Franchising Comparative Guide

1 Legal and enforcement framework

1.1 Which legislative and regulatory provisions govern franchising in your jurisdiction?

Franchising is governed primarily by the Franchising Code of Conduct, a mandatory code under the Competition and Consumer Act 2010 (CCA).

The sector is also governed by the same laws as any other business.

There are specific provisions in the Fair Work Act 2009 that may render franchisors liable for breaches of the employment laws by their franchisees.

The consumer protection and anti-competition provisions of the CCA feature prominently in the case law involving franchisors and franchisees. Many franchises involve franchisees operating businesses from shops or stores. The use of those stores is governed by the Retail Tenancies Act in each state and territory, whether or not the franchisee occupies the store as the tenant under the lease or as a licensee of the franchisor, which signs the lease.

1.2 Do they apply to foreign franchisors entering your jurisdiction or only to domestic franchises?

A foreigner can set up a wholly owned subsidiary in Australia through which to operate a franchise. The laws of Australia, including those specifically noted in question 1.1, will apply to that Australian subsidiary. This, however, does not make the foreign entity itself subject to Australian law.

A foreign entity that operates a franchise in Australia itself (from overseas) is still subject to the laws identified in question 1.1. These laws have extraterritorial application, applying to foreign corporations that do business in Australia. An overseas franchisor that grants licences to Australian franchisees and manages those franchisees will be regarded as doing business in Australia.

1.3 Do any special regimes apply in specific sectors?

There are industry-specific laws in Australia, as in most other countries. There are thousands of franchises in the hospitality and food industries. Food and hygiene laws apply to those franchises; unless the franchisor operates one or more of the stores itself, these laws do not affect the franchisor directly.

There are also numerous franchises in the professional services sectors. If franchisees offer accounting or legal services, they must comply with the laws affecting those professions. Franchisors must ensure franchisee compliance; otherwise, the reputation of the franchise will be adversely affected.

1.4 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The Australian Competition and Consumer Commission (ACCC) is the principal regulator in the franchising sector. It administers the Franchising Code of Conduct and is, therefore, the body that prosecutes franchisors for breaches of the code (such a breach representing a breach of the CCA) and all other breaches of the CCA, such as misleading and deceptive conduct (as was the case with the Jump Swim School franchise, which was found to have misled franchisees).

The Australian Securities and Investments Commission (ASIC) administers the Corporations Act 2001, which addresses, among other things, company formation and governance. Breaches of directors' duties in the operation of the franchise can result in ASIC prosecuting directors.

The Fair Work Commission administers the Fair Work Act, which addresses employee conditions and wages.

1.5 What is the regulator's general approach in regulating the franchise sector?

The ACCC is an active regulator and the franchise sector is of particular interest to the ACCC. There have been numerous inquiries into the sector, and the CCA and the Franchising Code of Conduct in particular have been amended on a number of occasions to strengthen protection for franchisees. The ACCC has responded to these concerns with increased enforcement.

As a recent example, on 9 November 2023, the CCA was amended to reform the unfair contract provisions. Previously, unfair provisions could be rendered unenforceable. Under the amendments to the CCA, the inclusion of unfair provisions in a franchise agreement can amount to an offence. The ACCC is expected to enforce these new provisions with some vigour.

1.6 Are there any trade associations for the franchise sector? If so, what are the conditions for membership? What are the commercial implications of not being a member?

The Franchise Council of Australia is the main industry body (www.franchise.org.au/)

There are also industry-specific trade associations of particular relevance to the franchising sector. All motor vehicle dealers are, by definition, franchisees. That industry is covered by the Australian Automotive Dealers Association. Many real estate agencies are structured as franchises. That industry is covered by state-based associations, such as the Real Estate Institute of Victoria.

2 Franchise market

2.1 How mature is the franchise sector in your jurisdiction?

There are reputedly more franchises per capita in Australia than any country other than New Zealand. The oldest franchises have operated for decades. The sector was first regulated (in terms of franchise-specific regulation) in 1998, with the introduction of the Franchising Code of Conduct in the then Trade Practices Act 1974 (later re-enacted as the Competition and Consumer Act 2010 as a mandatory code.

