Update
New Franchise
Code Review by
Kelly Hazell Quill
The Australian Commonwealth Government has
released the new Franchising Code of Conduct (2014)
which will apply from 1 January 2015.
Introduction
FollowingourrecentadviceonthereleaseofthenewFranchiseCode2014
(implementationdate1stJanuary2015)thefranchisepartnersofKHQarepleasedto
releasethisconsideredcommentary.
Wehavechosentofocusonthepracticalimpactofthissignificanteventsowhilepassing
onalevelofcommentaboutthechangesasawholewehaveidentified3areasofspecific
interesttoSystemswhichwehaveexpandedonintheattachedschedulestothis
document.Theseareasare;



Disclosureobligationsandcompliance;
Accountingandrecordkeepingobligations;
Endofterm,renewalandchangescenarios.
InaddressingtheaboveweremindallSystemsandtheiradvisorsthatanewenhanced
penaltyregimerunssidebysidewithCodecomplianceandthatafailuretoadheretothe
dutiesandrelevantproceduresmandatedbytheCodemayresultinsubstantialcivil
penalties.
ForyoureaseofreferencethenewCodecanbeviewedat
http://www.comlaw.gov.au/Details/F2014L01472.
Wehavealsoincluded,asSchedule4,achecklistofissueswerecommendforimmediate
consideration.ThetimeframeisshortandthereisworktobedonebeforeChristmas.
OverviewandTiming
OfrecentyearsandthroughoutpastiterationsoftheCodesinceitsinceptionin1998there
hasbeenaninsistentandlowhumofcriticismastothelevelofprotectionithasoffered
franchisees.Thishasmanifesteditselfthroughfranchiseecomplaints,stirringsamongst
legislatorsinsomeStatejurisdictionsandevenamonglawyerswhohaveoftenstruggled
onissuesassociatedwithuncleardraftingandtheabsenceofguidanceonkeymatters.
TheserumblingshaveofcoursebecomelouderattimeswhenSystemshaveoccasionally
failed.
ThereviewoftheCodeandtheredraftingofitstermshasaddressedtheseissues(not
perfectlyofcourse)andhasproducedamandatoryguidingdocumentthatshould,toa
significantextent,quellpastreservationsthroughtheenhanceddisclosureitrequires,the
provisionofadditionalinformationandtheimpositionofastatutorydutyofgoodfaithon
theparties.Supportingthesepositivestepsaregreaterdisincentivestobadbehaviourby
bolsteringtheRegulator’s(theACCC)positionanditsabilitytocallforgreatersanctions.
TheriskoffragmentedStatelegislationshouldalsohavepassedleavingAustraliawitha
nationalframework.
ThetimingoftheNewCode’simplementationisinteresting.Whilecommencingon
1stJanuary2015certainofitsfeatureshavebeenprovidedwithtransitionaltermswhich,
intheory,whileusefultoindustryinavoidingtheneedforalastminutescrabble,needto
becarefullywatchedasthebenefitofthattransitionperiodcanbecompromisedaswillbe
discussedlater.
It’sapplicationistoagreementsenteredintoafter1stOctober1998(therebymaintaining
theexclusionofcertainlongstandingarrangements,principallyinMasterFranchise
grants)butdoesnotdoawaywithobligationsaccruedunderthepreviousandstillcurrent
versionsofitself.
Whileofgeneralapplicationcertainofitsinnovationswillnotapplytodocumentsentered
intoafter1stMarch2008andbefore1stJanuary2015.Theseinclude;



thenewrequirementthatdisputesmustbedealtwithinthejurisdiction(State)of
thefranchisee’sbusiness;
theoverridingofthefranchisor’sabilitytorecovercostsfromthefranchiseeina
disputethroughacontractualobligation(notaffectingaCourt’sabilitytoaward
costs);
Limitationsontheabilityofafranchisortoenforceanintermrestraintoftradeon
anoutgoingfranchisee.
Butbeware.These“breaks”arelostshouldapre‐1stJanuary2015agreementbethesubject
ofavariation(includingextension)ortransferafterthatdate.
Ourtakeontheprincipalchanges
ThefollowingrepresentsaconsideredoverviewofthenewlandscapefacingSystems.
