Don Randall (Canning, Liberal Party, Shadow Cabinet Secretary) Share this | Link to 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)

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

Franchising here in Australia is a $128 billion industry that employs over half a million people. From my observation in my electorate, and certainly from my experience practising as a lawyer, a lot of franchisees go into franchising having been in the military, having worked in the Public Service or having engaged in all kinds of areas and they go into this type of work in, say, their 40s or 50s. They pour their life savings into a particular venture; sometimes it is their superannuation. A 2008 Griffith University study found that the average start-up costs for a retail franchise business had risen to $262,500 and up to $1 million for bedding and furniture franchises.

Franchisees really are disadvantaged in terms of the power balance with franchisors. Franchising is really an ongoing commercial arrangement in which a party, the franchisor, authorises another, the franchisee, to use their business model, trademark or marketing techniques and strategies in return for an agreed fee and/or a proportion of sales. Here in Australia, franchising is regulated by the Franchising Code of Conduct, established in 1998. It is a mandatory industry code established under section 51AC of the Trade Practices Act 1974. In 1993 a voluntary code was established because of the high level of disputation in the franchising sector and the power imbalance in industry, but it proved to be unsuccessful—as a lot of voluntary codes do—and so a mandatory code was established. Mandatory codes have been created in the petroleum and horticulture industries as well. Franchising relationships are governed by other consumer protection provisions in the Trade Practices Act, including: section 51AC, unconscionable conduct; section 52, misleading or deceptive conduct; and section 53, false or misleading representations.

The member for Oxley is the chair of the Parliamentary Joint Committee on Corporations and Financial Services. There is a franchising inquiry which has been touring the country. The committee is approaching its task seriously with a very broad brief and an open mind, according to the member for Oxley. The inquiry has been taking submissions from stakeholders and intends to table its report on 1 December this year. Submissions will be accepted until 12 September 2008. I commend the member for Canning for raising this issue here, because this is an important issue to be discussed in the federal parliament.

There are issues of goodwill and good faith. I see that one of the wealthiest men in this country has raised the issue—and it has not just been wealthy people but also others, such as people who were my clients in my old law practice. One of the wealthiest men in Australia, Mr Jack Cowin, raised this issue and has been putting pressure on the federal government since US food giant Yum! Restaurants International refused to renew one of his KFC franchising agreements and was not prepared to recognise goodwill established over 30 years of continuous operation.

In my previous life I practised as a family lawyer. There were many cases involving franchise agreements and franchises which, apart from the matrimonial home, were the major matrimonial assets. Getting valuations done was difficult because franchisees were at a great disadvantage compared to franchisors. I hope that the inquiry comes down very much on the side of franchisees because of the financial disadvantage they have. They have almost a ‘take it or leave it’ relationship with franchisors. Anecdotally, and from what constituents have said to me, there is a certain degree of bullying and harassment in the industry. I hope that those people who have experienced that will come forward and make submissions to the inquiry. It will take a lot of courage because a lot of them will continue to be in the industry.

Good faith provisions need to be put into this legislation. Goodwill needs to be put into this legislation. I hope that in future franchisees will have the same rights as franchisors. I hope that the trade practices legislation can be toughened and the code of conduct strengthened also.

I want to thank the member for Canning for raising this issue. I think there is merit in what he has to say. I think unconscionable conduct is a disgrace. As long as we can help franchises, that is good for business and that is good for individuals in his electorate and in mine.

Steve Irons (Swan, Liberal Party) Share this | Link to this | Hansard source

I rise to support the member for Canning’s motion and acknowledge the four points he has made. But I also acknowledge the member for Blair and his support for the motion. I have spoken previously on the problems franchisees face and, in particular, about the unconscionable conduct by franchisors towards franchisees.

