What's New in Franchising

It is becoming increasingly crucial for all parties involved in franchising arrangements to remain well informed of any recent developments in a range of laws affecting the franchising sector. Purported amendments to the Trade Practices Act 1974 (Cth), the Trade Practices Amendment (Australian Consumer Law) Bill 2009 (Cth) and the new Personal Property Securities Act 2009 (Cth) all have the potential to affect the franchise relationship in the near future. We propose to keep you updated and provide more details in future issues but for now here is a sample of legislation likely to have a critical effect on the sector.

Small Business Minister Craig Emerson has said that the Government would respond ‘within the next couple of months’ to a report received from the expert panel appointed to examine whether unconscionable conduct provisions should be specifically included in the Franchising Code.

Readers will recall that Emerson announced the establishment of this panel as part of his response to a parliamentary inquiry into the franchise sector which took place in late 2008.

While this inquiry initially recommended that the Franchise Code be amended to include unconscionable conduct provisions, Emerson decided to refer this complex issue to another body. The panel, made up of members with a well acknowledged expertise in various aspects of trade practices law, were tasked with considering two options to strengthen the laws around unconscionable conduct:

(a) the introduction in the Trade Practices Act 1974 (Cth) (‘TPA’) of a list of examples of conduct that is universally agreed to be unconscionable or;

(b) the introduction of a statement of principles of unconscionable conduct.

Whilst this report is in the hands of the Government, a two-month delay could mean any response may be given after this year’s election, allowing continuing uncertainty to linger.

The expert panel report is likely to provide some examples to the Government, however, the danger will be in the detail. As unconscionable conduct needs to be considered in the context of all relevant circumstances, it is hard to isolate an individual action as an example of conduct that will typically be considered unconscionable. It can be argued that a far more effective way is to allow the courts and the ACCC to continue to produce complete examples that are in the context of all relevant circumstances.

DibbsBarker will provide an update when a response is given by Mr Emerson.

The Trade Practices Amendment (Australian Consumer Law) Bill 2009 which aims to introduce a single national consumer law regulating unfair contract terms is currently before the Senate.

Independent Senator Nick Xenophon has moved two sets of amendments to this Bill. The first set proposes, among other things:

• extension of the regime to contracts with corporations, and other types of entity, where the upfront price under the contract does not exceed $2 million (the Senator's amendments don't seem to suggest that individuals acquiring goods or services for business purposes where the upfront price is less than $2 million should also be protected);
• provision for 'safe harbour' terms approved by the ACCC or ASIC to be exempt from the legislation; and
• extension of the regime to contracts of insurance.

The second set of amendments Senator Xenophon proposed would prohibit:

• charging a fee for a payment made in cash; and
• a term that enables, or has the effect of enabling, one party to a contract to transfer personal information about another party outside Australia without that other party's written, informed consent. This amendment is consistent with a separate Private Senator's Bill Senator Fielding introduced into the Senate, the objects of which include ensuring that personal information held by businesses in Australia is not transferred overseas without the informed consent of the individual to whom the information relates.

These amendments have yet to be moved or debated and are scheduled to come back before the parliament soon.

DibbsBarker will provide an update when parliament has considered the amendments.

The Personal Property Securities Act 2009 (Cth) (‘PPSA’) is now law.

Whilst the new system is expected to be in place by May 2011, a two year transitional period means that franchisor financiers will be immediately affected by this legislation.

The December 2009 enactment of the PPSA established a national system for the registration of security interests in personal property by setting out the rules for creation, priority and enforcement of security interests in personal property. This legislation therefore affects the way security is taken over almost every form of property other than land.

Franchisors will therefore need to ensure their interests in specific goods are protected if they have provided goods on credit to a franchisee, have been supplied goods on credit or are presently leasing goods to a franchisee.

Ultimately, franchisors need to ensure their title in property is protected where security is taken over particular assets.

The PPSA explains a security interest as any interest or right related to personal property that secures payment or performance of an obligation. This security interest will then need to attach to the personal property to be enforceable and be perfected to have priority over other security interests. This perfection will most commonly occur via registration on the national Personal Property Securities register.

This new law provides a uniform system for the registration, priority and enforcement of security interests over personal property and thus a failure to understand or comply with the PPSA could lead to considerably harsh consequences for the securing party.

Franchisors must therefore ensure their interest in goods provided on a credit or lease agreement are enforceable both now and following the 2011 implementation of the PPSA through review of security documentation.

A more detailed article will follow next month.

The implementation of any of these legislative changes will require consideration as to how these will affect the system, what changes if any need to be made to operations manual, trade practice compliance plans, franchise agreements or related documentation.

We will endeavour to keep you informed on the progress of these and other proposed changes to assist in keeping systems compliant and effective.

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The material contained in this publication is no more than general comment. Readers should not act on the basis of the material without taking professional advice relating to their particular circumstances.