Spacepreventsadetailedanalysisandadiscussionwithoneofourpartnersmaybe
neededonsomeaspects.PleaseconsidertheattachedSchedulecommentsinsomedetailas
webelievetheyareofimmediatepracticalinterest.
GoodFaith.
ThisistheheadlineamendmentcalledforbymostproponentsofCodechangeandwillbe
given“leadoff”billing.
Forlawyerstheintroductionofadutythattheparties(includingwewouldargue
associatesanddirectorsasthosetermsaredefinedintheCode)mustactingoodfaith
towardseachotherinthefranchiserelationshipistheintroductionofamorally
supportablebutinherentlyslipperyconceptthatinvariablywillrequiretheinterventionof
aCourtlookingatparticularcircumstancestodetermine.Yetallthatbeingtruethe
Legislaturehasattemptedsomeguidanceofnote.
Firstlythedutyisofbroadapplication,notjustastothosewhomustdischargeitbutalso
whenitstartsandends.Clause6oftheCodeappliesthedutynotjusttobehaviourwithin
thetermofanagreementbuttothedealingsandnegotiationpriortoitscommencement
andalsotoitsendofrelationshipnegotiationsbeingmatters“arisingunderorin
relationshipto…”theagreementandtheCode.Thisextendsthecurrentconceptofgood
faith.
Fortunatelythecommercialandstatutoryrealityofwhethercompetingcommercial
obligationsandinterestsarerelevanthasbeenaddressed,suchasthedutyofacompanyto
itsshareholders,andtheCoderecognises(Clause6(6))thatthesearenotmade
subservient.
Furtherthethornyissueofwhethersuchadutyimpactsonthegrantofarenewedterm
hasbeenspecificallyexcludedfromtheapplicationoftheduty(Clause6(7))butonlyinthe
contextofwhetherarenewalrightshouldappearinadocumentornot.Thedutywillfully
applyonacontractualrenewalrequestbeingrejectedbyafranchisor.
TheCourtsaredirectedtoconsiderissuesofhonestbehaviour,broaderentitlementsthan
self‐interestandcooperation(alreadyimpliedinallcontracts)inassessingtheduty’s
discharge.
Definitions
AcriticalstepinreviewinganydocumentisaclearunderstandingoftheDefinition’s
section(clause4)asitsetsoutmeaningsthatmayexpandorcontracttheapplicationof
laterterms.
IntheNewCodecertainimportantdefinitionalchangeshavebeenmade.Wewillmention
somethatareofnote.
Firstlythedefinitionof“Associates”hasbeenbroadenedwhichwillhaveconsequencesfor
DisclosureandGoodFaithinparticular.
ThenewadditionsbringinpersonswhoserelationshiptoaSysteminvolvesadirectoffice,
interestorpartnershipinaSystem,wherethosepersonsownrelevantintellectual
propertyorwheretheyareinvolvedincertainactivitiesincludingmarketingand
promotion.InclusionsthatmayhavepracticalresonancewithaSystemwhereinvestors
earnadditionalrevenuefromthesupplyofrightsandservicesnotpreviouslythought
relevant.
Anotherchangeofvalueistheinclusionofadefinitionfor“ElectronicSignatures”thereby
facilitatingtheremoteexecutionofdocuments(suchasDisclosureDocuments)mandated
forsignature.
Theword“Extend”hasbeengivenfleshasaconceptlaterrelevantinthedocumentto
triggeringcertainactivities.Itwillapplytoactionsinvolving“materialchanges”toterms,
conditions,rights,liabilitiesandofcoursetheactualtermofanagreement.Unfortunately
noguidanceisgiventothemeaningofthephrase“materialchange”thoughonemay
assumethisexcludesminorortrivialconduct.
Finallyworthyofcommentisthedefinitionattractingtotheword“renew”.Somewhat
oddlythewordingsays“occurswhenthefranchiseeexercisesanoptionduringthetermof
theagreementtorenewtheagreement”.
Thisonfacevaluemightsuggestthatifarenewalmustbenotifiedsay9‐6monthsfromthe
endofthetermthisinitselftriggersarighttorequestadisclosureratherthan14days
beforethenewtermstarts.
Carewillalsoneedtobetakenwhenrenewingafranchiseagreementtoensureany
changestotherelationshipdonotconstituteavariationorextension.
Disclosure
PleaserefertoSchedule1tothispaperforourassessmentoftheextensivechanges
containedintheNewCode.
