Growth Threatened by Proposed Amendment

2000 Survey of Franchising
Commerce Amendment Bill 1999

A recent survey confirms that the franchising industry is demonstrating significant growth, with increased outlets and employees. However, the enactment of a proposed amendment to the Commerce Act 1986 could curb this growth, lessen competition and dramatically affect the industry. The Franchise Association has voiced its concerns about the amendment.

2000 Survey of Franchising

The 2000 Survey of Franchising in New Zealand, which has just been released, confirms a growth rate of 25% per year for the number of systems, outlets and those employed in them. Sixty-eight percent of the operations originate in New Zealand and 35% of the systems franchised began within the last two years. The industry has grown to represent over NZ$6 billion in turnover in the last 12 months and it employs over 41,000 people. The average total start-up cost is NZ$93,000 and the sector areas showing the most growth are construction and trade, business and property, and 'personal and other' services (approximately 20% each).

The level of disputes occurring is less than 1%. Franchising has increased rapidly over the past five years, with a lot more growth predicted.

Commerce Amendment Bill 1999

A change of government in New Zealand in November 1999 has put the Commerce Amendment Bill 1999 on hold. The Franchise Association of New Zealand has submitted an objection to a draft provision that would substantially lessen competition and would dramatically affect franchising. This provision states that if a franchisor divided, distributed, allocated or apportioned a market for goods or services on any basis (including customers, suppliers, territory or time of sale), then such a provision would be in contravention of the Commerce Act 1986.

This would mean that franchisors who allocate territories on the basis of a map (where the boundary of the territory is clearly delineated on that map) would fall foul of the Commerce Act, with such a practice deemed illegal. It is reported that the proposed amendment was not meant to include franchising, although this is not clear from a reading of the bill as it stands.

A recent appearance by Stewart Germann on behalf of the Franchise Association of New Zealand before the Commerce Select Committee has lead the Franchise Association to believe that its submission has been accepted and the offending provisions will be removed from the bill. All members of the association have been advised that it is likely that the bill will be changed to ensure that franchising will not fall foul of the territory restrictions.

For further information on this topic please contact Stewart Germann at Stewart Germann Law Office by telephone (+64 9 308 9925) by fax (+64 9 308 9922) or by email ([email protected]).