COMPETITION AND CONSUMER (INDUSTRY CODES--FRANCHISING) REGULATION 2014 (SLI NO 168 OF 2014) - SCHEDULE 1 Franchising Code of Conduct
COMPETITION AND CONSUMER (INDUSTRY CODES--FRANCHISING) REGULATION 2014 (SLI NO 168 OF 2014) - SCHEDULE 1
Franchising Code of ConductNote: See section 4.
This code is the Franchising Code of Conduct .
The purpose of this code is to regulate the conduct of participants in franchising towards other participants in franchising.
(1) Subject to subclause (4), this code applies to conduct occurring on or after 1 January 2015 (other than to discharge an outstanding obligation that arose under the old code) in relation to a franchise agreement entered into on or after 1 October 1998.
(2) However, this code does not apply to a franchise agreement:
(a) to which another mandatory industry code, prescribed under section 51AE of the Competition and Consumer Act 2010 , applies; or
(b) if:
(i) the franchise agreement is for goods or services that are substantially the same as those supplied by the franchisee before entering into the franchise agreement; and
(ii) the franchisee has supplied those goods or services for at least 2 years immediately before entering into the franchise agreement; and
(iii) sales under the franchise are likely to provide no more than 20% of the franchisee's gross turnover for goods or services of that kind for the first year of the franchise.
(3) Paragraph (2)(b) ceases to apply to a franchise agreement if:
(a) sales under the franchise provide more than 20% of the franchisee's gross turnover for the goods or services for 3 consecutive years; and
(b) the franchisee tells the franchisor that paragraph (a) of this subclause applies.
(4) The provisions of this code mentioned in column 2 of the following table in relation to an item do not apply to a franchise agreement mentioned in column 1 of the item:
Provisions of this code that do not apply to certain franchise agreements |
||
|
Column 1 |
Column 2 |
Item |
If a franchise agreement is entered into ... |
these provisions do not apply to the agreement ... |
1 |
on or after 1 March 2008 but before 1 January 2015 |
(a) subclause 21(2); and (b) clauses 22 and 23 |
2 |
on or after 1 October 1998 but before 1 March 2008 |
(a) paragraph 20(1)(b); and (b) subclause 21(2); and (c) clauses 22 and 23 |
(5) However, subclause (4) ceases to apply in relation to a franchise agreement mentioned in column 1 of the table in that subclause if the agreement is varied or transferred on or after 1 January 2015.
(6) In this clause:
"old code" means the Franchising Code of Conduct set out in the Schedule to the Trade Practices (Industry Codes--Franchising) Regulations 1998 as in force immediately before 1 January 2015.
(1) In this code:
"ABN" has the same meaning as in the A New Tax System (Australian Business Number) Act 1999 .
"associate" , for a franchisor, means a person:
(a) who:
(i) is a director or related body corporate, or a director of a related body corporate, of the franchisor; or
(ii) for a franchisor that is a proprietary company--directly or indirectly owns, controls, or holds with power to vote, at least 15% of the issued voting shares in the franchisor; or
(iii) is a partner of the franchisor; and
(b) whose relationship with the franchisor is relevant to the franchise system, including because:
(i) the person supplies goods or services to a franchisee; or
(ii) the person gives the franchisee a right to occupy premises, whether under a lease or otherwise; or
(iii) the person owns intellectual property used in the franchise system; or
(iv) the person is involved in market research, market testing, market development, sales promotion or management of the franchise system.
"disclosure document" has the meaning given by clause 8.
"electronic signature" of a person means the unique identification of the person in an electronic form.
"engage in conduct" means:
(a) do an act; or
(b) omit to perform an act.
"extend" :
(a) in relation to the scope of a franchise agreement, means a material change to:
(i) the terms and conditions of the agreement; or
(ii) the rights of a person under or in relation to the agreement; or
(iii) the liabilities that would be imposed on a person under or in relation to the agreement; or
(b) in relation to the term of a franchise agreement, occurs when the period of the agreement is extended, other than because of an option exercisable by the franchisee during the term of the agreement.
"financial year" , in relation to a franchisor and a franchise, means a period of 12 months in respect of which financial statements relating to the franchise are prepared for the franchisor.
"franchise" includes the following:
(a) the rights and obligations under a franchise agreement;
(b) a master franchise;
(c) a subfranchise;
(d) an interest in a franchise.
"franchise agreement" has the meaning given by clause 5.
"franchisee" includes the following:
(a) a person to whom a franchise is granted;
(b) a person who otherwise participates in a franchise as a franchisee;
(c) a subfranchisor in its relationship with a franchisor;
(d) a subfranchisee in its relationship with a subfranchisor.
"franchise system" includes a business system in which a franchisor grants a franchise to a franchisee.
"franchisor" includes the following:
(a) a person who grants a franchise;
(b) a person who otherwise participates in a franchise as a franchisor;
(c) a subfranchisor in its relationship with a subfranchisee;
(d) a subfranchisor in a master franchise system;
(e) a subfranchisor in its relationship with a franchisee.
"interest in a franchise" includes a legal or beneficial interest in:
(a) a franchise agreement or a franchised business, whether arising as a result of a guarantee of a franchisee's obligations under the agreement or otherwise; or
(b) shares or voting rights in a corporation, not being a listed corporation, that owns a franchised business; or
(c) units or voting rights in a unit or other trust that owns a franchised business; or
(d) the capital or income of a partnership that owns a franchised business.
