For Franchisors

Franchise disputes must be resolved in a particular way. Franchisors who are not prepared to be nice, should beware! There are good reasons why a franchisor should listen carefully to their franchisees and make genuine attempts to resolve any  franchise dispute.
A franchise agreement entered into on or after 1 October 1998 must provide for a complaint handling procedure that complies with Part 4 of the franchising code of conduct.
The Franchising Code also obliges both parties to act in good faith.  In order to decide if the parties have acted in good faith a court will look at whether the parties have acted honestly, and for genuine reasons and whether each party has cooperated to try to achieve the objective of the Franchise Agreement.

The Full Court of the Federal Court handed down a decision this year that has the potential to affect Business people who might not consider themselves involved in a franchise relationship. The decision also places in doubt the extent to which a Franchisor must go, when undertaking the process of issuing a disclosure document.  We believe that this process must be dictated by the particular circumstances of the

Riba Business Lawyers

Have you ever wondered whether licensing or franchising is the best model to grow your business?  Many people wanting to avoid the cost and regulation of franchising will consider licensing as an alternative. But is licensing your business model really an alternative to franchising? What is licensing anyway and what is the difference between a franchise and a licence?

Firstly you cannot convert a franchise to a licence simply by changing the name at the top of the document.  The label given to the arrangement has no influence over the legal effect of the arrangement.  Franchising is just a form of licensing.

Whether the relationship that you wish to establish is really a franchise or a licence can be determined only in one way.  The Franchising Code of Conduct defines certain arrangements as a franchise.  The code provides that if certain ingredients are present then a franchise exists.

It is quite common for Franchise Agreements to contain clauses which have a significant effect on the way in which the sale contract should be drafted.  If  a contract for the sale of a Franchised business is signed without first reading the Franchise Agreement and checking any requirements, then it may be difficult to unravel the resulting mess. There is a lengthy list of things that need to be checked.  If  steps are not taken to ensure compliance, then it is likely that any sale contract will be in conflict with the Franchise Agreement.  This problem can be difficult to resolve because the sale contract may oblige the seller to do one thing and the Franchise Agreement may prohibit the doing of that same thing.

There is no such thing as a standard Franchise Agreement.  However there are certain things that all Franchisors will try to control using their agreement.  This need for the Franchisor to maintain control gives all Franchise Agreements a common flavour. There is sometimes a misconception that the Franchise Agreement is designed to protect both Franchisor and Franchisee.   There is however little contained in a Franchise Agreement which is designed to protect a Franchisee and this is often a source of disappointment to the Franchisee once the documents are reviewed.  Franchisees do however enjoy significant protection given at common law, from legislation such as the Franchising Code.

Dealing firstly with whether it is possible to franchise your business.

If your business:

  • was only established in recent years,
  • has not been tested over time in a range of economic conditions,
  • is not a respected and recognizable brand in your local area,
  • does not utilize  operational documentation relating to the processes employed in that business,
  • is not strongly supported by employed managers who are fans of the business,
  • does not utilize a patent or other assets that other potential business owners would value and
  • does not produce a healthy profit after factoring in the franchisors anticipated administration and promotions costs

then you are probably not ready to franchise.

Section 51 AE of the Competition and Consumer Act (previously the Trade Practices Act) provides for industry codes such as the Franchising Code.

A breach of the Code constitutes a breach of the Competition and Consumer Act. Section 51 AD of the Competition and Consumer Act provides that "a corporation must not, in trade or commerce, contravene an applicable industry code" In a case known as Ketchell's case the court was asked to look at the consequences of a failure to breach the code. The facts of the case put simply are that the franchisor brought an action to recover money that the franchisee said was owning under the franchise agreement.

Lots of people have great ideas but, do not have the time, the focus or the money, to implement or advance those ideas.  In these times, which many business people see as, uncertain times, people are not prepared to take a risk, even if the potential reward is handsome.

There are however ways of reducing the cost and risk associated with the development of  an idea, project or business, while at the same time obtaining access to a bank of  ideas, knowledge and resources, at no upfront cost.  Yes, less cost and a better chance of success!  It is possible!

The Australian Consumer Law has replaced various State and Territory laws from 1 January 2011.  This means that business and consumers throughout Australia are now governed by the same consumer laws.

The ACL is found in Schedule 2 of the Competition and Consumer Act 2010 (Cth) The Trade Practices Act 1974 (Cth) has been repealed and many of its provisions now appear in the Competition and Consumer Act. Some parts of the Competition and Consumer Act mirror the wording of the Trade Practices Act, however there have been significant changes to the provisions of the Trade Practices Act. The numbering of the Act has changed therefore Businesses that use documents that refer to the Trade Practices Act and its various provisions should amend those documents so that they now refer to the correct provision of the Competition and Consumer Act.

Unless you have seen first hand, the way that legal proceedings can be built or destroyed, by a written note relating to a matter in issue, then you cannot appreciate how much lawyers and the court system love bits of paper.  Written notes on  bits of paper can literally determine the outcome of legal proceedings.

The absence of written notes can cause lawyers on both sides of an argument to work for days preparing affidavit material, each trying to recount, with limited success what was said.  In many cases the factual debate is often won by the person with the best supporting paper.