Call for federal parliamentary inquiry into franchise industry

A franchisee group is calling for a federal parliamentary inquiry into all aspects of franchising.

The call comes as the Franchise Council of Australia, the $125 billion industry’s peak body, is attempting to raise money to run a High Court appeal of a NSW Court of Appeal decision in Ketchell v Master Education Services that renders a franchise agreement unenforceable if a franchisor doesn’t make proper disclosure to a franchisee.

The Court of Appeal decision is seen as a significant court decision in favour of franchisees’ rights to disclosure by franchisors, as SmartCompany reported last week. It held that where a franchisor does not have a written acknowledgement that a franchisee has received, read and had an opportunity to understand the disclosure document, the franchise agreement is unlawful and unenforceable.

It is unknown how many agreements in the franchising industry could be vulnerable to unenforceability because of this decision. But the fact that the High Court decided to hear the appeal is a recognition of the significance of the law to the $125 billion franchising industry.

But the Franchisees Association of Australia Incorporated does not believe that current disclosure laws go far enough. David Beddall, the president, is currently arranging a meeting with Federal Small Business Minister Craig Emerson at which he will suggest the Minister consider a federal parliamentary inquiry into franchising and strengthen disclosure laws.

One of his submissions will be for the introduction of a system of continuous disclosure by franchisors to franchisees, to give franchisees a similar level of protection that investors in public companies receive.

“There is a fair deal of frustration among the franchisees,” Beddall says. “We are pro franchising. We think it needs to be more fairly balanced. There is a case for continuous disclosure in franchising.

“There should be a public document vetted by ASIC or ACCC prior to a franchisor operating, similar to a prospectus filed by a public company, which can be tested.”

David Beddall says: “Our strong view is that in many instances people see franchising as a business-to-business relationship. We think it is a master servant relationship, because all the economic power is with the franchisor. We strongly believe that there are insufficient dispute resolution procedures in place.”