"master franchise" means a franchise in which the franchisor grants to a subfranchisor the right:
(a) to grant a subfranchise; or
(b) to participate in a subfranchise.
"motor vehicle" means a vehicle that uses, or is designed to use, volatile spirit, gas, oil, electricity or any other power (except human or animal power) as the principal means of propulsion, but does not include a vehicle used, or designed to be used, on a railway or tramway.
Note: Examples of motor vehicles are as follows:
(a) motor car;
(b) motorcycle;
(c) tractor;
(d) motorised farm machinery;
(e) motorised construction machinery;
(f) aircraft;
(g) motor boat.
"motor vehicle dealership" means a business of buying, selling, exchanging or leasing motor vehicles that is conducted by a person other than a person who is only involved as a credit provider, or provider of other financial services, in the purchase, sale, exchange or lease.
"obligation to act in good faith" : see clause 6.
"prospective franchisee" means a person who deals with a franchisor for the right to be granted a franchise.
"renew" , in relation to a franchise agreement, occurs when the franchisee exercises an option during the term of the agreement to renew the agreement.
"serious offence" means:
(a) an offence under any law of the Commonwealth or a State or a Territory for which, if the act or omission had taken place in the Jervis Bay Territory, a person would be liable, on first conviction, to imprisonment for a period of not less than 5 years; or
(b) a contravention of any provision of the Corporations Act 2001 .
Note: Jervis Bay Territory is mentioned because it is a jurisdiction in which the Commonwealth has control over the criminal law.
"significant capital expenditure" : see subclause 30(2).
"subfranchisor" means a person who is:
(a) a franchisee in relation to a master franchise; and
(b) a franchisor in relation to a subfranchise granted under the master franchise.
"trade mark" has the meaning given by the Trade Marks Act 1995 .
Note: A trade mark is a sign (including any letter, word, name, signature, numeral, device, brand, heading, label, ticket, aspect of packaging, shape, colour, sound or scent (or any combination of these)) used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person (see section 17 of the Trade Marks Act 1995 ).
"transfer" , in relation to a franchise agreement, includes a situation in which:
(a) the agreement is terminated on the basis that a new franchise agreement is entered into between the franchisor and prospective transferee; or
(b) the franchisee's rights and obligations under the agreement are assigned to a prospective transferee; or
(c) the agreement contemplates a transfer in specified circumstances and those circumstances happen.
(2) In this code, the following terms have the meanings given by the Corporations Act 2001 :
ACN
ARBN
body corporate
consolidated entity
director
externally-administered body corporate
insolvent under administration
listed corporation
misconduct
officer
proprietary company
registered company auditor
registered office
related body corporate
small proprietary company
5 Meaning of franchise agreement
(1) A franchise agreement is an agreement:
(a) that takes the form, in whole or part, of any of the following:
(i) a written agreement;
(ii) an oral agreement;
(iii) an implied agreement; and
(b) in which a person (the franchisor ) grants to another person (the franchisee ) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and
(c) under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol:
(i) owned, used or licensed by the franchisor or an associate of the franchisor; or
(ii) specified by the franchisor or an associate of the franchisor; and
(d) under which, before starting or continuing the business, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example:
(i) an initial capital investment fee; or
(ii) a payment for goods or services; or
(iii) a fee based on a percentage of gross or net income whether or not called a royalty or franchise service fee; or
(iv) a training fee or training school fee;
but excluding:
(v) payment for goods and services supplied on a genuine wholesale basis; or
(vi) repayment by the franchisee of a loan from the franchisor or an associate of the franchisor; or
(vii) payment for goods taken on consignment and supplied on a genuine wholesale basis; or
(viii) payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue business under the franchise agreement.
(2) For subclause (1), each of the following is taken to be a franchise agreement:
(a) the transfer or renewal of a franchise agreement;
(b) the extension of the term or the scope of a franchise agreement;
(c) a motor vehicle dealership agreement.
(3) However, any of the following does not in itself constitute a franchise agreement:
(a) an employer and employee relationship;
(b) a partnership relationship;
(c) a landlord and tenant relationship;
(d) a mortgagor and mortgagee relationship;
(e) a lender and borrower relationship;
(f) the relationship between the members of a cooperative that is registered, incorporated or formed under any of the following laws:
(i) the Corporations Act 2001 ;
(ii) the Co-operatives Act 1992 (NSW);
(iii) the Co-operatives Act 1996 (Vic.);
(iv) the Cooperatives Act 1997 (Qld);
(v) the Co-operatives Act 2009 (WA);
(vi) the Co-operatives Act 1997 (SA);
(vii) the Cooperatives Act 1999 (Tas.);
(viii) the Cooperatives Act 2002 (ACT);
(ix) the Co-operatives Act 1997 (NT).
Division 3 -- Obligation to act in good faith
6 Obligation to act in good faith
Obligation to act in good faith
(1) Each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to:
(a) the agreement; and
(b) this code.
This is the obligation to act in good faith .
Civil penalty: 300 penalty units.
(2) The obligation to act in good faith also applies to a person who proposes to become a party to a franchise agreement in respect of:
(a) any dealing or dispute relating to the proposed agreement; and
(b) the negotiation of the proposed agreement; and
(c) this code.