Franchisor’sObligations.
Acceptingdisclosure,recordkeepingandendoftermmattersaredealtwithintheattached
schedulesthefollowingamendedfranchisorobligationsshouldbenoted.
ThecurrentCoderequiresthedeliveryofcertaindocumentstoaprospectivefranchiseeat
thetimeofdisclosure.Theseincludecommerciallyrelevantdocumentssuchasleases,
softwareagreements,intellectualpropertylicencesandthelike.Thesemandateddeliveries
arenowbackedupbythethreatofcivilpenaltiesintheabsenceofcompliancebutalsoby
theneedtodeliversubsidiarydocumentsanddeclarationssuchasdetailsoflessor
incentivesand,inthecaseofarrangementslikelicencestooccupy,confirmatory
informationondetailsofoccupationconditions.
Furtherquitecommonindependentdocumentssuchasguarantee’sobtainedtosupporta
franchiseagreement,confidentialityagreements,restraintdeedsandotherthirdparty
pledgesmustalsobesuppliedtothefranchiseeafterexecutionandusuallywithin14days.
MarketingFundstatementsandauditedaccountsremainasafranchisorpreparationand
deliveryobligation(theexemptionfordispensingincertaincircumstanceswithaudited
accountsremains)howeverthecontentofthatinformationisexpandedinthecaseof
marketingstatementstoalsoincludedetailsoffund’sreceiptsandexpensestogive
“meaningfulinformation”aboutsourcesofincomeandexpenditure.Perhapsthedaysof
someSystem’spayingdubiousexpensesfromthefundareover.
Whilelikelyrareinitsnon‐compliance,Systemsmustnowmaintainseparateaccountsfor
marketingcontributions.
OfsignificanceisthemandatedobligationforSystemstocausefranchisoroperated
franchiseunitstocontributeequallytoamarketingfund.Whilethisisastraight‐forward
conceptforSystemsoperatingthroughretailstores,itwillbemorecomplicatedwherethe
systemisbasedonline,isservicebasedorifaseparateentitywithinthefranchisorgroup
operatesthefranchiseunitsratherthanthefranchisoritself.
Clause18oftheNewCoderequiresafranchisortonotify6monthsbeforetheendofaterm
itsintenttorenewornotanagreement.Thishasbeenenhancedinthecaseofa
willingnesstorenew,byaneedtodrawtoafranchisee’sattentiontherighttocallforan
updatedannualdisclosuredocument.
MediationremainsafeatureofCodeapplication.Agreementscanstillfollowtheoldsystem
referraltomediationhoweveraninternalmechanismbasedonsimilarconceptscannow
beincludedinadocument.Inotherwordsinternalmediationcanbetriggeredwithout
goingoutsidetheSystem.Whilethismayprovetohavecostsavingandtimesaving
advantagestheuseofanindependentmediatorisstillnecessaryandwithoutdoubt
elementsofgoodfaithandproperconductofsuchaprocedureremainwiththeparties.
Whethertheadvantagesofstagingamediationinternallyprovesignificantwillbe
interestingandthereremainstheunstatedissueofwhetheracomplaintabouttheconduct
ofaninternalmediationprocessmightstillbecapableofoutsidereferralforafurther
mediationprocess.
Clause30oftheNewCodeispreciseontheissueofcontrollingrequestsforafranchiseeto
undertakesignificantcapitalexpenditure.Thisisamatteralludedtoincurrentdisclosure
documentsbutnotgivenpresentguidance.Helpfultoanyfranchisoristheabilitytopre‐
state(inthedisclosuredocument)suchmattersaswellasthe“catchall”thatthefranchisor
maylatermakeadeterminationthatsuchexpenditureisnecessaryasacapitalinvestment
andprovideditcommunicatesprescribedreasonsanddoessoinwritingtoallfranchisees,
maystillexpectitofSystemparticipants.
Administrationandrecordkeepingobligations
ForcommentarypleaseseeSchedule2tothispaper.
EndofTermmatters
ForcommentarypleaseseeSchedule3tothispaper.
Immediateandongoingsteps
WehaveincludedasSchedule4achecklistofstepswerecommendbeconsiderednowand
onanongoingbasis.