2.2 In which sectors is franchising most common?

Almost all sectors of the Australian economy involve franchising. The leading sectors include:

• food and hospitality (including groceries and grocery retail);
• banking and financial services;
• cleaning services;
• education and training;
• hairdressing;
• home services;
• professional services (of numerous kinds);
• landscaping and gardening;
• pet stores and services;
• automotive (all motor vehicle dealers are deemed to be franchisees);
• real estate agency services;
• trades;
• travel;
• children's products and services;
• entertainment; and
• recreation and leisure activities and services.

2.3 Who are the biggest and most successful franchisors in your jurisdiction? How are they typically structured?

The largest franchisors in Australia are:

• 7-Eleven (with 35% of the convenience retail market);
• Laser Clinics (hair removal and cosmetic injections) (with 125 franchisees in Australia and New Zealand);
• Just Cuts (with over 190 franchisees);
• Roll'd (a relatively recent entrant, with over 60 stores);
• Poolwerx (with over 100 retail store-based franchisees and over 300 mobile service vans);
• Battery World (the largest battery retail franchise, with over 94 stores);
• Home Caring (disability, aged and dementia care at home);
• Rams (residential mortgages); and
• Pack & Send.

3 Franchising models

3.1 Is master franchising or the multi-unit development model most common in your jurisdiction? Is there a perceptible trend in one direction or the other?

Master franchising is reasonably common in Australia. It is found especially in franchises that originate overseas. As an example, there might be a well-established franchise in Malaysia; to take advantage of the fact that there is a large expatriate Malaysian community in Australia, the franchisor may wish to establish the franchise in Australia and could do so by appointing a sub-franchisor in Victoria (by way of example) to recruit and manage local franchisees.

Master franchising is also not uncommon among locally commenced franchises that expand from the state or territory in which they are founded. The challenge that the geography of Australia presents for any business, including franchised businesses, is what historian Geoffery Blainey has famously called the 'tyranny of distance'. It takes five to six hours to fly from one end of the country to the other (Melbourne to Broom, the furthest town from the East Coast). This makes managing disparately located businesses difficult. As an example, a solely Victorian franchise could expand into New South Wales by appointing a sub-franchisor in that state as a local presence to recruit and manage franchisees in that state, addressing the difficulties presented by that 'tyranny'.

3.2 What other models of franchising are commonly used in your jurisdiction?

Some franchisors in Australia manage multiple brands. These include:

• the Retail Food Group in the food and hospitality industry; and
• the Jim's Group – probably the most prominent example – which is well known by most Australians as being generic of franchising and operates brands such as:
• • Jim's Mowing;
  • Jim's Painting;
  • Jim's Dog Wash; and
  • Jim's Bookkeeping.
• It has over 50 divisions in total.

3.3 What are the potential advantages and disadvantages of these different models in your jurisdiction?

The advantage of appointing a sub-franchisor is that the entity controlling the franchise is close to the issues. It should understand the local conditions better than the master franchisor, which might be located elsewhere in the country or offshore. There is criticism – which is not unmerited – that those in the East do not appreciate the conditions in the West. The economic base of Western Australia is quite different from that in Victoria and New South Wales. Similarly, Tasmania is apt to be ignored if the focus is national.

Another advantage is that sub-franchisors can often recruit franchisees more effectively, as they are doing this locally.

Probably the primary advantage of appointing a sub-franchisor is better management of the franchise. The master franchisor's role is far more diverse; appointing a sub-franchisor brings added focus by concentrating it on this important role, supported by an appropriate incentive structure built into the sub-franchisor agreement.

The major disadvantage of appointing a sub-franchisor is the flipside of its primary advantage – the sub-franchisor's control over the franchise. This necessarily involves the loss of direct control over the franchise to a person who does not have a proprietary stake in the business, as the master franchisor has, at least in that region to which the sub-franchisor is appointed. The role of the master franchisor must change to one of managing sub-franchisors if it is to address that risk effectively, and master franchisors are often not ready for or well adapted to this role. Unmanaged sub-franchisors (whose incentives are not the same as the person who started the business) can result in poor outcomes.

