New Franchise Code Review by Kelly Hazell Quill

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: fgilbert@khq.com.au
Peter Buberis – Director Email: pbuberis@khq.com.au
Iain Irvine – Director
Email: iirvine@khq.com.au
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:




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.