Wetrustyouhavefoundourobservationsofuseandinvitefurtherdiscussiononany
matterraisedbyusaswellasrequestsfordetailedadviceonhowtoprepareforthisnew
regulatoryframework.
Fiona Gilbert – Director
Email: [email protected]
Peter Buberis – Director Email: [email protected]
Iain Irvine – Director
Email: [email protected]
08 8311 9000
www.kellyhazellquill.com.au
Schedule1
Disclosure
OpeningRemarks
Callsforfurtherandbetterinformationtobegiventopotentialfranchiseeshavebeenmet
byacomprehensivereviewofpre‐contractualdisclosureobligationswiththeoutcome
beingnotjustenhanceddisclosurebutmorerelevantdisclosurethroughtheadditionof
keymoderntradingconceptssuchasonlinesalesandthedeletionofmatterscurrently
containedinsuchdocumentswhichaddlittlevaluetoanassessmentoftheopportunity,
suchasanindexationoffranchiseagreementclauses.
Noteworthyinthenewformdisclosuredocumentistheadditionoftheexpandedconcept
ofAssociate(refertotheattachedpaperonthechangestothisdefinition)asamatteron
whichcommentisrequiredinItemsincluding2,3,4,6,10and12relatingtoexperience,
conductandSysteminvolvement.Thisenhancementprovidesafardeeperoverviewofthe
partiescomprisingthefranchisorgroup.
Thecurrentabilityofafranchiseetorequestthatitspersonaldetailsnotbeincludedina
disclosuredocument(disclosureitem6.6)hasbeenincludedinclause32oftheCodesoas
toprovideforcivilpenaltiesintheeventthatthefranchisordoessocontrarytosuchan
instruction.
TheroleofmasterfranchiseetakesongreatersignificancegiventheNewCode’s
innovationinexcludingafranchisor(referredtoasamasterfranchisorinnewitem7)
fromprovidingadisclosuredocumenttofranchiseeswhoarenotcontracteddirectlytoit.
Inprovidingthisexemptionthemasterfranchiseemustnowgivedetailsaboutthe
contractualrelationshipithasenteredintowiththeSystemownersuchthatthescopeof
themasterfranchisee’srightstomakethegranttothefranchiseeareknown.
Item12isanadditiondirectedtowardsthemodernphenomenonofon‐linesales.
Disclosureisnowrequiredtoclarifytheonlineactivitypermittedbybothfranchisorsand
franchiseesintheSystem.ThelevelofcommentaryrequiredbytheItemneedstolink
carefullytowelldraftedtermswithinthefranchiseagreementthatpermit,restrictor
otherwisecontrolsuchactivity.Thiswillrequireamendmenttomostfranchise
agreements.
NewItem14concerning“pre‐payments”hasbeenmodifiedtomakeplaintheneedto
includeanyitemrequiring“significantcapitalexpenditure”asprovidedforinclause30of
theNewCode.
Themarketingfundprovisionshavebeenamendedtoexcludereferencetofranchisor
contributionsasallfranchisorownedunitsmustnowcontributeequallyundertheNew
Code.
CurrentItem13Bwhichaddressescostliabilityindisputesituationshasalsobeen
removed.ThisisnowgovernedbytheNewCode.
Arrangementsapplyingattheendofthetermofanagreementaremademorespecificin
newItem18throughtheadditionofprominenttypesizeregulatedboldadditionsifrights
toreneworextendarenotgiveninanagreement.
Thecurrentreferencetoearningsinformation,ifgiven,beingbasedonreasonablegrounds
(item19.1)hasbeenremovedgiventhenewdutytoactingoodfaith.Thenatureofthe
information,ifgiven,isenhancedbyaneedfordeeperanalysisrelatingtothebasisof
usingexistingincomefiguresandwithrespecttoprojections.
BetterarticulatedsolvencydeclarationswillberequiredundernewItem21pickingupon
Systemsestablishedsincetheconclusionofapreviousfinancialyear.
NewInformationStatement
SupplementingthenewformatofthedisclosuredocumentisamandatedInformation
Statementbeinganinnovationintroducedbyclause11oftheNewCodeThisdocument
offersrelevantbroadbasedinformationforconsiderationbyaprospectivefranchiseeand
istobeservedassoonaspracticableafteraformalapplicationorexpressionofinterest
fromaprospectivefranchisee.Itisnottobegivenonarenewalorextensionandmustbe
inaminimumfontsizeandislimitedto2pages.
