Trish Crossin (NT, Australian Labor Party) Share this | Link to this | Hansard source

Pursuant to standing order 166, I present documents listed on today’s Order of Business at item 13 which were presented to the President and temporary chairs of committees since the Senate last sat. In accordance with the terms of the standing orders, the publication of the documents was authorised.

The list read as follows—

(a)

Government responses to parliamentary committee reports1.     Parliamentary Joint Committee on Corporations and Financial Services—Report—Opportunity not opportunism: Improving conduct in Australian franchising (received 5 November 2009)2.     Economics Committee—Report—The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (received 5 November 2009)

1.

Parliamentary Joint Committee on Corporations and Financial Services—Report—Opportunity not opportunism: Improving conduct in Australian franchising (received 5 November 2009)

2.

Economics Committee—Report—The need, scope and content of a definition of unconscionable conduct for the purposes of Part IVA of the Trade Practices Act 1974 (received 5 November 2009)

(b)

Government documents1.     National Breast and Ovarian Cancer Centre—Report for 2008-09 (received 30 October 2009)2.     Executive Director of Township Leasing—Report for 2008-09 (received 30 October 2009)3.     Northern Land Council—Report for 2008-09 (received 30 October 2009)4.     Department of the Treasury—Report for 2008-09 (received 30 October 2009)5.     Department of Infrastructure, Transport, Regional Development and Local Government—Report for 2008-09 (received 30 October 2009)6.     Professional Services Review—Report for 2008-09 (received 30 October 2009)7.     Department of the Environment, Water, Heritage and the Arts—Volumes 1 and 2—Report for 2008-09 (received 30 October 2009)8.     Department of Immigration and Citizenship—Report for 2008-09 (received 30 October 2009)9.     National Health and Medical Research Council—Report for 2008-09 (received 30 October 2009)10.   Australian National Maritime Museum—Report for 2008-09 (received 30 October 2009)11.   National Gallery of Australia—Report for 2008-09 (received 30 October 2009)12.   Companies Auditors and Liquidators Disciplinary Board—Report for 2008-09 (received 30 October 2009)13.   Takeovers Panel—Report for 2008-09 (received 30 October 2009)14.   Royal Australian Mint—Report for 2008-09 (received 30 October 2009)15.   Family Court of Australia—Report for 2008-09 (received 30 October 2009)16.   Acts Interpretation Act—Statement pursuant to section 34C relating to an extension of specified period for presentation of a report—Australian Sports Commission—Report for 2008-09 (received 2 November 2009)17.   Acts Interpretation Act—Statement pursuant to section 34C relating to an extension of specified period for presentation of a report—Australian Sports Anti-Doping Authority—Report for 2008-09 (received 2 November 2009)18.   Corporations and Markets Advisory Committee—Report for 2008-09 (received 4 November 2009)19.   Auditing and Assurance Standards Board—Report for 2008-09 (received 4 November 2009)20.   Australian Accounting Standards Board—Report for 2008-09 (received 4 November 2009)21.   Financial Reporting Panel—Report for 2008-09 (received 4 November 2009)22.   Grape and Wine Research and Development Corporation—Report for 2008-09 (received 5 November 2009)23.   Rural Industries Research and Development Corporation—Report for 2008-09 (received 5 November 2009)24.   Australian Reinsurance Pool Corporation—Report for 2008-09 (received 5 November 2009)25.   Australian Securities and Investments Commission—Report for 2008-09 (received 5 November 2009)26.   Private Health Insurance Administration Council—Report for 2008-09 (received 6 November 2009)27.   Cotton Research and Development Corporation—Report for 2008-09 (received 12 November 2009)28.   Land and Water Resources Research and Development Corporation (Land and Water Australia)—Report for 2008-09 (received 12 November 2009)29.   Sugar Research and Development Corporation—Report for 2008-09 (received 12 November 2009)30.   Gene Technology Regulator—Quarterly report for the period 1 April to 30 June 2009 (received 13 November 2009)31.   Financial Reporting Council—Report for 2008-09 (received 13 November 2009)32.   Superannuation Complaints Tribunal—Report for 2008-09 (received 13 November 2009)

1.

National Breast and Ovarian Cancer Centre—Report for 2008-09 (received 30 October 2009)

2.

