Concerns about WA franchising bills can be addressed: Zumbo

With the increasingly emotive commentary regarding the WA Franchising Bill, it’s important that all commentators remain calm and open minded about the Bill.

Good franchisors have nothing to fear from the WA Bill. In fact, it will only strengthen the WA franchising sector by dealing with the rogue franchisors giving the sector a bad name.

Let’s have a closer look at the so-called concerns and consider how the WA Bill will strengthen franchise businesses.

State regulation will not increase business costs

Suggestions that ‘any State attempt to legislate franchising beyond the national standard that already exists will create greater bureaucracy and compliance costs for franchisors’ can be dismissed for a variety of reasons.

To begin with, the imposition of financial penalties under the WA Bill will not impose any compliance costs for those franchisors that already fully comply with the Franchising Code of Conduct. After all, the Franchising Code is a “mandatory” code under the Trade Practices Act and, accordingly, all franchisors should already be complying with the Code.

As for a statutory duty of good faith under the WA Bill, we need to remember the fact that a common law duty of good faith already applies to franchising relationships and as such franchisors would have already faced the cost of seeking legal advice as to the nature and scope of the common law duty of good faith. Given that the statutory duty of good faith in the WA Bill faithfully adopts the common law duty of good faith any advice obtained in relation to the common law duty is equally relevant to understanding the statutory duty. Of course, if no previous advice has been obtained in relation to the common duty of good faith, then the question arises as to whether the franchisor is failing to do their due diligence regarding their existing legal obligations.

In short, there will not be any additional compliance costs for those franchisors who already fully comply with the Franchising Code and the common law duty of good faith.

The WA Franchising Bill is a considered response to bipartisan recommendations from three franchising inquires and given that these recommendations have been in the public domain for some time their implementation is long overdue.

Equally, suggestions that there has been some haste in relation to the WA Franchising Bill unfortunately don’t take into account the many months of drafting that went into the WA and SA Franchising Bills, a process that involved considerable input from Parliamentary Counsel in both WA and SA. In addition, the WA Bill has now been in the public domain for a number of weeks and will in due course be debated in Parliament. The SA Bill has of course been around for much longer.

Seamless enforcement

Any suggestions regarding a possible ‘Mexican stand-off between any future state enforcement body and the Australian Competition and Consumer Commission (ACCC) as to who has jurisdiction in the event of a breach’ ignore the fact that consumer laws have long been enforced by State and Federal agencies. Such agencies enter into a “memorandum of understanding” about their respective roles and have liaison processes to efficiently use scarce agency resources.

In the case of the WA Bill there will not be any overlap at the moment regarding prosecutions for financial penalties for breaches of the Franchising Code as the ACCC does not have the power to seek financial penalties in such cases.

In any event, the WA Bill expressly deals with the double jeopardy issue by stating that the Court under the WA Bill cannot order a monetary penalty if the person has been ordered to pay a pecuniary penalty under the Trade Practices Act.

Similarly, since the ACCC currently does not have the power to enforce a statutory duty of good faith, there will not be any overlap between the ACCC and the WA State agency.

Beware of the floodgates argument

Suggestions that the WA Bill will lead to litigation from a host of people who may see some financial gain from such litigation is nothing more than the old alarmist “floodgates argument.” Such an argument is rolled out on such a regular basis by those opposing reforms that we must be sceptical whenever it’s used.

The point is that there won’t be any litigation if there are no breaches of the WA Bill. So there won’t be litigation by anyone against a franchisor under the WA Bill where the franchisor is fully complying with the Franchising Code and acting in accordance with a duty of good faith that already applies at common law.

Now if there are some minor or technical breaches one would fully expect that any financial penalty sought under the WA Bill would be of size commensurate with the size of the particular breach. Such breaches could in the alternative be dealt with in an administrative manner by the WA State Agency which obviously has discretion as to whether or not pursue a matter in Court.

Naturally, blatant or repeated breaches by rogue franchisors would attract more attention and surely the sector as a whole would want rogues giving the sector a bad name to be dealt with appropriately.

Good Faith represents good franchising

The statutory duty of good faith under the WA Bill is modelled on the common law duty of good faith with the four key terms – fairly, honestly, reasonably and cooperatively – capturing the essence of the common law duty. Having a statutory duty of ‘good faith’ provides certainty and clarity as to the scope and nature of the duty of good faith without the need to continually review what the courts may, from time to time, say about the common law duty.

These four terms also represent an objective standard that applies to both franchisor and franchisee and the Courts have the ultimate say on the application of the terms to specific individual cases.

The WA Bill part of wider reforms including more education

The WA Bill needs to be considered as part of a wider reform package where the WA Government has already announced the creation of a Small Business Commissioner. No doubt that will be modelled on the successful Victorian Small Business Commissioner. There is every expectation that the WA Small Business Commissioner will have a role in educating the WA franchising sector. The WA Small Business Commissioner would obviously work with all parts of the sector to promote greater awareness of good franchising and the WA Franchising Bill.

WA Bill only applies to WA franchised business

The WA Bill applies to a WA franchise agreement where the agreement relates to the conduct of a franchised business in WA. Any suggestion that any franchisor having any connection with WA will be caught by the Bill needs to be dismissed for the simple reason that the Bill is confined to WA franchise agreements.

No such thing as an automatic renewal under the WA Bill

Given that any discussion surrounding renewals is likely to be an emotive one for both the franchisor and the franchisee, great care needs to be taken in not misrepresenting the WA Bill. For starters, the WA Bill does not confer an automatic right of renewal. What the WA Bill requires is that the franchisor and franchisee act in good faith in relation to renewing a franchise agreement. Thus, where a franchisor enters into discussions with a franchisee about such a renewal those discussions must be in good faith.

In practice, one would expect a good franchisor will use its best endeavours to retain a good franchisee including acting fairly, honestly, reasonably and cooperatively in relation to any renewal discussions.

While a failure to act in good faith causing the franchisee to suffer loss or damage allows the franchisee to seek an appropriate remedy, which may include a renewal order, it needs to be remembered that the grant of any such remedy is at the total discretion of the Court. As with any discretionary order, the Court will consider the surrounding circumstances and, of course, may decline to grant the order.

The WA Franchising Bill is a carefully drafted measure and should be considered by reference to the clear language of the Bill designed to deal with the problem areas so clearly identified by the three recent franchising inquiries.

Frank Zumbo helped draft the WA franchise laws. He is an associate professor at the University of New South Wales.