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Federal Parliamentary inquiry recommends stronger legal protections for car dealers

The Parliamentary Joint Committee on Corporations and Financial Services (the Committee) has today released its report following its inquiry into franchising, which recommends major regulatory changes to better protect franchisees and in particular car dealers from certain conduct by motor vehicle distributors. Such conduct is said to arise from the unequal bargaining power of distributors and certain unfair terms of dealer agreements basis including the power to make unilateral changes to dealer agreements.

The key reforms recommended by the Committee to better protect car dealers are as follows:

  • Franchising Taskforce – that the Australian Government establish an inter-agency Franchising Taskforce to examine the feasibility and implementation of a number of the Committee’s recommendations;
  • Unilateral Variation – that Australian Government amend the franchising Code of Conduct to ban unilateral variation to terms and conditions, and on retrospective variations, unless approved by a majority of dealers or elected representative bodies such as a dealer council (this may extend, for example, to the common practice of unilateral amendment to ‘policies’ which are incorporated by reference as terms of dealer agreements);
  • Fair exit rights – that a significant addition to the Code is to give franchisees the right to exit franchise agreements, including on termination, under certain conditions;
  • Goodwill – that the Franchising Taskforce consider greater transparency around the allocation (if any) of goodwill in franchise agreements, as well as protections for franchisees when required to undertake significant capital expenditure near the end of the term of a franchising agreement;
  • Collective action – to make it lawful for all franchisees to collectively bargain with their franchisor regardless of their size or other characteristics, including joint negotiation, mediate and arbitration;
  • Automotive Industry Code – that the Department of the Treasury and the Department of Jobs and Small Business give further consideration to identifying reforms that would support the fair handling of capital intensive stock when franchise agreements between car manufacturers and new car dealers are not renewed. However the Committee recommended that rather than a specific Automotive Industry Code, amendments with application to multiple franchising sectors be made to a core franchising code, with industry-specific aspects to be included in schedules or sub-codes to the core franchising code;
  • Civil pecuniary penalties – that civil pecuniary penalties and infringement notices should be made available for all breaches of the Franchising Code which should be similar to the penalties currently available under the Australian Consumer Law to ensure meaningful deterrence; and
  • Significant capital expenditure – that the Franchising Taskforce include a clear definition of ‘significant capital expenditure’ so that franchisees are able to make an appropriate return on investment within their existing terms, including only paying pro-rata portion that allows for appropriate return on investment and compensation if franchisor terminates the franchise agreement. In addition, the Taskforce recommended amendments to the Code to deal with the interaction between the capital expenditure provisions and the law of unconscionable conduct and unfair contract terms.

The report is a major and further step for dealers to achieve fair terms in dealer agreements however there is still some way to go to see if these recommendations will be reflected in efficient and effective regulatory provisions which achieve a fair trading environment in the automotive industry.

A full copy of the report can be found here.

This article was written by Maria Townsend, Partner, Christian Teese, Senior Associate, Alex Beagley, Associate and Robert Gardini, Consultant.

Maria Townsend

P: +61 2 9334 8872

E: mtownsend@hwle.com.au

Robert Gardini

P: +61 2 9334 8612

E: rgardini@hwle.com.au

Important Disclaimer: The material contained in this publication is of a general nature only and is based on the law as of the date of publication. It is not, nor is intended to be legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.