Matters to which a court may have regard
(3) Without limiting the matters to which a court may have regard for the purpose of determining whether a party to a franchise agreement has contravened subclause (1), the court may have regard to:
(a) whether the party acted honestly and not arbitrarily; and
(b) whether the party cooperated to achieve the purposes of the agreement.
Franchise agreement cannot limit or exclude the obligation
(4) A franchise agreement must not contain a clause that limits or excludes the obligation to act in good faith, and if it does, the clause is of no effect.
(5) A franchise agreement may not limit or exclude the obligation to act in good faith by applying, adopting or incorporating, with or without modification, the words of another document, as in force at a particular time or as in force from time to time, in the agreement.
Other actions may be taken consistently with the obligation
(6) To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become such a party, from acting in his, her or its legitimate commercial interests.
(7) If a franchise agreement does not:
(a) give the franchisee an option to renew the agreement; or
(b) allow the franchisee to extend the agreement;
this does not mean that the franchisor has not acted in good faith in negotiating or giving effect to the agreement.
Part 2 -- Disclosure requirements before entry into a franchise agreement
7 Application of Part--master franchisors
A master franchisor need not comply with the requirements of this Part in relation to a subfranchisee.
Division 2 -- Disclosure document
8 Franchisor must maintain a disclosure document
Disclosure document to inform franchisee or prospective franchisee
(1) A franchisor must create a document (a disclosure document ) relating to a franchise that complies with subclauses (3), (4) and (5).
Civil penalty: 300 penalty units.
(2) The purpose of a disclosure document is to:
(a) give a prospective franchisee, or a franchisee proposing to:
(i) enter into a franchise agreement; or
(ii) renew a franchise agreement; or
(iii) extend the term or scope of a franchise agreement;
information from the franchisor to help the franchisee to make a reasonably informed decision about the franchise; and
(b) give a franchisee current information from the franchisor that is material to the running of the franchised business.
Content and form of disclosure document
(3) Information in a disclosure document must:
(a) comply with the following:
(i) be set out in the form and order of Annexure 1;
(ii) use the headings and numbering of Annexure 1;
(iii) if applicable--include additional information under the heading "Updates"; or
(b) comply with the following:
(i) if particular items are applicable--use the headings and numbering of Annexure 1 for those items;
(ii) if particular items are not applicable--include an attachment that sets out the headings and numbering of Annexure 1 for those items.
(4) A disclosure document must be signed by the franchisor, or a director, officer or authorised agent of the franchisor.
(5) A disclosure document must also have a table of contents based on the items in Annexure 1, indicating the page number on which each item begins. If the disclosure document attaches other documents, the table of contents must list these other documents too.
Maintaining a disclosure document
(6) After entering into a franchise agreement, the franchisor must update the disclosure document within 4 months after the end of each financial year.
Civil penalty: 300 penalty units.
(7) However, the franchisor need not update the disclosure document after the end of a financial year if:
(a) the franchisor did not enter into a franchise agreement, or only entered into 1 franchise agreement, during the year; and
(b) the franchisor does not intend, or if the franchisor is a company, its directors do not intend, to enter into another franchise agreement in the following financial year.
(8) Despite subclause (7), if a request is made under subclause 16(1), the franchisor must update the disclosure document so that it reflects the position of the franchise as at the end of the financial year before the financial year in which the request is made.
Civil penalty: 300 penalty units.
9 Franchisor to give documents to a franchisee or prospective franchisee
(1) A franchisor must give:
(a) a copy of this code; and
(b) a copy of the disclosure document:
(i) as updated under subclause 8(6); or
(ii) if subclause 8(7) applies--updated to reflect the position of the franchise as at the end of the financial year before the financial year in which the copy of the disclosure document is given; and
(c) a copy of the franchise agreement, in the form in which it is to be executed;
to a prospective franchisee at least 14 days before the prospective franchisee:
(d) enters into a franchise agreement or an agreement to enter into a franchise agreement; or
(e) makes a non-refundable payment (whether of money or of other valuable consideration) to the franchisor or an associate of the franchisor in connection with the proposed franchise agreement.
Civil penalty: 300 penalty units.
(2) If a franchisor or franchisee proposes to:
(a) renew a franchise agreement; or
(b) extend the term or scope of a franchise agreement;
the franchisor must give to a franchisee (within the meaning of paragraph (a) of the definition of that expression) the documents mentioned in subclause (1) at least 14 days before renewal or extension of the franchise agreement.
Civil penalty: 300 penalty units.
(3) A franchisor is taken to have complied with the requirements of this clause even if, during the relevant 14-day or longer period, changes are made to a franchise agreement:
(a) to give effect to a franchisee's request; or
(b) to fill in required particulars; or
(c) to reflect changes of address or other circumstances; or
(d) for clarification of a minor nature; or
(e) to correct errors or references.
(1) The franchisor must not:
(a) enter into a franchise agreement; or
(b) renew or transfer a franchise agreement; or
(c) extend the term or scope of a franchise agreement; or
(d) enter into an agreement to:
(i) enter into a franchise agreement; or
(ii) renew or transfer a franchise agreement; or
(iii) extend the term or scope of a franchise agreement; or
(e) receive a non-refundable payment (whether of money or of other valuable consideration) under a franchise agreement or an agreement to enter into a franchise agreement;
unless the franchisor has received from the franchisee or prospective franchisee a written statement that the franchisee or prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and this code.
