Don Randall (Canning, Liberal Party, Shadow Cabinet Secretary) Share this | Hansard source

Before I begin, I seek leave to table a letter from one of my constituents regarding this issue.

Leave granted.

Rising awareness about what is happening in Australia’s franchising sector is the reason why I brought this motion to the parliament today. The conduct of rogue franchisors has caused great distress and financial hardship to some of my constituents, and improvements to existing franchising arrangements and regulations are now long overdue. This is not an issue limited to my electorate of Canning. As you will hear from the following speakers, this is a widespread issue. I thank my colleagues for speaking on this issue, because it is very important to so many people in Australia. This is not limited to certain states or certain franchisors. This issue does require a strong bipartisan response.

Over the past 18 months I have updated the parliament on the plight of my constituents, predominantly from the Lenard’s franchisees. Despite such a lengthy battle, it is disappointing to say that in almost all of the cases brought to my attention these franchisees have not yet received fair compensation for their financial ruin. In fact, their avenues for redress within their financial means are all but exhausted.

I bring to the attention of the House once again the case of Leanne McCullagh in my electorate, who has lost her house and is financially destitute as a result of becoming a Lenard’s franchisee. This everyday, average working Australian bought into the franchise with the aim of operating her own business with the support of the franchisor and earning a decent living. In reality, what followed was a financial disaster. There was little if any training provided by the franchisor, and marketing was not as promised. There then followed verbal abuse and intimidating and thuggish behaviour from the master franchisees. The bottom line is that the people involved were forced to walk away from their businesses. They have now lost their homes, as I said, are on the verge of bankruptcy and their personal relationships have suffered.

In June of this year I again contacted Lenard’s founder, Mr Lenard Poulter, seeking his assistance in resolving the case of my constituents. I was assured that Lenard’s went to great lengths to assist them to succeed in their businesses and that there is documentary evidence to support this. My constituents have executed disclosure forms so that the supposed documentary evidence can be forwarded to me, and I have yet to receive this response.

Interestingly, on 1 August this year Lenard’s announced that they would be expanding their business to include other meat products and confirmed that their 2008-09 revenue would increase by two per cent to $148 million. As an aside, Lenard’s Extra stores will be owned solely by the company, which Lenard’s say is because of the ‘need for the company to have greater control over the stores’. There are so many Lenard’s stores in Western Australia now owned by the parent company rather than by individuals that that speaks for itself. As I advised the parliament last year, the problem is unscrupulous franchisors who are deliberately taking the opportunity to send these people to the wall because there is far more profit in sending a business to the wall, reselling it and starting it up again. It is quick turnover, and they are getting away with it.

This motion calls for more stringent application of the franchising code in the existing trade practices legislation. This type of unconscionable conduct by franchisors needs to be stamped out, and they must be held accountable. The necessary provisions are already codified in legislation—section 51 of the Trade Practices Act being the most relevant—but there is a need for proper definition and application. It is the enforcement of suspected breaches by the Australian Competition and Consumer Commission that gives struggling franchisees the biggest headaches. Enforcement by the ACCC is something I am very concerned about.

A recent South Australian inquiry into franchising stated that section 51AC:

… has the potential to provide a clear course for redress for franchise disputes and those factors currently obstructing its use should be identified and resolved, even if this requires revisiting the Act.

It is promising that the federal Parliamentary Joint Committee on Corporations and Financial Services has its franchising inquiry underway. I understand that its report will be tabled in the parliament in December. But it is vital that its recommendations are acted upon immediately. It is up to this parliament to seek the changes that are required to stamp out this growing epidemic.

I have met with ACCC Commissioner John Martin on a number of occasions regarding franchisee issues. I am often at great pains to stress that it appears that the ACCC is powerless to pin down rogue franchisors. Mr Martin always gives me a very good hearing, puts his hand on his cheek and seems very concerned, but there is very seldom follow-up after our meetings. He might be concerned, but there is very little action as a result of our meetings. I have said to Mr Martin that, if the ACCC need financial or legislative support, I am sure this parliament will provide it, because that is what is needed.

Between June 2004 and December 2007, 1,916 complaints were made to the ACCC about franchising matters. Since 1998, the ACCC has undertaken 175 investigations, with the vast majority of these cases alleging breaches of the Trade Practices Act. However, 108 of these complaints were not pursued. In the 12 months up to June 2007, there were 525 franchise complaints, and statistics show that this is growing every year as franchising becomes a more popular form of small business operation. In many lucky cases, a resolution is reached when a notice of dispute is issued. However, whilst the Franchising Australia survey found the code of conduct to be adequate, it showed that some 35 per cent of franchisors reported that they had been involved in a substantial dispute with a franchisee over the previous 12 months. The percentage appears to be exceedingly high. The issue is gaining momentum, with the states conducting their own inquiries. For example, there was one in Perth recently.

This motion calls for the introduction of compulsory dispute resolution at no cost to the franchisee. Currently, mediation in franchising is provided for under the code. However, both parties can opt out of the system. There are major problems in this regard because there are no penalties for failing to mediate and the parties are required to pay their own costs for mediation, which is often the stumbling block for the franchisees because they have already gone broke.

Where the parties do mediate and come up with an agreement, there is no provision made for the enforcement of such an agreement. There is no formal requirement for parties to act in good faith. There are no sanctions for breach of confidentiality, and franchisees are often not represented by counsel, which only reduces their bargaining power. As I have previously mentioned, the cost of litigating is prohibitive for franchisees, who have been pushed to the wall on this issue.

An application of the dispute resolution process for industrial relations disputes should be considered for franchisee disputes. The Howard government made provision of financial subsidies for parties who wished to go private. Under the Alternative Dispute Resolution Assistance Scheme, eligible parties can seek up to $1,500 for the provision of ADR services for each eligible dispute, plus travel expenses. But, as you can imagine, that is obviously quite inadequate.

In summing up, I wish to see this parliament and the minister take seriously this issue of not only churning but unconscionable conduct towards franchisees. They are out there using their own money in small business to try to make a living for themselves and their families and they have little or no protection. They deserve for this parliament to give them a better outcome. I hope that, as a result of today, we can do that. (Time expired)

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