Whendoesthenewformdisclosureneedtobeserved?
Timing
Asearlieralludedtoitwillnotreplaceexistingdisclosuredocumentsasthemandatory
formatuntil1stNovember2015.Itwillbeofimmediatesignificancetoanynewfranchise
Systemestablishedafter1stJanuary2015.
Ifwishingtorelyonthislaterdatesoastoavoidwholesalechangestoyourdisclosure
document,avoidmakinganychangestothecontentafter1stJanuary2015asthesechanges
willalsotriggeruseofthenewformat.Allupdatestofinancialswillalsohavetobe
appendedbefore1stJanuary2015.
Thisdoesnotprecludeitsusesoonafter1stJanuary2015andtherearegoodreasonswhy
Systemsmaystartdevelopingadocumentofthisnatureassoonaspossible.Thesereasons
mayinclude:
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offeringbetterandsounderdisclosureassoonaspossible;
avoidingalastminutedocumentchange;
avoidingdoublinguponlegalcostsineffectingongoingchangestoexisting
documentsandbeingthenrequiredtousethenewformat;
reflectingcrossreferencingtoamendmentstofranchiseagreementclausesmadeto
complywiththeNewCodesuchastheamendmentofclausesthatmightbeagainst
thedutytoactingoodfaith.
Use/Service
AsbetweenFranchisorandMaster/Unitfranchisee
Franchisorobligation:
1.
2.
Issuenewdisclosuredocument;
or
Notifyfranchisee
1.
2.
3.
4.
5.
Onthemaster14daysormorebefore
enteringamasterfranchise
agreement;
Onthemasterifarequestismadeby
themasterundersection16(1)ofthe
NewCode;
Onthemasterifthereisarenewalor
extension(referrelevantnew
definitions)ofamasteragreement;
Inamodifiedformifthereistheneed
todiscloseamateriallyrelevantevent
relevanttoitoritsassociatesunder
clause17oftheNewcode;
Onaunitfranchiseeiftheagreement
enteredintowithitisatri‐partite
agreementinvolvingthefranchisor,
masterfranchiseeandtheunit
franchisee.
Saveforthesituationmentionedin5thefranchisorhasnoobligationtoservea
disclosuredocumentonaunitfranchiseeifthelatterisappointedbyamasterfranchisee.
Itneedhoweverprovidecertainannualinformationtoitsmasterfranchiseetoenableit
tokeepitsdisclosuredocumentforunitfranchiseescompliant.
AsbetweenFranchisor/MasterandFranchiseedirectlyappointed
Franchisor/MasterFranchiseeobligation:
1.
2.
Issuenewdisclosuredocument;
or
Notifyfranchisee
1.
2.
3.
4.
5.
6.
Onorbefore14daysbeforesigninga
franchiseagreement,whethernew,a
renewaloranextensiontoanexisting
agreement.
Noteclause9(3)doesnotrequirere‐
serviceifcertainminororfranchisee
requestedchangesaremadeduring
that14dayperiod.
Onthemakingbyafranchiseeofa
non‐refundablepaymentconcerninga
proposedfranchiseagreement;
Onanannualbasis,ifrequested,
underclause16oftheNewCode;
Inamodifiedformifthereisthe
happeningofamateriallyrelevantfact
toitoritsassociatesunderclause17;
Totheproposedpurchaserofan
existingunitfranchisebusinessasa
prospectivefranchiseebeinga
prospectivetransfereeascaughtby
newclause10(4);
Onthehappeningofapotential
transfereventcontemplatedbythe
definitionofatransferinnewclause
(c)ofthedefinitionoftransfer.Such
aneventmayarguablyincludean
optiongrantedtoafranchisorto
acquireaunitbusiness.
Schedule2
Administrationandrecordkeeping
Previouslydisclosuredocumentsneededtobeupdatedannuallywithin4monthsafterthe
endofeachfinancialyear.UndertheNewCodethisisnotrequiredif:
‐
‐
Thefranchisordidnotenterintoafranchiseagreementintheprecedingyearor
onlyenteredinto1franchiseagreement;and
Thefranchisordoesnotintendtoenterintoafranchiseagreementinthefollowing
year.