In the first point of the member for Canning’s motion he recognises the severe financial distress and hardship faced by a number of current and former franchisees throughout Australia as a direct result of franchisor conduct. This has occurred in my electorate of Swan and in many of my colleagues’ electorates as well. The franchise model, the behaviour and the conduct of some franchisors send the franchisees into bankruptcy. This spiral into bankruptcy does not start well into the commercial relationship but even before the ink is dry on the contract. Anyone without commercial experience who has not been involved in running a business will not understand why. Let me tell you why: it is because the model being sold by some franchisors is flawed and doomed to failure before the franchise starts.

Let me use the model being promoted by Michel’s Patisserie as an example, as it directly affected some of my constituents. The first time I saw a contract and the supporting figures provided by Michel’s I advised my constituent that I would not touch it, as it was not what I would call a successful model; I certainly would not pay for that model. The return on investment, without sufficient profits, was not forecast in the model that they provided. The constituent told me his bank agreed that the model was flawed, but Michel’s said their bank would finance it and, under Michel’s very professional guidance, the franchisee’s business would survive and flourish.

My constituent has now left the business. He has a huge debt to Michel’s because Michel’s continued to trade with him when his business was clearly insolvent. The purpose of that could only have been to drive him into a position where he would have to sell the franchise back to Michel’s for a ‘walk away’ sum of money and they could then sell the franchise to another potential client. This is known in the business as ‘churning’, an event all franchisors deny happens.

The second point in the member for Canning’s motion acknowledges that the franchisors must be held accountable for their unconscionable conduct, including nondisclosure, through a more stringent and determined application of existing trade practices legislation. I fully support this. Evidence shows that this does not happen or cannot occur under the current legislation, as the ACCC has failed to prosecute or pursue any franchisors to the benefit of the franchisees because of the flawed legislation. The current legislation has been around for some time under coalition and Labor governments, and there has been very little willingness to change the legislation to protect franchisees. Some franchisors have been expert in creating a history of evidence that supports their arguments that the franchisee was not performing to their model and therefore the franchisee deserves no protection or compensation from the authorities or the legislation in its current format. The members’ final two points are well stated also, but due to time restraints I will not acknowledge them.

In my experiences with franchising and business, the current legislation is flawed because it tries to address the problems from a principle of law and not from a factual situation. I recently spoke with the Minister for Small Business, Independent Contractors and the Service Economy in this very room and suggested that we need to make changes to the franchising laws to protect franchisees from predatory franchisors. The minister’s reply was to say that changes were made in March and he could not foresee that any more changes would be needed or were necessary.

I have a copy of a summary of the changes from a Sydney law firm, which concludes:

Some of the new provisions are onerous (such as the requirement of disclosures within 14 days). Franchisors may need to review their systems so they can more promptly disclose relevant information to franchisees.

I suggest the following, which will take us to the heart of the matter. Firstly, if you are running a business selling franchises, you should make available all disclosures prior to the signing of the contract. To have only a cooling-off period of seven days for the franchisee but then a 14-day window of disclosure by the franchisor does not match up. The franchisee should have seven days after the full disclosure by the franchisor. Secondly, the contract should be made null with a full refund to the franchisee if the model they sell and figures they provide are incorrect. This is normal practice in business, but the franchisors always use the argument that the franchisee is not meeting their model requirements. Thirdly, once the process of mediation has started, the franchisor should not be allowed to close down the business of the franchisee until that mediation is finalised and agreed to by both parties. One of my constituents was in the process of mediation when he was closed down. Fourthly, the ACCC need to be given resources and legislation to pursue unconscionable conduct by franchisors. I would provide them with some live cases to get stuck into, but unfortunately they are not able to assist. To all franchisees of Australia: we have a team of dedicated coalition members and senators who are committed to furthering your cause and making sure we protect your livelihood. (Time expired)

Julie Owens (Parramatta, Australian Labor Party) Share this | Link to this | Hansard source

I too commend the member for Canning for putting this motion to the House. Any time we find a group of people who have such little power, relative to the other side of the table, or who enter into agreements such as these with such little business skill we do need to make sure we have legislation in place which protects the interests of the weaker party. Once again, I commend him for moving this motion.