Executive Director of Township Leasing—Report for 2008-09 (received 30 October 2009)

3.

Northern Land Council—Report for 2008-09 (received 30 October 2009)

4.

Department of the Treasury—Report for 2008-09 (received 30 October 2009)

5.

Department of Infrastructure, Transport, Regional Development and Local Government—Report for 2008-09 (received 30 October 2009)

6.

Professional Services Review—Report for 2008-09 (received 30 October 2009)

7.

Department of the Environment, Water, Heritage and the Arts—Volumes 1 and 2—Report for 2008-09 (received 30 October 2009)

8.

Department of Immigration and Citizenship—Report for 2008-09 (received 30 October 2009)

9.

National Health and Medical Research Council—Report for 2008-09 (received 30 October 2009)

10.

Australian National Maritime Museum—Report for 2008-09 (received 30 October 2009)

11.

National Gallery of Australia—Report for 2008-09 (received 30 October 2009)

12.

Companies Auditors and Liquidators Disciplinary Board—Report for 2008-09 (received 30 October 2009)

13.

Takeovers Panel—Report for 2008-09 (received 30 October 2009)

14.

Royal Australian Mint—Report for 2008-09 (received 30 October 2009)

15.

Family Court of Australia—Report for 2008-09 (received 30 October 2009)

16.

Acts Interpretation Act—Statement pursuant to section 34C relating to an extension of specified period for presentation of a report—Australian Sports Commission—Report for 2008-09 (received 2 November 2009)

17.

Acts Interpretation Act—Statement pursuant to section 34C relating to an extension of specified period for presentation of a report—Australian Sports Anti-Doping Authority—Report for 2008-09 (received 2 November 2009)

18.

Corporations and Markets Advisory Committee—Report for 2008-09 (received 4 November 2009)

19.

Auditing and Assurance Standards Board—Report for 2008-09 (received 4 November 2009)

20.

Australian Accounting Standards Board—Report for 2008-09 (received 4 November 2009)

21.

Financial Reporting Panel—Report for 2008-09 (received 4 November 2009)

22.

Grape and Wine Research and Development Corporation—Report for 2008-09 (received 5 November 2009)

23.

Rural Industries Research and Development Corporation—Report for 2008-09 (received 5 November 2009)

24.

Australian Reinsurance Pool Corporation—Report for 2008-09 (received 5 November 2009)

25.

Australian Securities and Investments Commission—Report for 2008-09 (received 5 November 2009)

26.

Private Health Insurance Administration Council—Report for 2008-09 (received 6 November 2009)

27.

Cotton Research and Development Corporation—Report for 2008-09 (received 12 November 2009)

28.

Land and Water Resources Research and Development Corporation (Land and Water Australia)—Report for 2008-09 (received 12 November 2009)

29.

Sugar Research and Development Corporation—Report for 2008-09 (received 12 November 2009)

30.

Gene Technology Regulator—Quarterly report for the period 1 April to 30 June 2009 (received 13 November 2009)

31.

Financial Reporting Council—Report for 2008-09 (received 13 November 2009)

32.

Superannuation Complaints Tribunal—Report for 2008-09 (received 13 November 2009)

(c)

Report of the Auditor-General

Report no. 9 of 2009-10—Performance audit—Airservices Australia’s upper airspace management contracts with the Solomon Islands Government: Airservices Australia and the Department of Infrastructure, Transport, Regional Development and Local Government (received 5 November 2009)

The Acting Deputy President:

In accordance with the usual practice, and with the concurrence of the Senate, the government response will be incorporated in Hansard.

The document read as follows—

Commonwealth Government Response to the report of the Parliamentary Joint Committee on Corporations and Financial Services

Opportunity not opportunism: improving conduct in Australian franchising

Commonwealth Government Response to the report of the Parliamentary Joint Committee on Corporations and Financial Services – Opportunity not opportunism: improving conduct in Australian franchising

Overview and executive summary

On 1 December 2008, the Parliamentary Joint Committee on Corporations and Financial Services (Joint Committee) tabled its report Opportunity not opportunism: improving conduct in Australian franchising. The Joint Committee considered that, by making the improvements to the Franchising Code of Conduct (Franchising Code) recommended in its report and by allowing the 1 March 2008 amendments to have an impact, the existing regulatory framework is developing into the most appropriate mechanism for fostering franchising in Australia.  The Joint Committee made 11 recommendations to improve the operation of the Franchising Code.