The advantage of a multi-brand franchise model is the economies of scale that can be achieved by centralising back-office functions. The examples noted in question 3.2 suggest that this model is better suited to certain industries, more so than others. It is simply a question of efficiencies. Beyond these savings, the benefit is unclear; indeed, there are very obvious disadvantages that come with the added complexity in administration and the increased servicing requirements for the finance needed to operate the business.

3.4 What specific considerations should be borne in mind in the case of cross-border franchising into your jurisdiction?

The most important considerations for overseas franchises looking to set up in Australia are as follows:

• They should familiarise themselves with the local laws.
• They should understand the different conditions in economies between states and territories, even within the same industry.
• IP rights should be protected locally.
• While franchisees may be encouraged to target expatriates from the home country, success often depends on extensive marketing beyond that community and, in this regard, an understanding of the local media landscape is important.

4 Definitions and scope of application

4.1 How is 'franchising' defined in your jurisdiction?

Whether a business is or is not a franchise matters because if it is, the Franchising Code of Conduct applies. A business is a 'franchise' if the contract between it and its distributors is a 'franchise agreement', so defined. To qualify as a franchise agreement, a contract need not be in writing; it may be an oral agreement or even an agreement the existence of which is implied from the circumstances. Such a contract will be a franchise agreement if the following conditions are met:

• The contract permits the counterparty to carry on business in Australia under either a 'system' or a 'marketing plan' that is determined or controlled, or even just 'suggested', by the franchisor or one of its associates;
• The contract requires that business to trade under the franchisor's brand. This brand may be owned by the franchisor, but does not need to be. It may itself use the brand under licence or have no interest in it at all, provided that it is a brand 'specified by' the franchisor. The business must be either 'substantially' or 'materially' associated with the brand; and
• Either:
• • a sum is payable before the franchisee starts business (ie, a sum that is not payment for goods and services supplied or interest on a loan provided), such as a franchise fee; or
  • nothing is payable upfront but a sum is payable for the right to continue trading, such as a monthly royalty fee (often expressed as a percentage of sales).

Regardless of whether the above conditions are satisfied, a dealer agreement between a car manufacturer or importer and its Australian dealer is, by definition, a franchise agreement and the relationship is thereby a franchise.

4.2 What are the key requirements that apply to franchising?

The key requirements that a franchisor must satisfy involve:

• disclosing information; and
• having a franchise agreement that complies with the Franchising Code of Conduct.

Information disclosure is through a disclosure statement. It must be:

• produced;
• updated at least annually; and
• provided to each prospective franchisee (and, when updated, to each existing franchisee).

A 'key fact sheet' must also be produced, maintained and provided to prospective franchisees. It must be provided in response to the initial inquiry, along with whatever marketing material the franchisor wishes to provide to convince that person to join the franchise.

The key fact sheet is very much a subsidiary form of information disclosure. It is nothing more than a summary of the disclosure statement, picking out the key facts pertinent to the franchise, set out in a form prescribed by the regulator, the Australian Competition and Consumer Commission.

The disclosure statement requires disclosure of all information relevant to the issues and questions set out in the annexure to the code. This information includes:

• details of the business history and qualifications of the people behind and associated with the franchise;
• estimates of the cost of establishing and running a franchise (including specific details of each cost);
• details of the intellectual property involved in the franchise;
• any litigation involving the franchise or those associated with the franchise (eg, officers, related entities and their officers), which encompasses proceedings and prosecutions that pre-date the set-up of the franchise, potentially by years;
• the contact details of each franchisee and former franchisee; and
• a summary of the key sections of the franchise agreement.

Finally, the franchise agreement must be compliant with the code. The code addresses termination, renewals, restraints and dispute resolution, and the franchise agreement must reflect that. Failure to comply constitutes a breach of the code and the Competition and Consumer Act 2010.