(2) Before a franchise agreement is entered into, the franchisor must have received from the prospective franchisee:
(a) signed statements, that the prospective franchisee has been given advice about the proposed franchise agreement or franchised business, by:
(i) an independent legal adviser; or
(ii) an independent business adviser; or
(iii) an independent accountant; or
(b) for each kind of statement not received under paragraph (a), a signed statement by the prospective franchisee that the prospective franchisee:
(i) has been given that kind of advice about the proposed franchise agreement or franchised business; or
(ii) has been told that that kind of advice should be sought but has decided not to seek it.
(3) Subclause (2):
(a) does not apply to:
(i) the renewal of a franchise agreement; or
(ii) the extension of the term or scope of a franchise agreement; and
(b) does not prevent the franchisor from requiring any or all of the statements mentioned in paragraph (2)(a).
(4) In this clause, a reference to a prospective franchisee includes a reference to a prospective transferee.
Division 3 -- Information statement
11 Franchisor to give information statement to prospective franchisee
(1) A franchisor must give a copy of the information statement set out in Annexure 2 to a prospective franchisee.
(2) The information statement must be set out in size 11 font and be contained on no more than 2 pages.
(3) A copy of the information statement is to be given to a prospective franchisee as soon as practicable after the prospective franchisee formally applies or expresses an interest in acquiring a franchised business.
(4) To avoid doubt, the requirements of this clause do not apply in relation to:
(a) the renewal of a franchise agreement; or
(b) the extension of the term or scope of a franchise agreement.
Part 3 -- Franchise agreements
12 Application of Part--master franchisors
A master franchisor need not comply with the requirements of this Part in relation to a subfranchisee.
Division 2 -- Franchisor's obligations
Subdivision A -- Disclosure obligations
Occupying premises under lease
(1) If a franchisee leases premises from the franchisor or an associate of the franchisor for the purposes of a franchised business, the franchisor or the associate must give to the franchisee:
(a) either:
(i) a copy of the lease; or
(ii) a copy of the agreement to lease; and
(b) details of any incentive or financial benefit that the franchisor or associate is entitled to receive as a result of the lease or agreement to lease.
Civil penalty: 300 penalty units.
(2) The copy and details must be given within 1 month after the lease or agreement to lease is signed by the parties.
Civil penalty: 300 penalty units.
Occupying premises without lease
(3) If the franchisee occupies, without a lease, premises leased by the franchisor or an associate of the franchisor, the franchisor or the associate must give to the franchisee:
(a) both:
(i) a copy of the franchisor's lease or agreement to lease or of the associate's lease or agreement to lease; and
(ii) details of any incentive or financial benefit that the franchisor or associate is entitled to receive as a result of the lease or agreement to lease; or
(b) all of the following:
(i) a copy of the documents that give the franchisee the right to occupy the premises;
(ii) written details of the conditions of occupation;
(iii) details of any incentive or financial benefit that the franchisor or associate is entitled to receive as a result of the franchisee's right to occupy the premises.
Civil penalty: 300 penalty units.
(4) The copy and details must be given within 1 month after:
(a) the occupation commences; or
(b) for the documents mentioned in subparagraph (3)(b)(i)--the documents are signed by the parties.
Civil penalty: 300 penalty units.
Incentive or financial benefit
(5) In this clause, the details of any incentive or financial benefit must include the name of the business providing the incentive or financial benefit.
(1) If a franchise agreement requires:
(a) the franchisee; or
(b) directors, shareholders, beneficiaries, owners or partners of the franchisee;
to enter into an agreement of a kind mentioned in subclause (2), the franchisor must give to the franchisee a copy of the agreement.
Civil penalty: 300 penalty units.
(2) The franchisor must give to the franchisee a copy of the following kinds of agreements:
(a) a lease (other than a lease of premises which is covered by clause 13) or hire purchase agreement;
(b) an agreement under which the franchisee gains ownership of, or is authorised to use, any intellectual property;
(c) a security agreement, including a guarantee, mortgage, security deposit, indemnity, loan agreement or obligation to provide a bank guarantee to a third party;
(d) a confidentiality agreement;
(e) an agreement not to carry on business within an area or for a time after the franchise agreement is terminated.
(3) The agreement must be given:
(a) at least 14 days before the day on which the franchise agreement is signed, if it is available at that time; or
(b) if it is not available at that time--when it becomes available.
15 Copy of financial statements
(1) If a franchise agreement provides that a franchisee must pay money to a marketing or other cooperative fund, the franchisor must:
(a) within 4 months after the end of the last financial year, prepare an annual financial statement detailing all of the fund's receipts and expenses for the last financial year; and
(b) ensure that the statement includes sufficient detail of the fund's receipts and expenses so as to give meaningful information about:
(i) sources of income; and
(ii) items of expenditure, particularly with respect to advertising and marketing expenditure; and
(c) have the statement audited by a registered company auditor within 4 months after the end of the financial year to which it relates; and
(d) give to the franchisee:
(i) a copy of the statement, within 30 days of preparing the statement; and
(ii) a copy of the auditor's report, if such a report is required, within 30 days of preparing the report.
Civil penalty: 300 penalty units.
(2) A franchisor does not have to comply with paragraph (1)(c) in respect of a financial year if:
(a) 75% of the franchisor's franchisees in Australia, who contribute to the fund, have voted to agree that the franchisor does not have to comply with the paragraph in respect of the financial year; and
(b) that agreement is made within 3 months after the end of the financial year.
