2018 Senate inquiry into the Franchising Code of Conduct and Oil Code

On 22 March 2018 the Senate passed a motion made by Senator John Williams to refer a matter to the Parliamentary Joint Committee on Corporations and Financial Services (Joint Committee) for inquiry and report by 30 September 2018 (Senate Inquiry).

This Senate Inquiry is quite different to the extensive review conducted by Mr Alan Wein in 2013. That comprehensive review resulted in a new Franchising Code of Conduct being prescribed that commenced on 1 January 2015. The Government at that time also accepted a recommendation that the Franchising Code of Conduct not be reviewed again for 5 years to allow the sector time to absorb these changes.

This is not the first senate inquiry into franchising and likely will not be the last. In 2008 the Senate Joint Committee conducted a similar inquiry and tabled its report in December 2008 entitled “Opportunity not opportunism: improving conduct in Australian franchising”. That senate inquiry had a much narrower focus than the terms of reference of this Senate Inquiry.  The intention of that earlier inquiry was to identify justifiable improvements to the Franchising Code of Conduct to raise the standard of conduct in Australian franchising.

In a rather bold move, the terms of reference also include a review into the effectiveness and operation of the Oil Code, which only commenced on 1 April 2017. Unfortunately it may be too soon since its introduction for the Joint Committee to judge the effectiveness with any degree of certainty.

The terms of reference of the Senate Inquiry are wide and include the following:

• The operation and effectiveness of the Franchising Code of Conduct, including the disclosure document and information statement and the Oil Code of Conduct, in ensuring full disclosure to potential franchisees of all information necessary to make a fully informed decision when assessing whether to enter a franchise agreement, including information on:
  • likely financial performance of a franchise and worse- case scenarios;
  • the contractual rights and obligations of all parties, including termination rights and geographical exclusivity;
  • the leasing arrangements and any limitations of the franchisee’s ability to enforce tenant’s rights; and
  • the expected running costs, including costs of goods required to be purchased through prescribed suppliers.
• The effectiveness of dispute resolution under the Franchising Code of Conduct and the Oil Code of Conduct;
• The impact of the Australian Consumer Law unfair contract provisions on new, renewed and terminated franchise agreements entered into since 12 November 2016, including whether changes to standard franchise agreements have resulted;
• Whether the provisions of other mandatory industry codes of conduct, such as the Oil Code, contain advantages or disadvantages relevant to franchising relationships in comparison with terms of the Franchising Code of Conduct;
• The adequacy and operation of termination provisions in the Franchising Code of Conduct and the Oil Code of Conduct;
• The imposition of restraints of trade on former franchisees following the termination of a franchise agreement;
• The enforcement of breaches of the Franchising Code of Conduct and the Oil Code of Conduct and other applicable laws, such as the Competition and Consumer Act 2010, and franchisors; and
• Any related matter.

The Joint Committee will call witnesses and will invite submissions from a variety of industry stakeholders in the Franchising and Oil Code sectors.

It is important to remember that those who are invited to give evidence before this Senate Inquiry are given the opportunity to do so and they will be afforded protection of parliamentary privilege in their evidence. This enables those stakeholders willing to appear and give evidence to the committee, the opportunity to do so without fear of intimidation, force or threat to influence their evidence given or to induce them from giving such evidence. This would extend to taking action against them as a consequence of the evidence given or to be given to the committee.

The committee report is due by 30 September 2018, however normally it will take some time before the Government responds to any recommendations made in that report and implements any changes it believes are necessary.  It is not clear whether this inquiry will result in changes to the Franchising Code of Conduct becoming law before the next election which is due in 2019.

The Senate Inquiry provides an important opportunity for franchisors, franchisees and important stakeholders to provide valuable insights into the positives of franchising and those industry sectors where franchising has worked well for many decades.  For that reason, we strongly encourage people to consider making a substantive submission to the Joint Committee.

If you require assistance or advice in preparing a submission to the Senate Inquiry please do not hesitate to contact a member of our Franchising Team.

This article was written by Derek Sutherland, Special Counsel.