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.
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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.”