(3) If a franchise agreement provides that a franchisee must pay money to a marketing or other cooperative fund, the reasonable costs of administering and auditing the fund must be paid from the fund.
(1) Upon receiving a written request from a franchisee, a franchisor must give to the franchisee a disclosure document:
(a) if subclause 8(8) applies--within 2 months of the date of the request; and
(b) in any other case--within 14 days of the date of the request.
Civil penalty: 300 penalty units.
(2) However, a request under subclause (1) can be made only once every 12 months.
17 Disclosure of materially relevant facts
Financial details
(1) If:
(a) either:
(i) a statement or declaration referred to in item 21 of Annexure 1 is made; or
(ii) a document referred to in that item comes into existence; and
(b) the statement or declaration is not reflected in, or the document is not provided together with, a disclosure document that has been updated under subclause 8(6);
the franchisor must give to a prospective franchisee a copy of the statement, declaration or document, as soon as reasonably practicable, but in any event, before the prospective franchisee enters into a franchise agreement with the franchisor.
Civil penalty: 300 penalty units.
Other matters
(2) If a disclosure document does not mention a matter mentioned in subclause (3), the franchisor must tell a franchisee or prospective franchisee about the matter, in writing, within a reasonable time (but not more than 14 days) after the franchisor becomes aware of it.
Civil penalty: 300 penalty units.
(3) For subclause (2), the matters are the following:
(a) change in majority ownership or control of:
(i) the franchisor or an associate of the franchisor; or
(ii) the franchise system;
(b) proceedings by a public agency, a judgment in criminal or civil proceedings or an award in an arbitration against the franchisor, a franchisor director, an associate of the franchisor or a director of an associate of the franchisor, in Australia alleging:
(i) breach of a franchise agreement; or
(ii) contravention of trade practices law; or
(iii) contravention of the Corporations Act 2001 ; or
(iv) unconscionable conduct; or
(v) misconduct; or
(vi) an offence of dishonesty;
(c) a judgment against the franchisor or an associate of the franchisor, other than for unfair dismissal of an employee, under:
(i) Part 3 of the Independent Contractors Act 2006 ; or
(ii) a law of a State or Territory that regulates workplace relations or independent contractors;
(d) civil proceedings in Australia against the franchisor, a franchisor director, an associate of the franchisor or a director of an associate the franchisor, by at least 10%, or 10, of the franchisees in Australia of the franchisor (whichever is the lower);
(e) any judgment that is entered against the franchisor or an associate of the franchisor in Australia, and is not discharged within 28 days, for at least:
(i) for a small proprietary company--$100 000; or
(ii) for any other company--$1 000 000;
(f) any judgment that is entered against the franchisor or an associate of the franchisor in a matter mentioned in item 4 of Annexure 1;
(g) the franchisor or an associate of the franchisor becoming an externally-administered body corporate;
(h) a change in the intellectual property, or ownership or control of the intellectual property, that is material to the franchise system;
(i) the existence and content of:
(i) any undertaking given by the franchisor or an associate of the franchisor under section 87B of the Competition and Consumer Act 2010 ; and
(ii) any order made by the Federal Court of Australia under that section in relation to such an undertaking.
(4) For paragraphs (3)(b), (c), (d), (e) and (f), the franchisor must tell the franchisee:
(a) the names of the parties to the proceedings; and
(b) the name of the court or tribunal; and
(c) the case number; and
(d) the general nature of the proceedings.
(5) For paragraph (3)(g), the franchisor must tell the franchisee the name and address of the administrator, controller or liquidator.
Note: Nothing in this code affects the operation of Part VIIC of the Crimes Act 1914 (which includes provisions that, in certain circumstances, relieve persons from the requirement to disclose spent convictions and require persons aware of such convictions to disregard them).
Subdivision B -- Notification obligations
(1) The franchisor of a franchise agreement must notify the franchisee, in writing, whether the franchisor intends to:
(a) extend the agreement; or
(b) enter into a new agreement.
(2) The franchisor's notice must be given:
(a) if the term of the franchise agreement is 6 months or longer--at least 6 months before the end of the term of the agreement; and
(b) if the term of the franchise agreement is less than 6 months--at least 1 month before the end of the term of the agreement.
Civil penalty: 300 penalty units.
(3) Unless the franchisor does not intend to extend the franchise agreement, the franchisor's notice must include a statement to the effect that, subject to subclause 16(2), the franchisee may request a disclosure document under clause 16.
Civil penalty: 300 penalty units.
Subdivision C -- Record keeping obligations
19 Keeping certain information and documents
(1) If this code requires a franchisee or prospective franchisee, or allows a franchisee or prospective franchisee, to give something to a franchisor in writing, the franchisor must keep the written thing or a copy of it.
(2) If a franchisor:
(a) makes a statement or claim in the franchisor's disclosure document; and
(b) relies on a document to support the statement or claim;
the franchisor must keep the document.
(3) A franchisor must keep the written thing or document for at least 6 years after it is created.
Division 3 -- Terms of franchise agreement
20 Prohibition on release from liability etc.
(1) A franchise agreement must not require a franchisee to sign:
(a) a general release of the franchisor from liability towards the franchisee; or
(b) a waiver of any verbal or written representation made by the franchisor.
Note: See subclauses 3(4) and (5).
