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15 Comments

Ray Borradale's picture

Equal access to a just system

My only problem with good faith obligations are that they just don't go far enough. I've always been of the belief that if there is to be an effective deterrent it will be a package that allows decisions on what constitutes fair and reasonable practice in a setting that gives franchisees equal access. A tribunal. Many have called for a franchising ombudsman and perhaps that should be considered.

We have all heard the arguments regarding the ‘difficulty in defining good faith’ [and unconscionable conduct] but I find them to be merely shallow distractions from the reality that Courts are already making such decisions and the term(s) are found in existing laws.

Franchisees not being able to compete financially in the current system of dragging out litigation until the franchisee is forced to capitulate is as big a problem as the Law being deficient.

I would like to see effective deterrent value so that Courts, tribunals and/or ombudsmen get very little to pursue. I believe such a system would make penalties almost needless but I would like to see damage awards set to deter frivolous complaints and abuse of such a system.

Going further than that brings us to access to useful disclosure on supply chain deals, meaningful reporting on the use of advertising fund monies and an expansion of the foggy detail relating to franchise turnover. The only people who know how to interpret Australian disclosure are the experienced who can ignore the meaningless and get to what is useful. What we get on supply chain, advertising funds and franchise turnover means that assumptions have to be made leading to conclusions that aren't necessarily going to be good for the prospective investor or the franchisor.

And I think is is past time Australia brought in the death penalty for unconscionable lawyers because we are inundated with the bastards..

Its early for me; no doubt I will realize what I missed later.

BTW: Craig Emerson, ex-Small Biz Minister, spoke at length in 2008/9/10 about the difficulty of defining ‘unconscionable conduct’ and ‘good faith’ but it seems that since he has changed portfolios his regular use of the terms suggests he has worked it out.

Don Sniegowski's picture

What would you put in franchise law?

Okay, I gather that you are not of the camp that thinks bolstering a nebulous sounding "good faith" in franchise law is constructive. You are not alone.

If you had a magic wand and could put anything in Australia's franchise laws to better protect franchisees, what would you put in it? Why?

Ray Borradale's picture

Yes Don

no doubt there was some long distance explaining to be done. I suspect another clever trade off and the mere fact that the FCA suddenly backflipped on good faith pushed me to consider Simon's argument that good faith by itself will achieve absolutley nothing given the many other problems faced by franchisees considering litigation or even a quiet complaint. Anyway; it is all a sham and the battle continues until something momentus comes hurtling down Wattletree Road.

Ray Borradale's picture

Throughout franchising Inquiries in Australia

there have been many submissions from people with great experience in franchising but who do not stand to make a financial gain from any outcome. Mostly their motivation comes from their experience in decent franchising and the desire to stop the rot. Who said the general public would be interested?

Ray Borradale's picture

Being the cynic that I am

Bering the cynic that I am I would argue what constitutes financial stake considering that opportunism in franchising has extended tentacles.

simon young's picture

Submissions with no financial stake?

At least eleven, being the politicians and government agencies that submitted (although perhaps you could argue about the ACCC)..

Depending upon your definition, the Law Council and Law Institue submissions add another 6 to the tally.

Bugsy Denaro's picture

Everybodys got an opinion

Look. Dese are very complicated legal tings. Don't have youselves a knipshun. Dat's why youse pay yours royalties so dat we zors can inform you on what's in yours best interest. We'll do da heavy lifting for youse. Let our people represent youse people tru our association. All ya gotta do is open youse mouth to say what we tell youse at the right time. For the rest, youse will naturally be all over da map trying to figure out da appropriate code to resolve dese complicated tings. 

Youse knows what dey say: "For every twos franchisees, dere's t'ree opinions." Dat works out fine for me and my friends.

John Q Public is interested because...??

Franchising isn't of concern to the public. The advantage in the argument to the public is to franchisors, which represent the status quo. All franchisors and their lobbyists need to do is convince the public that the economy will suffer and that more regulatory paperwork and litigation will result from any attempt to make laws that regulate franchising.

