Jack Cowin’s Yum! legal case unlikely to settle franchising disputes: Expert

It’s the case the franchise sector hopes will settle the vexed question of how franchisees should be dealt with when their franchise agreement expires.

After years of tension, the conflict between fast-food millionaire Jack Cowin and fast food giant Yum! – franchisor of KFC and Pizza Huts brands in Australia – is finally heading to court.

The conflict is almost as political as it is financial: some in the franchising industry view BRW rich lister Cowin as somebody who has wielded his power to lobby for state-based franchising legislation in Western Australia to further his commercial interests.

Franchisee activists, however, support the case for state-based legislation, and believe the existing national model doesn’t provide enough protections for franchisees, lamenting its failure to explicitly compel franchisors to negotiate in good faith.

Cowin has accused Yum! of unconscionable conduct, saying it thwarted his attempts to sell the franchise rights to 46 KFC outlets in Western Australia and the actions of Yum! could lead to the closure of his stores.

Yum! has rejected Cowin’s allegations, describing them as “baseless and without merit”.

An injunction hearing is scheduled to be held on Monday in the Federal Court in Sydney.

Frank Zumbo, associate professor of business law at the University of New South Wales, says it’s a “landmark case in terms of testing what is an important area of law” – unconscionable conduct – that the competition regulator has yet to properly test.

“There have been concerns over the years that the unconscionable conduct laws are limited under their existing form,” Zumbo says.

“If the judge demonstrates there’s a gap in the law, that would bring about renewed calls for their strengthening.”

He adds that the case is not surprising given the history of conflict between the parties, but it highlights that franchisees need deep pockets to pursue litigation.

Greg Nathan, founder of the Franchise Relationships Institute, describes the long-running conflict as “an interesting boxing match” but does not expect it will resolve conflicts in the $128 billon sector.

Nathan says the case is worth noting for a couple of reasons.

First, he says, it’s unusual that Cowin is both franchisor and franchisee. Cowin’s Competitive Foods is the biggest restaurant franchisor in Australia, operating KFC restaurants in WA under franchising agreements with Yum!, plus hundreds of Hungry Jacks stores.

Second, there’s the fact that the businessman has been valued at $618 million – meaning he’s not only an atypical franchisee, but he’s a powerful figure in the Australian economy.

Nathan says Cowin is entitled to his day in court, just as Yum! Restaurants Australia is entitled to pursue its commercial strategy.

The Franchise Council of Australia, meanwhile, says it’s good to see the dispute finally out in the open.

“This is a battle between two large corporations, but it has distorted the regulatory debate quite a bit,” an FCA spokesperson says.

“It’s no secret that Competitive Foods has been behind much of the agitation for regulatory change.”

“Now the matter is before the courts it is to be hoped that agitation will cease, and the integrity of the national regulatory framework will be preserved.”

“There is no logical argument to support state-based franchise legislation given the existence of the comprehensive federal framework.”

FCA executive director Steve Wright added that it’s been eight years since Yum! informed Competitive Foods that agreements wouldn’t be renewed, giving Cowin’s company plenty of time to complete a sales process. It is believed that the last of Competitive Food’s agreements will expire next Wednesday.

In a statement yesterday, Yum! said that “much of what is being alleged is so far-fetched that it bears no relation to the true position.”

“We intend to contest the claims vigorously in the court proceedings and look forward to this long-running matter finally being resolved.”