The Government would like to thank the chair, Bernie Ripoll, and all members of the Joint Committee for the report. The Government would also like to thank those organisations and individuals who made written submissions, gave evidence at the Joint Committee’s public hearings and engaged in Government consultations to assist in informing the response to the Joint Committee’s report. The Government also acknowledges state parliamentary inquiries undertaken in Western Australia and South Australia.

The Joint Committee found that franchising has proved a very popular business model in Australia. According to a Griffith University Survey ¹ of franchising in Australian in 2008 there are approximately 1,100 business format franchisors and over 70,000 franchisees, turning over around $61 billion (in 2007) ² and employing over 400,000 people. For franchisees, the appeal of a franchise is the potential benefits of being able to conduct a business under an established brand name using tested operational systems. In turn, franchisors are able to grow their business by allowing others to use the model they have developed, within an agreement that allows them to retain substantial control over its use but without the financial risks of significant capital expenditure.

Despite the popularity of franchising in Australia, the Joint Committee’s report did find that the viability and success of individual franchise agreements can be impaired by:

• differing expectations about the obligations of each party to a franchising agreement; and
• an asymmetric power dynamic within franchise agreements, with potential to lead to abuse of power. ³

The Government recognises the legitimate concerns that were raised during the Joint Committee’s inquiry and understands the need for parties to a franchise agreement to behave in a reasonable manner. It also recognises that franchising by its very nature is a commercial relationship covering a diverse range of market requirements. As such, there must be flexibility in the franchising system to encourage innovation and growth, but commercial negotiations must be undertaken without blatant and unfair commercial practices.

The Government’s response to the Joint Committee report is outlined below.

1.            Improvements to the enforcement of the Franchising Code of Conduct and the Trade Practices Act

The Government will introduce a range of new enforcement powers under the Trade Practices Act, including additional powers to enforce the Franchising Code and other mandatory industry codes.

The Government will greatly strengthen protections for franchising businesses against unfair practices by other businesses.  Penalties of up to $1.1 million will apply to franchisors or franchisees who engage in unconscionable conduct, or make false or misleading representations in their dealings with each other, under the Trade Practices Amendment (Australian Consumer Law) Bill 2009 currently before the Parliament.

The Government will enhance the investigative powers of the Australian Competition and Consumer Commission (ACCC) for franchising by amending the Trade Practices Act 1974 (Trade Practices Act) to allow the ACCC to conduct random audits for the Franchising Code (and all other prescribed industry codes). At present, franchisees wishing to complain about franchisors not complying with the Franchising Code may fear reprisal from franchisors. The ACCC’s random audit powers will strengthen franchisor compliance with the Franchising Code, while relieving franchisees of the fear of retaliation against them for complaining to the ACCC about franchisor behaviour.

Further, the Government will extend the public warning power available under the Trade Practices Amendment (Australian Consumer Law) Bill 2009 to include breaches of the Franchising Code and other industry codes. This warning – or naming and shaming – power will alert the public to rogue or unscrupulous franchisors.

Under the reforms, where a large number of franchisees are harmed by the behaviour of a franchisor in breach of the Franchising Code, the ACCC will be able to apply for an order providing redress to all the franchisees, without requiring every franchisee to be party to the legal proceedings.

Finally, under the reforms, the ACCC will be able to issue substantiation notices.  These notices will enable the ACCC to quickly and easily require businesses to provide information to substantiate claims they have made.  They will be an effective means of seeking information which will assist in determining whether a contravention of the Franchising Code or other codes has occurred. 

These powers will be added to the existing remedies for breaches of industry codes which include:

• injunctions under section 80 of the Trade Practices Act;
• damages under section 82;
• other remedial orders under section 87 and other provisions;
• declarations about the effect or operation of industry codes, under section 163A;

The Government will introduce legislation to enact this enhanced enforcement package in early 2010.

2.            Measures to better balance the rights between franchisees and franchisors

The Government recognises the need for measures to deal with imbalances in bargaining power and unreasonable behaviours.