However,ifanexistingfranchiseerequestsadisclosuredocumentasitispermittedtodo
onceeachyearunderclause16(1)thefranchisormust,forthispurpose,updatethe
disclosuredocumentasattheendoftheprecedingfinancialyearifthiswasnotdoneat
thattime.
TheExplanatoryStatementtotheCodemakesitclearthattheintentionofthenew
amendmentstotheCodeistoclarifythataFranchisorneedonlyupdatetheDisclosure
Documentonceeveryyear(subjecttothecarveoutabove).PreviouslytheCodewas
interpretedtorequiretheDisclosureDocumenttobeupdatedeachtimeitwasissuedto
ensuretheinformationprovidedwascurrentandnotmisleading.Thereislikelytostillbe
somelevelofconfusiononthispointasclause8(2)ofthenewCodestillstatesthepurpose
ofaDisclosureDocumenttobe“…togiveafranchiseecurrentinformationfromthe
franchisorthatismaterialtotherunningofthefranchisedbusiness”.
Previously,whereminorchangesweremadetoafranchiseagreementduringthe14day
disclosureperiod,re‐disclosurewasoftenundertaken.Thiswasaresultoftherequirement
forthedisclosedfranchiseagreementtobe“intheforminwhichitistobeexecuted”.The
newclause9(3)overcomesthisbypermittingchangestothefranchiseagreementduring
thedisclosureperiod:
‐
‐
‐
‐
‐
Togiveeffecttoafranchisee’srequest;
Tofillinrequiredparticulars;
Toreflectchangesofaddressorothercircumstances;
Forclarificationofaminornature;or
Tocorrecterrorsorreferences.
Previouslytherequirementtoaudittheannualfinancialstatementsofthemarketingfund
couldbewaivedby75%ofcontributingfranchiseesevery3years.UnderthenewCode,the
franchisormustconductthisvoteandobtainthiswaiverforeveryyearinrelationtowhich
itwishestoavoidtheauditobligation.
Itisnowclearthatamarketingfundmustbekeptasaseparateaccount(clause31).
Clause17listsanumberofeventsasmateriallyrelevantfactsthatmustbedisclosedtoall
franchiseeswithinareasonabletimeperiodfollowingtheiroccurrenceandinanyevent
within14days.Thesemattersinclude:
‐
‐
‐
‐
Changeinmajorityownershiporcontrolofthefranchisor,anassociateofthe
franchisororthefranchisesystem.
Commencementofcertainproceedingsagainstafranchisororanassociateofthe
franchisor.
Certainjudgmentsagainstthefranchisororanassociateofthefranchisor.
Thefranchisororanassociateofthefranchisorbecominganexternally
administeredbodycorporate.
ThisextendsthepositionundertheoldCodewhichrequireddisclosureonlywheresuch
eventsoccurredwithrespecttothefranchisorand/oradirectorofthefranchisor.The
definitionof“associate”ismuchbroaderthanthefranchisoranditsdirectors.
Wherethefranchisorprovidesanoticeofintentiontorenewunderclause18,itmust
includeastatementthatthefranchiseecanrequestacurrentdisclosuredocumentunder
clause16(2).
Thenewclause19providesthatthefranchisormustretaincopiesofalldocuments
providedbyafranchiseeorprospectivefranchiseetothefranchisorundertheCode.The
franchisormustalsoretaincopiesofalldocumentsreferredtoinitsdisclosuredocument.
Thesedocumentsmustberetainedforatleast6yearsaftertheyarecreated.
Thenewclause25(1)requiresthefranchisortoprovideawrittenresponsetoarequestfor
transferofafranchiseincludinganyconditionstobesatisfiedforconsenttobeprovided.
The42dayperiodafterwhichconsentisdeemedgivennowrunsfromthelaterofthedate
oftherequestorthedatethelastofanyinformationreasonablyrequestedbythe
franchisorinordertomakeits’decisionisprovided.Newclauses25(5)and(6)providea
franchisorcanreasonablyrevokeconsentinwritingdetailingthereasonsforrevocation.
Schedule3
EndofTerm
Theobligationtoprovidenoticeofintentionto,ornotto,renewisdiscussedinthe
precedingSchedule.
