In our April issue this year we examined the Government’s exposure draft which proposed changes to franchising laws. To view this article, click here.

Some of these recommendations are one step closer to becoming a reality, with the introduction of the Consumer Amendment (Industry Code Penalties) Bill 2014 (the Bill) by the Honourable Bruce Billson, Minister for Small Business, on July 17.

In this issue we look at what this Bill means for franchisors and franchisees and outline what else they can expect in the future.

The Bill

Readers may remember that the Exposure Draft contained numerous proposed amendments. However, the newly- introduced Bill only focuses on penalty provisions and infringement notices.

In regards to these, the changes outlined in the Bill are essentially identical to how they were expressed in the Exposure Draft. As a quick recap, these changes will allow pecuniary penalties (fines) to be prescribed at up to 300 penalty units ($51,000) and also give the Australian Competition and Consumer Commission (ACCC) power to issue infringement notices.

What about the other proposed amendments?

Whilst this new Bill addresses some of the amendments from the Exposure Draft, there were many more that are not mentioned in this Bill. Does this mean the Government no longer intends to pursue the other amendments?

The answer: no.

In his second reading speech, Mr Billson made it clear that the Bill is only the first step in improving franchising laws, and the government will be introducing a new franchising code.

Mr Billson also raised some of the other proposed changes though the majority he only mentioned briefly. However, of particular interest were his comments regarding the inclusion of an obligation of good faith.

Good faith

The exposure draft proposed to include a legislative obligation to act in good faith, and limited the definition of good faith to an obligation to act honestly and not arbitrarily and to co-operate to achieve the purpose of the franchise agreement. In our earlier update we noted the potential difficulties of such a definition due to its differences with the common law definition, which is continually developing.

Mr Billson made some comments in his second reading speech which indicate the government has heard such criticisms and is taking them on board, stating, “’Good faith’ under the code will have the same meaning as in common law, but we will be providing some guidance for participants around what might be considered good faith.”1

Additionally, the explanatory memorandum accompanying the Bill addresses feedback from the Exposure Draft and states “guidance on the meaning of good faith will be provided without limiting the obligation imposed by the common law”2 and the “ACCC will provide educational information on the changes to the Franchising Code”.3

Next stage

Mr Billson indicated that the new code regulations will progress later this year, once the Bill is passed by the parliament. He confirmed that the new franchising code is still expected to take effect from 1 January 2015.

Take home tips

Franchisors and franchisees should expect the Government to introduce a number of changes in the next few months.

Franchisors and franchisees may also wish to familiarise themselves with the civil penalty provisions contained in the Bill, which are also set to commence 1 January 2015, as a breach of a provision could result in a costly consequence. A quick-read table of the different provisions and penalties is contained in our April update.