The unconscionable conduct and false and misleading representations sections of the Trade Practices Act will be strengthened and will serve as a powerful disincentive for parties in a franchising arrangement to engage in the most obvious and deliberate breaches of good faith. Amendments to the Trade Practices Act will make it clear that protection from unconscionable conduct relates not only to the process of settling a contract but to the terms and conditions of the contract and the ongoing behaviour of the parties to the contract. 

Good faith

The Government agrees in principle with the views expressed in the Joint Committee’s report to ensure that franchisors and franchisees undertake their business in good faith. However, it will deliver improvements in a more certain and targeted way. In summary, the Government’s response to the Franchise report’s recommendations on good faith will:

1.

amend the Franchising Code to deal specifically with end-of-term arrangements for all new franchising agreements entered into after the commencement of the amendments;

2.

amend the Franchising Code to include a list of necessary and desirable behaviours to encourage parties to approach a dispute resolution process in a reconciliatory manner;

3.

refer specific behavioural issues (identified through consultation) to an expert panel for advice on whether further specific amendments to the Franchising Code are required to address those behaviours; and

4.

amend the Franchising Code to provide that nothing in the Code limits any common law requirement of good faith in relation to a franchise agreement to which the Code applies. 

The Government made a pre-election statement noting its belief that the Franchising Code should include good faith obligations as long as the scope of this obligation is well defined. Concerns were expressed during the consultation process on the options paper which was issued to prepare this response that a general notion of unfairness or of acting in good faith would have the effect of increasing risk, increasing business costs and potentially jeopardising small business financing.  Moreover, if the obligation to act in good faith were expressed in very general and high-level terms, it may provide little practical protection to the parties. The Government’s approach would avoid this uncertainty.

Further, proposals from franchisee representatives for the inclusion of a good-faith obligation in the Franchising Code have generally been motivated by specific issues that arise during the term of a franchise agreement such as non-renewal, unforeseen capital expenditure and unreasonable unilateral variations to the agreement.

The Government considers that specific issues identified through the Joint Committee inquiry should be dealt with by measures which will address specific behavioural concerns.

End-of-term arrangements

The Government will amend the Franchising Code to require franchisors to disclose to franchisees the process that will apply in determining end-of-term arrangements, including whether or not there is a right of renewal beyond the term of the agreement. Any exit arrangements should give due regard to the potential transferability of equity in the value of the business as a going concern. 

The disclosure of this information is likely to assist in mitigating disputes where one party has an expectation (not shared by the other party) that the franchise agreement will be renewed.  It will also help to address imbalances in power between franchisees and franchisors by assisting prospective franchisees to undertake their due diligence to adequately assess the business opportunity prior to entering into a franchise agreement. 

The Government will also introduce amendments to the Franchising Code requiring franchisors to inform franchisees, at least six months prior to the end of the franchise agreement, of their decision either to renew or not renew a franchise agreement. Where franchise agreements are for a term less than six months, franchisors will be required to inform franchisees at least one month prior to the end of the franchise agreement of their decision to renew or not renew a franchise agreement.

It is the Government’s clear intention that these new end-of-term arrangements will apply for franchise agreements signed after the date of amendments to the Franchising Code.  For agreements already in existence, the end-of-term arrangements can be included by the voluntary agreement of both parties but will not be obligatory.

Dispute resolution process

A second major area of concern identified by the Joint Committee was inappropriate practices undertaken by parties in dispute mediation processes. The Government will amend the Franchising Code to include a list of necessary and desirable behaviours aimed at discouraging behaviour which may impede the effectiveness of the dispute resolution process under the Code.  This list should help encourage parties to a franchise dispute to approach their dispute in a reconciliatory manner. 

Expert panel

Several areas where parties may engage in opportunistic behaviour were identified in the Joint Committee’s inquiry process. The Government will appoint an expert panel to inquire into and report on the need to introduce measures into the Franchising Code to prevent specific behaviours that are inappropriate in a franchising arrangement, with particular reference to:

• Unforeseen capital expenditure;
• Unilateral contract variation;
• Attribution of legal costs;
• Confidentiality agreements; and
• Franchisor-initiated changes to franchise agreements when a franchisee is trying to sell the business.

The panel will consult with franchising and retail tenancy representatives, small business organisations, the Australian Competition and Consumer Commission (ACCC) and other interested parties.

