Franchises
Author:
Rockliffs Solicitors and IP Lawyers
Publish Date: June 16, 2010
The Franchising Code is a mandatory industry code governing the conduct of franchisees and franchisors from before the entering of a franchise agreement until its termination. It is part of the Trade Practices Act.
Recently, the High Court examined some controversy about the Franchising Code. It held that a franchisor breaching the code did not automatically destroy the franchise agreement.
The court considered that the Trade Practices Act and the code are intended to improve franchisor/franchisee practices, protect franchisees who often have less bargaining power or knowledge than their franchisor, and reduce legal actions.
While it held that non-compliance with the compulsory industry code was a breach of the Act, it found that this did not necessarily make a franchise agreement void.
However, the court stated that franchisors should be mindful that in some cases non-compliance could be “such as to warrant the court striking a contract down on the application of a franchisee.”
Where a franchisor has not complied with the code and the Act, a franchisee is permitted to seek remedies under the Act. The most helpful include compensation for loss or damage experienced by the franchisee as a result of the franchisor’s non-compliance, changing the terms of the franchise agreement, and termination of an agreement.
It is unlikely that the courts would set aside a franchise agreement on application by the franchisor following breach of the code. Further, if a franchisee applied, the breach would have to be so detrimental that none of the remedies listed above were sufficient for the franchisee.
Reproduced with the permission of the Law Society of New South Wales.
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