Franchise Council likely to fund Ketchell case alone

The Franchise Council of Australia looks unlikely to receive any financial assistance from the competition watchdog or the Federal Government to fund the High Court appeal in the Ketchell case.

As SmartCompany reported last week, the High Court has granted special leave to appeal against the NSW Court of Appeal’s decision in Ketchell v Master Education Services, a decision that many in the franchising industry believe sets a dangerous precedent.

The High Court’s decision to grant leave is subject to the franchisor, Master Education Services, funding the legal costs of the franchisee.

The FCA looks likely to fund the case itself, and has asked the ACCC and the Federal Government to each kick in a third of the costs – estimated to be in the vicinity of $150,000 to $200,000 each.

FCA director Stephen Giles says when the Franchise Code was enacted, the then small business minister Peter Reith allocated $480,000 for funding franchising test cases to the ACCC.

But John Martin, commissioner at the ACCC, says there is no such fund sitting there waiting to be allocated. “That was all utilised on matters taken in the initial four or five year period. Even if there had been funds left, it was to fund cases for franchisees or small businesses.”

Martin says the ACCC has only just received the request from the FCA and it is yet to make a decision. But in his opinion, he says: “I don’t necessarily see this case as raising a significant precedent. If the Franchise Council does, then it is up to them to fund the challenge.”

The NSW Court of Appeal held in Ketchell’s case 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.

The Franchise Council of Australia, the industry’s peak body, says this amounts to rendering a franchise agreement illegal for a technical breach of the code – and it is a decision that could create great uncertainty for 10% of franchise agreements or 5000 franchisees and their franchisors.

“It impacts not only the ability of franchisors to effectively enforce their agreements, but the ability of franchisees to sell their businesses confident that they have a valid franchise agreement in place,” says the FCA’s Giles.

SmartCompany believes that the FCA is yet to receive an official response to its request from the office of the Minister for Small Business Craig Emerson, but informal responses have not been promising.

The deadline for the FCA to elect whether it will pursue the appeal on behalf of the franchisor is Monday 3 March 2008. But it is likely that it will seek from the court a 30-day extension of time in which to make a decision.