There are some 72,000-odd franchises in Australia. We would not go through a day without touching one of them either at the coffee shop, the bakery, the news outlet or the decor shop. They are everywhere in my community at the moment. At its best, it is a genuine symbiotic relationship where the franchisee has access to the power of the brand but also protects the power of the brand through the successful operation of the franchise. At its worst, it is exploitative. In Australia we have the full range of franchises. We can all look around and see some incredibly successful ones—we know who they are and I will not name them—and others who have attracted quite considerable media attention because of their behaviour.

I want to cover some of the changes that were introduced on 1 March because to some extent they postdate some of the criticisms, particularly those in paragraphs (3) and (4). They do not completely negate them, but I do want to get on the record that there has been some action on franchising. In fact, it began under the previous government in 2006 with the review of the operation of the disclosure provisions in part 2 of the code. There were a number of recommendations—in fact, 27—and 15 were accepted by the former government and six were agreed in principle. They came into effect on 1 March 2008.

There were some improvements there. The changes to the disclosure requirements mean that franchisors are now required to disclose such details as the name and contact details of each franchisee who has either transferred, terminated, not renewed, ceased to operate or was bought out in the last three years; the history of the franchise site and territory; and the details about the directors of the franchise and any material relevant facts in writing within 14 days of them becoming known. The ACCC also assists prospective franchisees by making available the Franchisee Manual, which encourages prospective franchisees to understand the risks they face when entering into a franchise. Those changes are still relatively new, and I watch with great interest how they are applied and how successfully the ACCC is able to prosecute franchisors who are in breach of that code.

Between the 2006 review and the implementation of the new code in March, two other reviews were undertaken by state governments. One was undertaken by South Australia in response to the accusation that Bakers Delight franchisors were involved in churning at the time. The other, in 2007, was undertaken by the Western Australian government, again in response to a particular circumstance, when Competitive Foods Australia Ltd, which holds some 50 franchising contracts to operate KFC stores in Western Australia, decided not to renew any of those franchises when their terms concluded. Both those reviews put forward recommendations concerning disclosure provisions and churning and also unconscionable conduct, but to date there has been no response to them. Now, of course, the Parliamentary Joint Committee on Corporations and Financial Services is inquiring into the Franchising Code of Conduct and has referred to both of those reviews in its background notes. Early next year we should see a report from that committee which incorporates recommendations from those two state governments as well as evidence from the dozens of franchisees that have made submissions to date.

So there is movement in this issue. It will never be finished. There will always be someone who finds a way around it and there will always be weaker parties which enter into negotiations without full information. So we must be vigilant, but there is action on it and I look forward to seeing the results of that. (Time expired)

Joanna Gash (Gilmore, Liberal Party, Shadow Parliamentary Secretary for Tourism) Share this | Link to this | Hansard source

I am delighted to speak in support of this motion. The more I and some of my colleagues delve into franchising in Australia, the more we are astounded at the impunity with which many honest people have been driven to the wall without satisfactory remedy. I am also astounded that nothing seems to be being done to redress the injustices incurred, nor are any remedial measures being introduced to prevent or discourage a repetition of these events.

It appears to me that there is a purposeful and systematic practice by which some franchisors induce the failure of a sizeable proportion of a franchisee network for the singular purpose of resale at an advantageous price. The practice has been termed ‘churning’. Whether or not you accept the existence of such things, you cannot deny the high incidence of failed franchises that started off on a sound financial basis. The net effect of these practices has caused untold distress to many people who entered into contracts in good faith and with enthusiasm.

