Australia

• Author: Stephen Giles - Penny Ward
• Pages: 4-33

4 International Franchise Sales Laws

Australia

I. What Is a Franchise?

A. Scope of Law

Australia’s franchise legislation is found in the Competition and Consumer (Indus-

try Codes—Franchising) Regulation 2014 and is known as the Franchising Code of

Conduct (the Code). Effective January 1, 2015, the 2014 regulation replaced the

previous Franchising Code of Conduct enacted in 1998 (the Trade Practices (Indus-

try Codes—Franchising) Regulations 1998 (the Old Code)). The Old Code applied

until December 31, 2014, with carry over application in relation to obligations out-

standing on January 1, 2015, under the Old Code. The Code needs to be considered

alongside the Competition and Consumer (Industry Codes—Franchising) Repeal

Regulation 2014, which repeals the Old Code and the Competition and Consumer

Amendment (Industry Code Penalties) Act 2014, which permits the introduction of

penalties by regulation in the manner effected by the new Code.

The Old Code and the new Code are structurally and conceptually very similar.

The new Code applies after January 1, 2015, to all franchise agreements entered into

after October 1, 1998, with the only exceptions being that: (1) obligations outstanding

under the Old Code remain and (2) several provisions of the new Code do not apply

to franchise agreements entered into prior to January 1, 2015, until the franchise

agreements are varied or transferred. Although the Old Code is repealed with effect

from January 1, 2015, there are important transitional provisions in the new Code that

allow Franchisors up to ten months (until October 31, 2015, in most cases) to comply

with the new requirements concerning updating Disclosure Documents.

The Code is a mandatory industry code enacted as a regulation under Section

51AE of the Competition and Consumer Act 2010 (Cth), (the CCA), thereby pro-

viding access to many of the remedies available under the CCA. Importantly, from

a practical perspective, the Code and the CCA, including the Australian Consumer

Law (ACL), which is included in Schedule 2 to the CCA, are actively overseen and

enforced by the Australian Competition and Consumer Commission (the ACCC).

The Code applies to a franchise agreement that concerns the distribution of

goods or services in Australia. This agreement can take the form, in whole or in

part, of a written, oral, or implied agreement. The key requirement for the central

definition of a franchise agreement is that the agreement grants to a person the

right to carry on the business of offering, supplying, or distributing goods or

services under a system or marketing plan substantially determined, controlled,

or suggested by the Franchisor or an associate of the Franchisor. The operation of

the business must be substantially or materially associated with a trademark, ad-

vertising, or commercial symbol owned or specified by the Franchisor or an asso-

ciate of the Franchisor. In addition, before starting or continuing the business, the

Franchisee must pay or agree to pay to the Franchisor or an associate of the

Australia 5

Franchisor an amount that may include, among other things, an initial capital

investment fee, a royalty fee, or a training fee. However, the Code does not apply

to an agreement if the only amount paid or payable is payment for goods and

services on a genuine wholesale basis; repayment of a loan; payment for consign-

ment stock supplied on a genuine wholesale basis; or payment of market value for

the purchase or lease of property, fixtures, equipment, or supplies. For purposes

of the definition, any transfer, renewal, or extension of the term or scope of a

franchise agreement is itself taken to be a franchise agreement and a motor ve-

hicle dealership agreement is expressly considered a franchise agreement. Motor

vehicle is very broadly defined, and includes cars, motorcycles, tractors, farm ma-

chinery, motorized construction machinery, aircraft, and motorboats.

There is no Franchisor or Disclosure Document registration requirement (see

Section VI.), but the ACCC actively polices compliance (see Section IX.). The Code

is essentially disclosure focused, with the production and provision of a detailed

Disclosure Document to prospective franchisees as the core requirement, and the

provision of an Information Statement preceding the Disclosure Document. There

are, however, some specific conduct requirements as well (see Section VIII.).

B. Applicability to Master Franchising

A master franchise is essentially treated as a franchise agreement, with the party

granting the master franchise being the Franchisor and the recipient being the Fran-

chisee. This occurs via the very broad definition of a Franchisor, which includes:

(1) a person who grants a franchise; (2) a person who otherwise participates in a

franchise as a Franchisor; and (3) a Sub-franchisor in its relationship with a Sub-

franchisee. The Code describes the Master Franchisee as a “Sub-franchisor” and its

Franchisee as a “Sub-franchisee.” A Master Franchise is defined as a franchise in

which the Franchisor grants to a Sub-franchisor the right (1) to grant a sub-franchise

or (2) to participate in a sub-franchise.

The 2014 Code contains new requirements in relation to master franchise ar-

rangements that significantly simplify the disclosure obligations in the Old Code.

Notably, the ultimate Franchisor (i.e., the Franchisor of the Master Franchisee) is

not obliged to provide disclosure or specified disclosure information to a Sub-fran-

chisee (i.e., to a Franchisee of a Master Franchisee), and a Franchisor need not

update a Disclosure Document if it entered into one or fewer franchise agreements

during the year and does not intend to enter into another franchise agreement in the

following year. However, where there is a master franchise arrangement, a Disclo-

sure Document provided to a Franchisee must include specific details concerning

the ultimate Franchisor and the master franchise agreement, including details con-

cerning the date, term, renewal, rights and pre-conditions applying to any extension

of term or scope, transfer rights, grounds for termination, and the impact on the

Sub-franchisee’s franchise agreement if the master franchise agreement is termi-

nated.