(2) However, subclause (1) does not prevent a franchisee from settling a claim against the franchisor after entering into a franchise agreement.
(3) If a franchise agreement contains a general release or waiver in contravention of subclause (1), the general release or waiver is of no effect, even if signed by the franchisee.
21 Jurisdiction for settling disputes
(1) A franchise agreement may contain a clause that:
(a) if a party to the agreement wishes to bring an action or proceedings in relation to a dispute under the agreement, requires the party to bring the action or proceedings in a State or Territory in which the franchised business is based; or
(b) if a party to the agreement wishes to refer a dispute under the agreement to mediation, requires the mediation to be conducted in a State or Territory in which the franchised business is based.
(2) A franchise agreement must not contain a clause that:
(a) requires a party to the agreement to bring an action or proceedings in relation to a dispute under the agreement:
(i) in any State or Territory outside that in which the franchised business is based; or
(ii) in any jurisdiction outside Australia; or
(b) requires the mediation of a dispute under the agreement to be conducted:
(i) in any other State or Territory outside that in which the franchised business is based; or
(ii) in any jurisdiction outside Australia.
Note: See subclauses 3(4) and (5).
(3) If a franchise agreement contains a clause in contravention of subclause (2), the clause is of no effect.
A franchise agreement must not contain a clause that requires the franchisee to pay to the franchisor costs incurred by the franchisor in relation to settling a dispute under the agreement, and if it does, the clause is of no effect.
Note: See subclauses 3(4) and (5).
23 Effect of restraint of trade clause if franchise agreement not extended
(1) A restraint of trade clause in a franchise agreement has no effect after the agreement expires if:
(a) the franchisee had given written notice to the franchisor seeking to extend the agreement on substantially the same terms as those:
(i) contained in the franchisor's current franchise agreement; and
(ii) that apply to other franchisees or would apply to a prospective franchisee; and
(b) the franchisee was not in breach of the agreement or any related agreement; and
(c) the franchisee had not infringed the intellectual property of, or a confidentiality agreement with, the franchisor during the term of the agreement; and
(d) the franchisor does not extend the agreement; and
(e) either:
(i) the franchisee claimed compensation for goodwill because the agreement was not extended, but the compensation given was merely a nominal amount and did not provide genuine compensation for goodwill; or
(ii) the agreement did not allow the franchisee to claim compensation for goodwill in the event that it was not extended.
(2) Subclause (1) also applies in respect of a restraint of trade clause that is incorporated into a franchise agreement:
(a) by reference to another document; or
(b) by another document physically attached to the agreement.
Note: See subclauses 3(4) and (5).
Division 4 -- Transfer of franchise agreement
24 Request for franchisor's consent to transfer
(1) A person may request, in writing, that a franchisor consent to the transfer of a franchise agreement.
(2) A request must be accompanied by all information that the franchisor would reasonably require and expect to be given to make an informed decision.
(3) If the franchisor requires further information to make an informed decision, the franchisor may, in writing, request the person to provide specified information relevant to making the decision.
25 Franchisor's consent to transfer
Giving consent
(1) A franchisor must advise, in writing, a person who has made a request under clause 24 for consent to the transfer of a franchise agreement:
(a) whether consent is given, and if not, give reasons why not; and
(b) if consent is given--whether the franchisor's consent is subject to one or more conditions being satisfied.
(2) A franchisor must not unreasonably withhold consent to the transfer of a franchise agreement.
(3) A franchisor may reasonably withhold consent in the following circumstances:
(a) the proposed transferee is unlikely to be able to meet the financial obligations that the proposed transferee would have under the franchise agreement;
(b) the proposed transferee does not meet a reasonable requirement of the franchise agreement for the transfer of the franchise agreement;
(c) the proposed transferee does not meet the selection criteria of the franchisor;
(d) the proposed transferee does not agree, in writing, to comply with the obligations of the franchisee under the franchise agreement;
(e) the franchisee has not paid or made reasonable provision to pay an amount owing to the franchisor;
(f) the franchisee has not remedied a breach of the franchise agreement;
(g) the franchisor has not received from the proposed transferee a written statement that the transferee has received, read and had a reasonable opportunity to understand the disclosure document and this code.
Paragraphs (a) to (g) do not limit the circumstances in which a franchisor's consent may be reasonably withheld.
Consent taken to be given
(4) If the franchisor does not advise the person, in writing, that the franchisor does not consent to the transfer of the franchise agreement within 42 days of the later of:
(a) the date the request is made; and
(b) if the franchisor seeks further information--the date the last of the information is provided to the franchisor;
then:
(c) the franchisor is taken to have given consent; and
(d) that consent cannot be revoked under subclause (5).
Revoking consent
(5) Within 14 days of giving consent, the franchisor may revoke it by advising the person, in writing, that the franchisor's consent is revoked and the reasons why consent has been revoked.
(6) The franchisor must not unreasonably revoke the franchisor's consent. However, the franchisor may reasonably revoke consent in the circumstances set out in subclause (3).
Definition
(7) In this clause:
"transferee" means a franchisee who seeks to acquire a franchise business through the transfer of the franchise agreement.
Division 5 -- Termination of franchise agreement
26 Termination--cooling off period
(1) A franchisee may terminate an agreement (being either a franchise agreement or an agreement to enter into a franchise agreement) within 7 days after the earlier of:
(a) entering into the agreement; and
(b) making any payment (whether of money or of other valuable consideration) under the agreement.