The same panel will also inquire into and report on the need to introduce a list of examples that constitute unconscionable conduct, or a statement of principles, in the Trade Practices Act. 

3.            Other reforms

The Government will change the name of the Office of the Mediation Adviser to the Office of the Franchising Mediation Adviser to aid the sector’s understanding of the role of this Office.

The Government supports the public release of broad ACCC data on trends of inquiries and complaints from small businesses and franchising businesses as an indicator of concerns within the franchising sector as compared with small businesses more generally. This, along with other measures discussed in the Government’s response, will help increase the Government’s understanding of disputation within the franchising sector. 

The Government will also introduce amendments to the Franchising Code to require a statement in the disclosure documents that franchising is a business and that like any business the franchise (or franchisor) could fail during the franchise term. The Government will also ask the ACCC to develop additional educational information on the potential consequences and liabilities franchisees could be exposed to in the event of franchisor failure.  These changes will alert prospective franchisees and their advisers to the risk of franchisor failure and will assist them in undertaking their due diligence to adequately assess the business opportunity.  

The Government will review the efficacy of these amendments, and the 1 March 2008 amendments, in 2013.

Government response

The Joint Committee’s recommendations and the Government’s response to those recommendations are set out below under the following categories:

• Compliance and enforcement: the Franchising Code of Conduct and the Trade Practices Act (Recommendations 9, 10, 11 and 2);
• Measures to better balance the rights between franchisees and franchisors (Recommendations 8 and 5);
• Mediation (Recommendation 6);
• Franchising statistics (Recommendation 7);
• Franchise failure (Recommendations 1 and 4); and
• Future review of the franchising sector (Recommendation 3).

Compliance and enforcement: the Franchising Code of Conduct and the Trade Practices Act - Recommendations 9, 10, 11 and 2

Recommendations 9

The committee recommends that the Trade Practices Act 1974 be amended to include pecuniary penalties for breaches of the Franchising Code of Conduct

Recommendations 10

The committee recommends that consideration be given to amending the Trade Practices Act 1974 to provide for pecuniary penalties in relation to breaches of section 51AC (Unconscionable Conduct in business transactions), section 52 (Misleading or Deceptive Conduct), and the other mandatory industry codes under section 51AD

Recommendations 11

The committee recommends that the ACCC be given the power to investigate when it receives credible information indicating that a party to a franchising agreement, or agreements, may be engaging in conduct contrary to their obligations under the Franchising Code of Conduct.

Recommendations 2

The committee recommends that the government investigate the benefits of developing a simple online registration system for Australian franchisors, requiring them on an annual basis to lodge a statement confirming the nature and extent of their franchising network and providing a guarantee that they are meeting their obligations under the Franchising Code of Conduct and the Trade Practices Act 1974

The Government is committed to improving the enforcement regime of the Trade Practices Act and the Franchising Code to ensure that the legitimate interests of franchisees and franchisors are protected.  

The Government plans to introduce:

• pecuniary penalties for blatant abuse of a stronger bargaining position;
• targeted enforcement measures for problems in the franchising sector; and
• improved enforcement and investigative powers for the ACCC.

Pecuniary penalties for breaches of section 51AC and 52 of the Trade Practices Act

The Trade Practices Amendment (Australian Consumer Law) Bill 2009, introduced on 24 June 2009, will increase the range of penalties and enforcement measures available for the unfair practices and unconscionable conduct provisions of the Trade Practices Act, and these will be applicable in a franchising context.

The Government will introduce civil penalties for breaches of the unconscionable conduct provisions in Part IVA of the Trade Practices Act, including section 51AC.  This will allow the ACCC to respond appropriately to egregious conduct, by applying to the Court for a civil pecuniary penalty.

The Government will also introduce civil pecuniary penalties for many of the unfair practices provisions of the Trade Practices Act, such as section 53, which prohibits false or misleading representations in a number of specific circumstances.  Because section 53 prohibits more defined conduct than the general norm of conduct in section 52, the Government considers it appropriate to apply civil penalties to this specific conduct.  Prohibitions under section 53 that are relevant to the franchising sector include conduct that:

• falsely represents that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use (paragraph (a)); 
• falsely represents that services are of a particular standard, quality, value or grade (paragraph (aa));
• falsely represents that a particular person has agreed to acquire goods or services (paragraph (bb));
• represents that the corporation has a sponsorship, approval or affiliation it does not have (paragraph (d));
• makes a false or misleading representation with respect to the price of goods or services (paragraph (e));
• makes a false or misleading representation concerning the availability of facilities for the repair of goods or of spare parts for goods (paragraph (ea));
• makes a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (paragraph (g)).

