The purchase of a franchise is a major business decision and prospective franchisees should be aware of their rights under the law.
If you are considering entering a franchise agreement, you should be aware that there are certain requirements that such an agreement must meet. These requirements are designed to protect franchisees and prospective franchisees from the power imbalance that can arise between franchisors and franchisees.
The Competition and Consumer (Industry Codes – Franchising) Regulations 2014 – Schedule 1 (‘the Code’) regulates the conduct of parties to a franchise agreement. The Australian Consumer Law (set out within the Competition and Consumer Act 2010) provides the ACCC with the power to regulate the Code by imposing penalties and an avenue for franchisees to take private legal action.
The Code includes strict disclosure requirements which franchisees should be aware of, specifically in respect of the provision of current information material to the running of the franchise business. The required content and form of the disclosure document must comply with the example contained within Annexure 1 of the Code.
If a prospective franchisee is required to provide significant capital expenditure (which is defined in section 30A of the Code), franchisors must include in the disclosure document as much information as practicable about the expenditure, including: –
- the rationale for the expenditure;
- the amount, timing and nature of the expenditure;
- the anticipated outcomes and benefits of the expenditure; and
- the expected risks associated with the expenditure.
Franchisors are prohibited from entering into a franchise agreement or receiving a non-refundable payment of a deposit unless it has received from the prospective franchisee a written statement that they have received, read and had a reasonable opportunity to understand the disclosure document (which is required to be provided) and the Code.
Franchisees should also be aware that Division 3 of the Code also restricts certain terms from being included in a franchise agreement.
What are my options if a dispute arises?
Once a disagreement arises between a franchisee and a franchisor, there are a number of options available to both parties in order to resolve the dispute.
If a franchisee has suffered loss or damage by the conduct of a franchisor in breaching the Code, they may be entitled to recover the amount of the loss or damage against a corporation franchisor, or any person involved in the contravention. Other options for recovery of damages and/or specific performance may also be available if the franchisor has engaged in unconscionable, or misleading or deceptive conduct. The most appropriate option will differ, depending on the specific circumstances of each individual case.
When a dispute arises under a franchise agreement, it is important that the appropriate dispute resolution steps are taken pursuant to the franchise agreement and under the Code. Franchisees should note, however, that the mechanisms for dispute resolution provided for under the Code do not affect a party’s right to take further legal action in relation to a franchising dispute.
Rose Litigation Lawyers are seasoned litigators having dealt with a variety of franchise related disputes. If you need assistance or advice in respect of a franchise dispute, you can contact our office for an obligation free discussion.