Franchising Disputes

Most disputes between franchisors and franchisees involved allegations by the franchisee that they were misled by the disclosure document, or by other representations by the franchisor. These claims can involve breaches of the Franchising Code of Conduct (Sch 1, Competition and Consumer (Industry Codes-Franchising) Regulation 2014 (Cth)) and the Australian Consumer Law.

See Franchising disputes.

Breaches of the Code

Section 51AD of the Competition and Consumer Act 2010 (Cth) provides that any breach of the Code constitutes a breach of the Act. This enables the courts to apply the very wide remedies under Pt IV of the Act. This includes damages, injunctions, and has been held even to extend to inserting a new provision into a franchise agreement.

Australian Consumer Law

A large proportion of disputes between franchisors and franchisees include an allegation that the franchisor engaged in deceptive conduct in breach of s 18 of the Australian Consumer Law. This section, and s 52 of the Trade Practices Act 1974 (Cth), which it replaced have generated much litigation. The authorities show that the section is interpreted widely. The defendant can be found guilty of misleading and deceptive conduct even if they are silent about a relevant matter, and even if they are not aware that their conduct is deceptive. A franchisor can be sued for inaccurate representations about future matters, if they cannot show that they had a reasonable basis for making such representations.

Common sources of disputes

Many disputes between franchisor and franchisee involve allegations that the franchisor misled the franchisee as follows:

• • failure to provide a disclosure as required by the Code;
• • inaccurate projection of earnings;
• • understated cost of establishing the franchise; and
• • withholding relevant information.

Claims by franchisors against franchisees

These are generally simpler disputes where a franchisor is claiming a failure to pay money, such as franchise fees or payment for products.

Franchise agreements generally give franchisors wide powers to terminate the franchise agreement if the franchisee defaults. Franchisors occasionally need to take proceedings against franchisees to prevent them from continuing to carry on the franchised business, or a similar business in competition with the franchisor.