After considerable effort, the ACCC finally accepted and investigated some of the cases I brought to them, yet not one prosecution has come out of the process. I am told that, if a confidentiality agreement has been signed between the franchisee and the franchisor, the ACCC decline to investigate. If that is the case, should such an instrument be allowed to stand in the way of getting to the truth? I have deep concerns that the ACCC accepted such a position knowing of the potential for possible breaches of the Criminal Code and I have grave doubts that these matters were investigated as thoroughly as they should have been. I can only draw three reasonable conclusions: (1) that the act is inadequate and needs tightening; (2) that the ACCC is not applying the responsibilities given it with the degree of competence these cases need; or (3) that all the affected franchisees are commercially and uniformly incompetent.

I believe there is evidence of unconscionable conduct on the part of some franchisors but I am not confident the ACCC has properly examined the claims. There seems to be a problem with defining what constitutes ‘unconscionable conduct’ under the act and that of a layperson. In just about every case I have looked at, the franchisor has acted with impunity in the way it shared information with the franchisee and the degree of control it exerted over the franchisee. Information is often withheld or manipulated. I understand there is a practice of inducing a breach, and the franchisees are powerless to defend themselves because the means to do so has been denied them.

Certainly, the recent inquiries in Western Australia and South Australia support the supposition that a huge clean-up is long overdue. If the ACCC lacks adequate resources to effectively prosecute its brief then give it the resources it needs. But if the ACCC has the resources and cannot even prosecute one case then I would question the competency of that agency. Indeed, there has even been some suggestion of breaches of the Criminal Code, and I have urged a number of franchisees to take their case to the police.

The pattern that has emerged in all of this is to bleed affected franchisees financially, thereby denying them the ability to afford a reasonable legal challenge. There needs to be legislative relief in the form of a tribunal commission where these matters can be adjudicated. We are suggesting that the industrial relations model can be looked at as a guide. Although these matters surround the concept of harsh or unconscionable conduct, it seems a difficult proposition to prove, at least as far as the Trade Practices Act is concerned. Much of this has to do with defining exactly what that means, and at the moment the benefit of the doubt is unwavering slanted towards the franchisor.

I think each case should be examined by someone other than the ACCC because, from what I have seen so far, I am not at all heartened. I applaud the fact that there is a Senate investigation underway—not before time—as this is a matter that transcends politics. I am convinced that churning exists and it must be stamped out. If the act does not cater for the discouragement of such an immoral practice then it must be amended. If it does then the watchdog is not doing its job. Either way the government has to act today to restore confidence in this blighted industry.

In closing I would like to read into the record three succinct extracts from emails with regard to Bakers Delight, and these can be produced. The first is from Richard Taylor, Chief Financial Officer of Bakers Delight, to Simon Brookhouse, the Victorian and Tasmanian franchise manager for the ANZ Bank, dated 22 February 2005 with regard to Ms Deanne DeLeeuw, who was still an active franchisee at the time. It read:

The South Coast bakeries group heads closer and closer to oblivion.

Is that not evidence that suggests plans had been conspired to terminate Ms DeLeeuw’s franchise well ahead of time?

The second email is from Jurgen Schnabel, Senior Manager of the ANZ Bank, dated 10 March 2005. He wrote:

... we will accept whatever Bakers Delight decides to give us from the sale of Kiama and Vincentia, without question.

Does this not constitute some degree of collusion towards the premature but planned demise of this franchisee? And finally:

... we have to consider the greater relationship with Bakers Delight given our overall exposure to this group within PM.

That was in an email from Simon Brookhouse of the ANZ Bank dated 10 March 2005. This was when the ANZ agreed to accept a nil return from Bakers Delight for the Shellharbour franchise. (Time expired)

Sharryn Jackson (Hasluck, Australian Labor Party) Share this | Link to this | Hansard source

I too rise to speak on the franchising resolution tonight and I do so in the context of having a particular dispute in my electorate involving a KFC franchise in Thornlie. I can indicate to the member for Canning that I also recognise the severe financial distress and hardship faced by a number of current and former franchisees throughout Australia as a result of franchisor conduct. Of course, he would acknowledge that the distress often flows onto the people employed in these franchises.