On the other hand, franchise owners, who typically have no lobbyists, group or lawmaker representing their self-interests, have to convince the public that they individually are suffering and that their suffering is the public's suffering. Most franchise owners don't know how to make such an argument. They naturally project that what financial injustice or lack of control that they have is of concern to the public.

It's not.

Regards,
C. Nick

Re: financially driven bias

"I would like to see someone else's opinion on how many submissions actually come from people who do not have a financial stake in the outcome." - Borradale

What individual or enterprise would post a submission if there wasn't a financial stake for them in the outcome? For one, franchisors and their attorneys have a financial stake in having laws that give them as much control as possible over a licensee's business, while minimizing the liability. Likewise, franchise owners and their attorneys have a financial stake in giving them more control of their own business and protection from abuse.

Now Norm, the neighborhood mailman, has no financial stake in the outcome of franchise regulation. He's the kind of person that you say you want to see his opinion. The problem is that he could care less about franchising because he is unconvinced how such regulation would affect his life as a letter carrier, his role as a father or a consumer. Unlike franchisees and franchisors, unbiased Norm will not be mailing in submissions or be commenting on it.

Ray Borradale's picture

financially driven bias

I would like to see someone else's opinion on how many submissions actually come from people who do not have a financial stake in the outcome.

Deterrent? How about three strikes and you're out

Hey, California already has a precedence for bad conduct. Three strikes and you're out. That should also apply to rulings of bad franchising in not only California but also Australia.

Don Sniegowski's picture

How much does a tough penalty deter bad conduct?

The general consensus was that penalties should act as a deterrent to inappropriate conduct and that the consequences of a breach be proportionate (in some way) to the offending conduct. -- from the article on Australia's look at new franchise regulation by solicitor Young and professor Spencer

Fascinating. The consensus in Australia is that penalties should be applied; however, there is disagreement on how much is an adequate deterrent. For example, here in the U.S., California's SB 610 bill stipulates triple damages. Opponents say let the judge decide on whether it is $1, the amount lost or punitory.

Good faith

Part of the problem for franchise owners is that "good faith" is a legal construct. "Good faith" and "fair dealing" sound utopian to the average ear. Lobbyist can politicize and play up to that. If you explain that existing UCC standards of good faith will be bolstered in its application to franchising, you might receive an even bigger stare. Although regulators, legal scholars and judges say strengthening good faith in the law makes a difference, it is difficult for business operators to appreciate what these nebulous words mean in the real world, or if they even matter. The even split of 23 supports for and 23 against "good faith" being part of Australian franchise law bears that out.

Don Sniegowski's picture

Lost in an ocean of uncertain disclosure

...too much information at some point becomes as bad as too little information if the overload prevents understanding, or even the reading of, the disclosure document." - from the article on Australia's look at new franchise regulation by solicitor Young and professor Spencer

A very interesting observation.

Albeit unaudited, a Franchise Disclosure Document is required to be handed to a prospective investor before a franchise can be sold to them. Critics of the FDD say that the reams of paper are really just to divert the senses or lull the buyer into thinking they are safe. Proponents say there is a lot of very good information on a system that can be found there.

I have noticed in a number of troubled systems I investigate that when it comes to unflattering news, there is considerable required information in the Franchise Disclosure Documents that goes missing .

Don Sniegowski's picture

Australia FCA supports 'good faith' in law, US' IFA doesn't

"for those who like to complain about the FCA [Franchise Council of Australia] opposing reform – the FCA is included in the count as supporting the introduction of good faith into the Code." - from the article on Australia's look at new franchise regulation by solicitor Young and professor Spencer

The franchising equivalent in America to the Franchise Council of Australia is the International Franchise Association. Unlike the FCA's support of good faith, you can hear the IFA's opposition to it. It's here => The IFA testified against it in California's SB 610, recorded at the end of this Blue MauMau Podcast (mp3 file or streamed) which is located at the end of this linked article.)