When the new arrangements are in effect, the ACCC will be able to apply for civil pecuniary penalties in response to unconscionable conduct and false and misleading representations.  Maximum penalties for this conduct will be $1.1 million for corporations and $220,000 for individuals. 

The Joint Committee recommended that civil pecuniary penalties also apply to section 52 of the Trade Practices Act.  The Government does not agree with this recommendation.  Section 52 is a general prohibition of misleading or deceptive conduct in trade or commerce.  Because it is a general norm of conduct and not a specific prohibition, there are no criminal sanctions for contraventions of section 52.  Provisions which attract criminal liability or civil penalties for breaches are directed at specific wrongdoing which requires sanction, rather than general behaviour.  Since section 52 is not directed at specific wrongdoing, the Government does not consider that civil penalties would be an appropriate mechanism for enforcing it, and believes that existing civil remedies are an appropriate response to breaches of section 52. 

The availability of civil and criminal penalties for conduct governed by section 53 will provide adequate responses to the most serious misleading and deceptive conduct.

Enforcement of the Franchising Code

Part VI of the Trade Practices Act creates a number of civil remedies which are available to those harmed by a breach of an industry code.  A franchisor or franchisee who is adversely affected by the other party’s contravention of the Franchising Code could apply for:

• an injunction, under section 80, to prevent the other party from continuing with conduct that is causing detriment;
• damages, under section 82, to restore the wronged party to the financial position it would have been in had the breach not occurred; or
• other orders, under section 87, which can be framed in such terms as the Court thinks will provide appropriate compensation, or prevent or reduce the loss or damage suffered as a result of the breach.

The Government will augment this range of remedies with an enhanced enforcement package for all industry codes, which is described in detail below.  Briefly, the new remedies for breaches of industry codes will include:

• non-party redress, allowing the Court to order redress for large numbers of businesses affected by a breach of an industry code. This means that when a large number of franchisees are harmed by the conduct of a franchisor in breach of the Franchising Code, the ACCC will be able to apply for an order providing redress to all effected franchisees, without requiring every franchisee to be party to the legal proceedings.
• substantiation notices requiring persons subject to industry codes to substantiate the claims they make in promoting their goods or services; and
• public warning notices, allowing the ACCC to alert the public to conduct which may be in breach of an industry code.

The existing civil remedies and enhanced enforcement tools will together comprise a flexible and robust enforcement package, ensuring that industry codes such as the Franchising Code have the desired effect on the industries to which they apply.  The Government will introduce legislation to enact the enhanced enforcement package in early 2010.

Further, the Government will develop and release a new policy document setting out the framework of Part IVB and the principles used in determining whether codes of conduct are appropriate and how they should be framed.  This document will provide guidance to industry, consumer and community stakeholders about the Government’s approach to prescribed codes of conduct.

ACCC investigative powers

The Joint Committee recommended that the ACCC be given the power to investigate when it receives credible information indicating that a party to a franchising agreement, or agreements, may be engaging in conduct contrary to their obligations under the Franchising Code.  Several industry codes apply to industries characterised by disparities in bargaining power, and this leads to fear that more powerful businesses may threaten reprisal action against less powerful businesses that complain about non-compliance.  Under these conditions, less powerful businesses may bring complaints to the ACCC only on condition of anonymity, or may not make complaints at all, and this makes it difficult for the ACCC to monitor industries for compliance with codes.

The Government notes that the ACCC described this power to the Joint Committee as an ‘audit power’, and agrees that this is an appropriate enforcement mechanism in the context of the Franchising Code, as well as other prescribed industry codes. 

