On 27 November 2009, the government appointed an expert panel to advise on whether:
- a list of unconscionable conduct examples should be introduced into the TPA
- a statement of principles should be introduced into the TPA to assist interpretation of the statutory unconscionability provisions, and
- further amendments were needed to the Franchising Code to deal with:
- unilateral variations of franchising agreements
- unforeseen capital expenditure
- franchisor amendments to franchising agreements at a time when the franchisee is seeking to sell the franchise
- attributing the legal costs of dispute resolution to the franchisee, and
- confidentiality agreements which prevented franchisees from discussing their experience or aspects of their agreement with other franchisees,
(each an Investigated Issue).
Expert panel recommendations
The expert panel's report, released to the public on 3 March 2010, recommended the following:
- The panel did not support introducing a list of unconscionable conduct examples into the TPA. The panel considered that a list which comprehensively covered examples of unconscionable conduct in all industries would:
- be difficult to construct
- need to be updated regularly to ensure it remained current, as community expectations in relation to business conduct changed over time. The panel did not believe that this was practical, and
- encourage courts to find conduct to be unconscionable only if it fell within a listed example rather than looking at whether the conduct was unconscionable in all the circumstances.
- The panel supported introducing a statement of principles into the TPA as a guide to interpreting the statutory unconscionable conduct provisions. The panel agreed that the principles should be drawn from developments in the law to date and should include the following:
- the meaning of unconscionable conduct within section 51AC (and possibly section 51AB) is intended to go beyond the scope of equitable and common law doctrines of unconscionability and not be limited by them
- in determining unconscionability, the court may examine the terms and progress of a contract
- c.section 51AC may apply to systemic conduct or patterns of behaviour and is not limited to a particular transaction, and
- it is not necessary to identify a special disadvantage before the unconscionability provisions apply.
The expert panel did not support absolutely prohibiting franchisors from engaging in the 5 Investigated Issues. This was because the panel believed that in some circumstances there were legitimate business reasons why franchisors needed to engage in these types of conduct. Instead the panel recommended better up front disclosure to prospective franchisees regarding:
- the circumstances in which unilateral variations may take place
- the circumstances in which unilateral variations of a franchising agreement have taken place in the last three financial years
- whether significant capital expenditure imposed towards the end of a franchise term would be a factor considered in end of term arrangements and whether such a factor has been considered in the past
- the possibility that a franchise agreement may be amended even when the franchisee is seeking to sell the franchise
- the possibility that legal costs may be attributed to the franchisee where there is a dispute relating to the franchise agreement, and
- the categories of information which may be considered confidential and cannot be discussed with existing and former franchisees.
The panel also recommended that clause 20 of the Franchising Code, relating to the transfer of a franchise agreement, be extended to include novation of a franchise agreement.
The panel noted that these additional disclosure requirements had the potential to make what is already a lengthy disclosure document even longer. As a result, the panel recommended that the above disclosures be made in a short, simple, ‘Plain English’ disclosure document to be provided to prospective franchisees earlier on in the negotiating process. This ‘Plain English’ disclosure document would be provided in addition to the existing disclosure document required under the Franchising Code.
In a speech at the BRW Franchising Conference on the 3 March 2010, the Honorable Dr Craig Emerson MP indicated that the government would adopt all of the recommendations made by the panel. These recommendations will be introduced into legislation later this year.
In relation to the ‘Plain English’ disclosure document, the government indicated that it would seek the support of the franchising community in voluntarily producing the ‘Plain English’ disclosure document. However, if voluntary take up of the ‘Plain English’ document is not successful, the government will amend the Franchising Code to require that such a ‘Plain English’ disclosure document be provided to prospective franchisees.
The government indicated that it would allow the above amendments to operate for 3–5 years before it considered another review to evaluate the effectiveness of the measures undertaken.