant imbalance; (b) Not reasonably necessary; (c) Detriment.

Section 25 Sch 2 Examples (b) A term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract. eg Director of Consumer Affairs Victoria v AAPT Limited [2006] VCAT 1493 (c) A term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract. (d) A term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract eg Director of Consumer Affairs Victoria v Trainstation Health Clubs Pty Ltd (civil claims) [2008] VCAT 2092

(e) A term that permits, of has the effect of permitting, one party (but not another party) to renew or not to renew the contract (f) A term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract (g) A term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted under the contract eg Director of Consumer Affairs Victoria v AAPT Limited [2006] VCAT 1493

Questions?