(2) Subclause (1) does not apply to:
(a) the transfer or renewal of an existing franchise agreement; or
(b) the extension of the term or scope of an existing franchise agreement.
(3) If the franchisee terminates an agreement under subclause (1), the franchisor must, within 14 days, repay all payments (whether of money or of other valuable consideration) made by the franchisee to the franchisor under the agreement.
Civil penalty: 300 penalty units.
(4) However, the franchisor may deduct from the amount repaid under subclause (3) the franchisor's reasonable expenses if the expenses or their method of calculation have been set out in the agreement.
27 Termination--breach by franchisee
(1) This clause applies if:
(a) a franchisee breaches a franchise agreement; and
(b) the franchisor proposes to terminate the franchise agreement.
(2) The franchisor must:
(a) give to the franchisee reasonable notice, in writing, that the franchisor proposes to terminate the franchise agreement because of the breach; and
(b) tell the franchisee what the franchisor requires to be done to remedy the breach; and
(c) allow the franchisee a reasonable time to remedy the breach.
Civil penalty: 300 penalty units.
(3) For paragraph (2)(c), the franchisor does not have to allow more than 30 days.
(4) If the breach is remedied in accordance with paragraphs (2)(b) and (c), the franchisor cannot terminate the franchise agreement because of that breach.
(5) Part 4 (resolving disputes) applies in relation to a dispute arising from termination under this clause.
28 Termination--no breach by franchisee
(1) This clause applies if:
(a) a franchisor terminates a franchise agreement:
(i) in accordance with the agreement; and
(ii) before it expires; and
(iii) without the consent of the franchisee; and
(b) the franchisee has not breached the agreement.
(2) For subparagraph (1)(a)(iii), a condition of a franchise agreement that a franchisor can terminate the franchise agreement without the consent of the franchisee is not taken to be consent.
(3) Before terminating the franchise agreement, the franchisor must give reasonable written notice of the proposed termination, and reasons for it, to the franchisee.
Civil penalty: 300 penalty units.
(4) Part 4 (resolving disputes) applies in relation to a dispute arising from termination under this clause.
29 Termination--special circumstances
(1) Despite clauses 27 and 28, a franchisor may terminate a franchise agreement without complying with either clause if the agreement gives the franchisor the right to terminate the agreement should the franchisee:
(a) no longer hold a licence that the franchisee must hold to carry on the franchised business; or
(b) become bankrupt, insolvent under administration or an externally-administered body corporate; or
(c) in the case of a franchisee that is a company--become deregistered by the Australian Securities and Investments Commission; or
(d) voluntarily abandon the franchised business or the franchise relationship; or
(e) be convicted of a serious offence; or
(f) operate the franchised business in a way that endangers public health or safety; or
(g) act fraudulently in connection with the operation of the franchised business.
(2) Despite clauses 27 and 28, a franchisor may terminate a franchise agreement without complying with either clause if, at the time of termination, the franchisor and the franchisee mutually agree to the agreement's termination.
Note: This clause does not give rise to a right of termination; such a right must be in the franchise agreement itself.
(1) A franchisor must not require a franchisee to undertake significant capital expenditure in relation to a franchised business during the term of the franchise agreement.
(2) For the purpose of subclause (1), significant capital expenditure excludes the following:
(a) expenditure that is disclosed to the franchisee in the disclosure document that is given to the franchisee before:
(i) entering into or renewing the agreement; or
(ii) extending the term or scope of the agreement;
(b) if expenditure is to be incurred by all or a majority of franchisees--expenditure approved by a majority of those franchisees;
(c) expenditure incurred by the franchisee to comply with legislative obligations;
(d) expenditure agreed by the franchisee;
(e) expenditure that the franchisor considers is necessary as capital investment in the franchised business, justified by a written statement given to each affected franchisee of the following:
(i) the rationale for making the investment;
(ii) the amount of capital expenditure required;
(iii) the anticipated outcomes and benefits;
(iv) the expected risks associated with making the investment.
31 Marketing and advertising fees
(1) A franchisor must maintain a separate bank account for marketing fees and advertising fees contributed by franchisees.
(2) If a franchisor operates one or more units of a franchised business, the franchisor must pay marketing fees and advertising fees on behalf of each unit on the same basis as other franchisees.
(3) Despite any terms of a franchise agreement, marketing fees or advertising fees may only be used to:
(a) meet expenses that:
(i) have been disclosed to franchisees under paragraph 15.1(f) of the disclosure document; or
(ii) are legitimate marketing or advertising expenses; or
(iii) have been agreed to by a majority of franchisees; or
(b) pay the reasonable costs of administering and auditing a marketing fund.
32 Disclosure of former franchisee details
(1) A former franchisee may give a franchisor a written request that the former franchisee's details not be disclosed to a prospective franchisee.
(2) If such a request is made, the franchisor must not disclose the former franchisee's details to a prospective franchisee.
(3) A franchisor must not engage in conduct with the intention of influencing a former franchisee to make, or not make, such a request.
Civil penalty: 300 penalty units.
33 Association of franchisees or prospective franchisees
A franchisor must not engage in conduct that would restrict or impair:
(a) a franchisee or prospective franchisee's freedom to form an association; or
(b) a franchisee or prospective franchisee's ability to associate with other franchisees or prospective franchisees for a lawful purpose.