4.3 Is registration of the franchise agreement, a trademark licence or other documentation required?

There is no requirement to register the franchise agreement, trademark or any other documentation as such. That said, many franchise brands are registered trademarks and it is advisable to do so. Registration makes enforcement easier: unregistered marks may still be enforceable, but it depends on the franchisor using that brand for a sufficient period to garner a reputation.

A franchisor may also be in a better position when it sells the franchise with a registered trademark, rather than an unregistered trademark. A registered trademark is a listed asset, assisting due diligence; as such, its value may be greater than that of an unregistered trademark.

The franchise itself must be registered on the Franchise Disclosure Register (https://franchisedisclosure.gov.au). This registration is updated annually on 14 November. There is provision for uploading the franchise agreement and disclosure statement, but this is not required.

4.4 Are mandatory contract terms imposed?

There are a few significant mandatory provisions that all franchise agreements must include:

• a clause that addresses dispute resolution (which is confusingly referred to in the Franchising Code of Conduct as the 'complaint handling procedure'), consistent with Clauses 40A(1) to (4) in Division 3 of the code;
• a clause that provides for the compensation of the franchisee if the franchise agreement is terminated early because the franchisor withdraws from the market or rationalises its operations, which must specify the calculation of the compensation (Paragraph 46A); and
• a buy-back provision (or provision for the payment of compensation) covering any new road vehicles, spare parts and special tools bought by the franchisee where:
• • the franchisor withdraws from the Australian market or changes distribution model; or
  • the franchisor does not renew the agreement for an additional term.

Otherwise, the code does not require franchise agreements to include particular provisions. The code operates permissively, allowing the franchisor to include particular provisions. If included, the code sets out the essential contents of that clause or aspects that the clause must not contain. Provisions affected are those that deal with:

• the payment of the franchisor's legal costs;
• the jurisdiction for disputes;
• the dispute resolution process;
• the payment of the franchisor's costs of settling the dispute;
• termination;
• significant capital expenditure; and
• the use of marketing funds if franchisees are required under the franchise agreement to contribute to a marketing fund.

4.5 What specific activities (if any) are prohibited under the franchising laws and regulations? What are the potential consequences of breach?

• A franchise agreement may require the franchisee to pay the franchisor's legal costs for on-boarding the franchisee, but only if a fixed amount is specified and is stated as the amount for legal services relating to the preparation, negotiation or execution of the agreement (excluding any services after execution).
• A franchise agreement must not include a general release or waiver of rights against the franchisor.
• If the franchise agreement includes a jurisdiction clause for legal proceedings or arbitration, the jurisdiction specified must be the state or territory in which the franchisee's business is located.
• A franchise agreement must not include a clause requiring the franchisee to pay the franchisor's costs of any proceedings bought by the franchisee.

5 Initial steps

5.1 Are there any restrictions on foreign franchisors entering your jurisdiction?

No.

5.2 Are franchisors required to establish a local presence? If so, what is the most common corporate structure adopted by foreign franchisors entering your jurisdiction?

There is no requirement for foreign franchises to establish an Australian entity in order to operate a franchise in Australia. It is lawful for a foreign company (in this case, the foreign franchisor) to conduct business in Australia – which, in the context of franchising, involves it licensing and servicing the local franchisees. Foreign companies that conduct business in Australia in this way must register with the Australian Securities and Investments Commission as a foreign company under the Corporations Act 2001.

It is more common for foreign franchisors to enter the country by appointing a sub-franchisor, which discharges the role of franchisor vis-à-vis the Australian franchisees. If successful, this can be transitioned to the foreign franchisor establishing an Australian company to operate the franchise.

5.3 What requirements or restrictions apply with regard to the selection and recruitment of franchisees?

There are no formal requirements or restrictions on the selection of franchisees. Recruitment is governed by the general law, which prevents franchisors from engaging in misleading and deceptive conduct and unconscionable conduct (under the Competition and Consumer Act 2010). The former in particular has plagued franchising – especially where projected profit or sales figures are provided to prospective franchisees.