I note the inquiries that have been launched and undertaken by both the Western Australian and South Australian governments into franchising and, in particular, the one in Western Australia where the report was handed down in April of this year. The catalyst for the inquiry in Western Australia in large part involved the KFC franchises in Western Australia. Many of them have been run by a company known as Competitive Foods Australia Ltd, or CFAL, that held nearly 50 of those franchises in WA and have operated the brand in Western Australia since 1969. The member for Blair and the member for Parramatta made reference to that. CFAL concerns were indeed the catalyst for the inquiry.

Some 40 staff are currently employed at the KFC franchise in Thornlie in my electorate. Their jobs are threatened with the closure of the KFC franchise, which is likely to take place in December this year. This follows the closure of a store in Rockingham last year where some 40 employees lost their jobs, and I understand that there are two other stores in the Perth metropolitan area that face similar circumstances. I must say, if there is one thing on which I think immediate action needs to be taken, it is also the recommendations from the Western Australian government inquiry involving the issue of the nonrenewal of franchising agreements. In particular, I would commend recommendations 3.1 and 3.2 of that inquiry which are to make the necessary changes so that there is an amendment to the franchising code to require franchisors to explicitly specify, in their disclosure documents, what end of agreement arrangements are in place under the franchise and also to indicate what the franchisee’s entitlements are in respect of those and any entitlement to goodwill or other compensation if the agreement is not renewed.

Whilst I do not think that unconscionable conduct should be condoned anywhere—I think businesses and individuals should be held accountable for such conduct—it was the case that the Western Australian inquiry indicated that they believed there was not existing protection in current law to provide the desired level of protection for all franchising participants. This is why I largely support the motion brought by the member for Canning. I certainly agree that many franchisees have no adequate or available means to redress their grievances without recourse to expensive or unaffordable litigation.

I am pleased to note the current inquiry being undertaken by the Joint Committee on Corporations and Financial Services into the Franchising Code of Conduct and related matters. The committee’s terms of reference encompass the matters raised in this motion by the member for Canning, and I am sure that within its terms of reference it will be able to encompass the reports and recommendations from both the South Australian government’s inquiry and the Western Australian government’s inquiry. I am confident that it will make sound and considered recommendations to address the shortfalls in the current code. I believe that code will be enhanced by strengthened good faith provisions and by a more effective low-cost dispute resolution procedure.

It was with some irony that I read point (4) of the member for Canning’s motion because, as a representative of the party that supports Work Choices, it is interesting that the member can so clearly see the need for decent conciliation and arbitration proceedings at no cost when it comes to small business but perhaps cannot so wholeheartedly endorse that when it comes to the ordinary working person. I certainly would urge the Committee to support changes to the code requiring franchisors to show good cause when refusing, in particular, to renew franchising agreements. I am concerned the inquiry will not be dealt with quickly enough to assist my constituents in Thornlie, so I intend to pursue this matter directly with the minister and assist the staff and management at Thornlie KFC as best I can.

Judi Moylan (Pearce, Liberal Party) Share this | Link to this | Hansard source

I thank the member for Canning for bringing this motion to the chamber. I have to say that I concur with many of the comments that I have heard while sitting in this chamber, particularly those of the member for Gilmore, who spoke very passionately and strongly about this issue. It is an important issue for the future of Australian small business.

In many respects, franchising has flourished in Australia since the introduction of the franchising code, and we have had an excellent opportunity to round off the franchise industry regulation by replacing previous poor practice, which has threatened the reputation as well as the future of the sector. The problem is well recognised and acknowledged as that of franchisor opportunism. In May this year, the Small Business Ministerial Council recommended the inclusion of a good faith provision in the code as part of further amendments to give greater certainly to franchises. The Minister for Small Business, Independent Contractors and the Service Economy, the honourable member for Rankin, also made an election promise to introduce a good faith clause. The minister said:

... Labor believes that the Franchise Code should include good faith obligations as long as the scope of this obligation is well defined.

It begs the question: what has the member for Rankin done, then, about fulfilling this promise?