Civil penalty: 300 penalty units.
34 Internal complaint handling procedure
A franchise agreement must provide for a complaint handling procedure that complies with Division 2 of this Part.
A party to a franchise agreement (the complainant ) who has a dispute with another party to the franchise agreement may:
(a) take action under the agreement's complaint handling procedure; or
(b) take action in accordance with the procedure set out in Division 3 of this Part.
36 When a party is taken to be trying to resolve a dispute
(1) A party will be taken to be trying to resolve a dispute if the party approaches the resolution of the dispute in a reconciliatory manner, including doing any of the following:
(a) attending and participating in meetings at reasonable times;
(b) not taking action during the dispute, including by providing inferior goods, services, or support, which has the effect of damaging the reputation of the franchise system;
(c) not refusing to take action during the dispute, including not providing goods, services or support, if the refusal to act would have the effect of damaging the reputation of the franchise system;
(d) if a mediation process is being used to try to resolve the dispute--both:
(i) making the party's intention clear, at the beginning of the process, as to what the party is trying to achieve through the process; and
(ii) observing any obligations relating to confidentiality that apply during or after the process.
(2) To avoid doubt, if a mediation process is being used to try to resolve the dispute, subclause (1) applies whether the mediation is conducted under this code or otherwise.
37 Right to bring proceedings unaffected
This Part does not affect the right of a party to a franchise agreement to bring legal proceedings, whether under the franchise agreement or otherwise.
Division 2 -- Internal complaint handling procedure
(1) The complainant must tell the respondent in writing:
(a) the nature of the dispute; and
(b) what outcome the complainant wants; and
(c) what action the complainant thinks will resolve the dispute.
(2) The parties should then try to agree about how to resolve the dispute.
(3) If the parties cannot agree how to resolve the dispute within 3 weeks, either party may refer the matter to a mediator for mediation under:
(a) a franchise agreement; or
(b) this code.
(4) If the parties cannot agree on who should be the mediator, either party may ask the mediation adviser to appoint a mediator.
Note: The mediation adviser is appointed by the Minister, see clause 44.
(1) Subject to subclause (2), a mediator appointed for a dispute may decide the time and place for mediation.
(2) The mediation must be conducted in Australia.
(3) The parties must attend the mediation.
Civil penalty: 300 penalty units.
(4) For subclause (3), a party is taken to attend mediation if the party is represented at the mediation by a person who has the authority to enter an agreement to settle the dispute on behalf of the party.
(5) The parties must try to resolve the dispute.
Note: For when a party is taken to be trying to resolve a dispute, see clause 36.
(6) After the mediation has started, the mediator must advise the mediation adviser, within 28 days, of that fact.
Division 3 -- Code complaint handling procedure
Subdivision A -- Notification of dispute
(1) The complainant must tell the respondent in writing:
(a) the nature of the dispute; and
(b) what outcome the complainant wants; and
(c) what action the complainant thinks will resolve the dispute.
(2) The parties should then try to agree about how to resolve the dispute.
(3) If the parties cannot agree how to resolve the dispute within 3 weeks, either party may refer the matter to a mediator for mediation under:
(a) a franchise agreement; or
(b) this code.
(4) If the parties cannot agree on who should be the mediator, either party may ask the mediation adviser to appoint a mediator.
Note: The mediation adviser is appointed by the Minister, see clause 44.
(1) Subject to subclause (2), a mediator appointed for a dispute may decide the time and place for mediation.
(2) The mediation must be conducted in Australia.
(3) The parties must attend the mediation.
Civil penalty: 300 penalty units.
(4) For subclause (3), a party is taken to attend mediation if the party is represented at the mediation by a person who has the authority to enter an agreement to settle the dispute on behalf of the party.
(5) The parties must try to resolve the dispute.
Note: For when a party is taken to be trying to resolve a dispute, see clause 36.
(6) After the mediation has started, the mediator must advise the mediation adviser, within 28 days, of that fact.
(1) This clause applies to the mediation of a dispute if:
(a) at least 30 days have elapsed after the day that mediation began; and
(b) the dispute has not been resolved.
(2) The mediator may terminate the mediation at any time unless satisfied that a resolution of the dispute is imminent.
(3) However, if either party asks the mediator to terminate the mediation, the mediator must do so.
(4) If the mediator terminates the mediation of a dispute under this clause, the mediator must issue a certificate stating:
(a) the names of the parties; and
(b) the nature of the dispute; and
(c) that the mediation has finished; and
(d) that the dispute has not been resolved.
(5) The mediator must give a copy of the certificate to:
(a) the mediation adviser; and
(b) each of the parties to the dispute.
(1) The parties are equally liable for the costs of mediation under this Subdivision unless they agree otherwise.
(2) The parties must pay for their own costs of attending the mediation.
(3) In this clause:
"costs of mediation under this Subdivision" include the following:
(a) the cost of the mediator;
(b) the cost of room hire;
(c) the cost of any additional input (including expert reports) agreed by both parties to be necessary to conduct the mediation.
Division 4 -- Mediation appointments
The Minister is to appoint a mediation adviser for this Part.
Note: The mediation adviser appointed under the previous Franchising Code of Conduct is continued, see section 6 of this instrument.
Within 14 days of:
(a) a referral under subclause 38(3) or 40(3); or
(b) a request under subclause 38(4) or 40(4);
the mediation adviser must appoint a mediator for the dispute.