The ACCC will be given the power to request copies of documents or other information from persons subject to an industry code.  The ACCC will not be required to have any belief about compliance with the Franchising Code before conducting an audit.  To minimise compliance costs, the power will be restricted to information that is required to be kept under a prescribed industry code.  For example, the ACCC will be able to request a franchisor to produce a copy of its disclosure document.  The Franchising Code provides that such a document must be kept, and allowing the ACCC to request copies of disclosure documents, at random, will enable it to ensure compliance with the Code’s obligations.  The ACCC’s random audit powers will also relieve franchisees of the risk of retaliation against them for complaining to the ACCC about franchisor behaviour.

Where the documents obtained by the ACCC uncover information that justifies further investigation, the ACCC will be able to use its existing and additional investigative powers (for example, its power to obtain information, documents and evidence under section 155 of the Trade Practices Act, or the power to issue substantiation notices) to pursue the matter further and, if warranted, take enforcement action.

Pecuniary penalties for breaches of the Franchising Code

The Government has considered the Joint Committee’s concerns about the enforcement of the Franchising Code and its recommendation that pecuniary penalties be introduced for breaches of the Code.  Industry codes are an important part of Australia’s regulatory framework, and it is vital that they are enforced effectively.  Industry codes are a more flexible form of regulation that, while not a substitute for direct legislation, involve industry, consumers and other stakeholders in a co-regulatory approach to problems identified in specific industries, including the franchising industry.  In order to ensure that industry codes adequately address these problems, as outlined in this response, the Government will act to make their enforcement more effective.

The Franchising Code is designed to ensure franchisees and franchisors treat each other at least with a certain minimum standard of fairness, and the Government’s proposed changes to the Franchising Code will improve its effectiveness in promoting fairness and good practice.  When a party to a franchise agreement fails to meet that minimum standard, and the other party suffers as a result, it is appropriate that the law provide a mechanism for the wronged party to achieve redress.  This redress can be achieved through the payment of compensation or the rectification of contravening conduct.

At this stage, the Government does not propose to introduce civil pecuniary penalties for breaches of industry codes.  However, the Government will keep this matter under review and allow time for the extensive improvements which will be made to the Franchising Code to take effect. 

Online registration system for Australian franchisors

The Government has investigated the benefits of an online registration system for franchisors and considers that there are two elements to the Joint Committee’s Recommendation 2.

The first element of the online registration system proposed by the Joint Committee was to assist those considering entering a franchise agreement and for those monitoring the sector by acting as a research tool and assisting with data collection on the sector.

Based on the Australian Government Cost Recovery Guidelines the cost to the Government of establishing a franchisor registration system would need to be covered by a fee which would apply to all businesses within the franchise sector. 

Industry input indicates that prospective franchisees, when considering whether to enter into a franchise system, are interested in the performance of that particular franchise system and business rather than broad statistics on the franchising sector.  The information (that is the name, nature and size of a franchising system) that would be available to prospective and existing franchisees through a system of franchisor registration is unlikely to provide greater benefit than existing broad statistical information available to the sector through private industry surveys.  Therefore, the benefit of a system of registration for the purposes of statistics collection is unlikely to outweigh the cost to businesses within the sector. 

The second element of the Joint Committee’s proposed online registration system was aimed at improving franchisors’ compliance with the Franchising Code.  The Joint Committee considered that this could be achieved through an online system of annual registration of Australian franchisors requiring them to lodge a statement providing a guarantee that they are meeting their obligations under the Franchising Code and the Trade Practices Act.   

The Joint Committee considered that it is the proper role of legal advisers to determine whether disclosure documents and agreements are in compliance with the Code and other relevant regulation and legislation. The Joint Committee also considered that government resources are better directed to educational and enforcement responsibilities.  As the Government would not be involved in verifying the accuracy of franchisors’ statements of guarantee, a system of registration of guarantees is unlikely to provide franchisees with any extra benefit as they would still need to undertake their own due diligence to confirm the accuracy of information on the register.  A system of registration of franchisors could also create an expectation that the franchise has received the endorsement of the regulator.  

The Government also considers that the extended powers for the ACCC outlined above (in response to Recommendations 9, 10 and 11) will encourage franchisor compliance with the Franchising Code and the Trade Practices Act.

Measures to better balance the rights between franchisees and franchisors – Recommendations 8 and 5

Recommendations 8

The committee recommends that the following new clause be inserted into the Franchising Code of Conduct:

6 Standard of Conduct

Franchisors, franchisees and prospective franchisees shall act