5.4 Are franchisees subject to any legal obligations when purchasing a franchise?

No, except the requirement to comply with the sale of business agreement concluded with the existing franchisee.

6 Disclosure and due diligence

6.1 What pre-contractual disclosure requirements apply to franchisors in your jurisdiction?

The Franchising Code of Conduct makes specific provision for franchisee recruitment. It requires the franchisor to provide each prospective franchisee with a key fact sheet on the prospective franchisee's first inquiry. A prospective franchisee cannot lawfully execute the franchise agreement or pay any amount to either the franchisor or an 'associate' of the franchise that is not refundable unless:

• the franchisor first provides the prospective franchisee with the franchising document package in the format requested by the prospective franchisee;
• the franchisor recommends that the franchisee seek legal, accounting and business advice; and
• the prospective franchisee is given at least 14 days to do that (although whether to seek advice is entirely up to the franchisee).

The franchising document package includes:

• the franchise agreement, in the form in which it is to be executed – which means that the agreement must be reissued and a further 14-day period must expire, unless the amendment involves:
• • a change requested by the franchisee;
  • the correction of errors;
  • the completion of particulars; or
  • minor clarifications;
• an updated copy of the disclosure statement;
• the key fact sheet; and
• if the franchise involves the leasing of premises and the franchisee is to occupy those premises under a sublease or licence from the franchisor or one of its associates, a copy of:
• • the lease (or a summary thereof); and
  • the disclosure statement (or a summary thereof) provided by the landlord.

Annexure 1 to the code sets out the information that the disclosure statement must set out, which largely covers:

• the details of the promoters of the franchise and their associates, including business background;
• the intellectual property used in the franchise and the arrangements under which franchisees use it;
• the existing franchisees and former franchisees;
• any litigation on foot or engaged in over the previous three years (involving not only the franchisor but also any promoter, director or associate);
• the cost of establishing and running a franchise (itemised, with good-faith estimates or ranges of cost), and how and to whom those costs are payable;
• the financials of the franchise, which requires:
• • a solvency statement setting out the basic financials if the franchise has operated in Australia for more than two years; or
  • a statutory declaration if it has operated for a shorter period, accompanied by audited reports or management accounts; and
• a summary of key aspects of the franchise agreement.

The disclosure statement must annex a copy of the code and the Information Sheet prepared by the Australian Competition and Consumer Commission (ACCC).

There is a continuing disclosure obligation added to the standard disclosure outlined above. A franchisor must immediately disclose to all existing franchisees and all prospective franchisees interested in joining the franchise all relevant information on the following developments since the last update to the disclosure statement:

• changes to the majority ownership or control of the franchisor or its associates that occur;
• any legal proceedings instituted or judgments handed down;
• any changes to the material intellectual property used in the franchise or its ownership effected; or
• any enforceable undertakings given to the ACCC.

It is common practice to set out these updates in a schedule to a franchisee-specific annexure to the disclosure statement.

6.2 What formal, substantive and procedural requirements apply with regard to the disclosure document in your jurisdiction?

The disclosure document must be signed by the franchisor or director of the franchisor, setting out the date on which it was prepared and headed with the following text in bold and upper case: "DISCLOSURE DOCUMENT FOR FRANCHISEE OR PROSPECTIVE FRANCHISEE."

It must reproduce the notice to franchisees specified in paragraph 1.1(e) of Annexure 1 to the code. There is no requirement that the ACCC disclosure statement template be used; however, this is a convenient document to populate, as it ensures completeness and compliance with the foregoing.

6.3 What pre-contractual disclosure requirements apply to franchisees in your jurisdiction?

Nothing in addition to the disclosures specified in question 6.1.

6.4 What are the consequences of any breach of the pre-contractual disclosure requirements?

Failure to comply with the pre-contractual disclosure requirements is a breach of the Franchising Code of Conduct; as this is a mandatory code under the Competition and Consumer Act 2010 (CCA), that failure constitutes a breach of that legislation, exposing the franchisor to prosecution and penalties. The maximum penalties for breach of the continuing disclosure obligation are:

• A$10 million or three times the benefit for body corporates; and
• A$500,000 for individuals.