Thenewclause23dealingwithposttermrestraintsoftradeisoneofthemost
controversialamendmentstotheCode.Whereafranchiseagreementtermexpiresandno
furtherrenewaltermisprovidedforthereunderanyrestraintoftradewillbe
unenforceablebythefranchisorifallofthefollowingapply:
‐
‐
‐
‐
‐
Thefranchiseesoughtanewagreementonsubstantiallythesameterms:
o Asthoseinthefranchisor’sthencurrentfranchiseagreement;and
o Thatapplytootherfranchiseesorwouldapplytootherprospective
franchisees.
Thefranchiseewasnotinbreachofthefranchiseagreement.
Thefranchiseehadnotinfringedthefranchisor’sintellectualpropertyorbreached
itsobligationsregardingconfidentiality.
Thefranchisorrefusesanewagreement.
Either:
o Thefranchiseeclaimedcompensationforgoodwillbutthecompensation
givenwasnominal/notgenuine;or
o Theagreementpreventedthefranchiseeclaimingcompensationforgoodwill
intheeventanewagreementwasnotprovided.
Wesuggest
Thelimitationthatcouldapplytoobtainingacontractuallyenforceableposttermrestraint
callsfor:
1. athoroughreviewofexistingdrafting;
2. considerationofwhetherapre‐agreedformulatodeterminetheassessmentof
genuinecompensationbedevisedandincludedintheagreement.
ThechangestothetransferconsentprovisionsarediscussedintheprecedingSchedule.
Theterminationprovisionsarelargelyunchanged.Oneadditionalbasisforimmediate
terminationisthatthiswillbepermittedwherethefranchiseeisacompanyanditis
deregisteredbytheAustralianSecuritiesandInvestmentsCommission.
Schedule4
FranchisingCodeofConductReviewChecklist2014
ThefollowingaremattersKellyHazellQuillLawyersstronglyrecommendyouaddressto
prepareforthenewFranchisingCodeofConduct:
Action
Immediatelegalreviewandamendmentoffranchiseagreementtemplate:
‐
‐
‐
‐
‐
‐
‐
‐
Complete
Goodfaith–excludeanyobligationsthatmayoffend.
Marketingfunduseandauditprovisions.
Jurisdictionforsettlingdisputes.
Recoveryofcostofdisputes.
Posttermrestraintoftradelimitationsandinclusionofpre‐agreed
compensationformula.
Consenttotransfer.
Immediateterminationevents.
Disputeresolutionprocedures.
Immediatelegalreviewofdisclosuredocumenttemplateandpotential
amendmenttonewform.
‐
‐
‐
‐
‐
‐
‐
‐
‐
Includetableofcontentsifnotalreadypresent.
Removeredundantitems.
Attachtableofinapplicableitems.
IncludeAssociatesinformationinaccordancewithnewdefinition.
Removedouble/jointdisclosureformasterfranchises(if
applicable).
Insertanypossiblesignificantcapitalexpenditurebyfranchisee.
Insertinformationregardingmasterfranchise(ifapplicable).
Insertdetailsregardingonlinesales.
Reviewrequirementforfinancialstatementsorstatutory
declarationandauditreportregardingsolvency.
Preparepre‐disclosureInformationStatementpriorto1January2015
Amendformofnoticeofintentionto,ornotto,renewfranchise
agreement
Action
Legalreviewofdisclosureprocessesbefore1January2015:
‐
‐
‐
‐
‐
‐
Complete
ProvisionofInformationStatementonapplicationfrom
prospectivefranchisees.
Confirmprocessfornewfranchise,transferandextensionor
variationofterms.
Removedouble/jointdisclosureformasterfranchises.
Adopttemplatefranchiseagreementdisclosurewhereapplicable
(ieavoidre‐disclosureforcertainamendmentsduringthe
disclosureperiod).
Provisionofleasesandotheragreements.
Discloseprovisionstopurchasersofexistingfranchisee’sbusiness.
MarketingFund:
‐
‐
‐
‐
Ensureseparateaccountoperating.
AdoptannualMarketingFundauditsorannual75%franchisee
waiver.
Commencefranchisor‐ownedunitcontributionsat1January2015.
Provideadditionalinformationoninvoicesandexpenditure.
Legalreviewoffranchisorstructureandconfirmongoingdisclosure
obligationsregarding“associates”.
Confirmrecordkeeping/documentretentionobligationsandimplement
appropriateprocesses.
Legalreviewoffranchisorconsenttotransferprocess.