Recent inquiries into franchising by both the South Australian and Western Australian parliaments have highlighted huge deficiencies in the current franchise code of conduct. Surely this is enough to convince us that something needs to be done and it needs to be done urgently. The most recent and relevant example of these deficiencies is a decision handed down by the High Court in the Ketchell case. Although the franchisee lost on the facts, the High Court confirmed that the courts have the power under the TPA to rewrite franchise agreements that breach the code. The problem is that the code is defective, and until it is fixed franchisees are no better off. Any instance where a franchisor does not renew the franchise agreement and forces the franchisee out of business purely and simply to set up its own business at the same location is something that I consider to be absolutely unconscionable.

I concur with the comments made by both the member for Parramatta and the member for Hasluck this evening regarding the matter of KFC in Australia. As Jack Cowin of Competitive Foods Australia has said previously, franchising is a unique form of relationship. At the core of the franchise relationship is a belief that franchisees and franchisors will work together in good faith to build a business for their mutual benefit. It is well recognised that this relationship is more like a commercial partnership than a simple supply of services between two parties. Mr Cowin is right about that, and he probably has more to lose than anyone. We have heard from the members I have previously mentioned about the case of KFC—and I do not propose to go into those details again—which is a very disturbing one indeed.

The coalition recognises the importance of having both diversity and balance in the marketplace. While we recognise the importance of promoting and encouraging the growth of small business, this should not be to the detriment of corporate Australia. Finding the balance between the two has always been the strength of the coalition. Competition increases efficiency, lowers prices for consumers, provides greater choice, encourages innovation and the uptake of new technology and lifts productivity. This is the very reason the Trade Practices Act was written: to develop and maintain a free and fair market that benefits consumers as well as business owners, both large and small.

The four points raised here by the member for Canning are excellent, and I again thank him for bringing this motion to the House. Adapting franchising regulations in the Trade Practices Act would cover many contentious issues and dubious practices and would ensure a stronger future for the industry. I strongly support this motion and I call on the government to act and to act now.

Jill Hall (Shortland, Australian Labor Party) Share this | Link to this | Hansard source

I am very pleased to speak on the motion brought to this House on franchising. Each and every member of this parliament has had problems with people who have been caught up with a franchise. Recently I have been working with some constituents in my electorate who had a double whammy, and I referred to it in a speech that I made in the House earlier. They have been caught up in the renovations of a large shopping centre. The franchisor is very keen to maintain a good relationship with the shopping centre to ensure that they have access to shopping centres throughout Australia. On the other hand, I have some constituents who, because of the renovations to this particular shopping centre, have lost 75 per cent of their takings. These people have been to mediation with the shopping centre management and with the franchisor. The franchisor and the shopping centre can reach an agreement, but my constituents are losing hundreds of thousands of dollars. They are losing all their life savings. These are ordinary Australians that decided that they wanted to invest in small business but, because of the relationship that exists between them and the franchisor and between them and the shopping centre, they are caught in the middle and they are going to be the ones that lose. That is quite a sad situation and one that needs to be addressed.

I am really pleased to see the member for Oxley in here because I know he is currently conducting an inquiry into franchising. As chair of that committee he has been going around Australia listening and taking evidence from various people. I know he would be hearing all the problems that people are experiencing. He has told us that, whilst he has been going around with the committee, there has been an extraordinary amount of interest from stakeholders in the franchising community, and I would argue that that would be from both franchisors and franchisees. I would be interested to talk to him a little later and see if he has come across the situation I have been talking about here tonight. He has indicated that it is quite common for franchisees to be caught in the relationship between shopping centres and the franchisor. In the inquiry he has adopted a very broad approach. He is open-minded. He and the committee are keen to get to the core issues in relation to franchising. I commend their efforts and I commend this motion.

A division having been called in the House of Representatives—

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

Order! The time allotted for this debate has expired. The debate is adjourned and the resumption of the debate will be made an order of the day for the next sitting.