All other pre-contractual disclosure breaches attract a maximum penalty of A$133,200.

The individual penalty will apply to:

• a franchisor that is a sole trader; and
• where the franchisor is a company, any person (including a director of a corporate franchisor) who is knowingly concerned in or otherwise an accessory to the franchisor's conduct.

If the court cannot determine the value of the benefit to the franchisor of the infringing conduct, the penalty could be as much as 10% of the annual turnover of the body corporate during the 12 months ending at the end of the month in which the contravention occurred.

In addition to prosecution, failure to comply compromises the enforceability of the franchise agreement against any franchisee affected.

6.5 What other due diligence should the parties undertake before entering into a franchise agreement?

Franchisors should conduct as extensive due diligence on prospective franchisees as possible to ensure the success of the franchise. This due diligence should include the business history of each director of the franchisee. A bankruptcy search should also be conducted on them. All of their previous companies should be examined to ensure that they were not made insolvent – not that insolvency is necessarily indicative of personal failure, but this is nonetheless an issue requiring exploration. The skills possessed by those involved in the business should also be examined to ensure that they will be able to conduct the franchise. Only so much can be taught in the short term and they cannot be expected to rely on employees to have these skills.

Franchisees should conduct extensive due diligence. The Franchising Code of Conduct requires a franchisor to receive a certificate of advice from a lawyer, accountant and business adviser (although it is permissible for franchisees to avoid this by signing an acknowledgement that the franchisor recommended that this advice be obtained but they chose not to do so). A prospective franchisee would be well advised to seek that advice. Essentially, a prospective franchisee should satisfy itself that the value delivered by the franchisor outweighs the cost of the franchise, in the form of:

• the upfront investment (ie, the franchise fee and fit-out costs); and
• the ongoing costs of operation (ie, any royalty or licence fee and contribution to the marketing fund).

Franchisees would be well advised to speak with other existing and preferably former franchisees as a source of information to interrogate questions of value. If the value does not stack up, a prospective franchisee would be better off starting a business under its own name.

6.6 Are there any restrictions imposed upon franchise brokers in your jurisdiction?

No.

6.7 Are franchisors permitted to provide pre-sale information on operational performance (eg, financial performance representations or earnings claims), or are such statements regulated or banned?

Franchisors may provide information on financial performance – even forecasts or likely profits. This is not advisable, however – especially not in the case of forecasts and likely profits, as that exposes the franchisor to allegations of misleading and deceptive conduct, actionable under the CCA. Misleading and deceptive conduct is a common cause of action in franchise litigation, where the franchisee has failed and seeks to recover its investment – possibly even lost profits – from the franchisor. If a franchisor does wish to disclose this information, the best way to do so is to use actual historical data – either of the franchised business in which the prospective franchisee is interested or an average of the state in which the territory is located – ensuring that:

• the data is current; and
• the period over which that data applies is stated.

This must be updated reasonably frequently, especially where the overall performance of the franchise declines (and that average is no longer accurate – this could be misleading even though strictly correct for the stated period). It is also advisable to include a warning the prospective franchisee that no other representations are being made.

If earnings are to be provided, the information must be correct in the manner outlined above.

The disclosure should further be in a manner that complies with the code, as follows:

• The franchisor must provide the information in:
• • the disclosure statement (most conveniently in a franchisee-specific annexure); or
  • a separate document attached to the disclosure statement.
• If the franchisor gives earnings information to a prospective franchisee before giving the prospective franchisee a copy of the disclosure statement, the franchisor must give the prospective franchisee a further copy of the same earnings information in the disclosure statement or an attachment thereto.
• The disclosure statement must contain the following statement: "To the best of the franchisor's knowledge, the earnings information given is accurate (other than particular earnings information specified in the document as earnings information that the franchisor knows is not accurate)."

7 Franchise agreement

7.1 What formal, substantive and procedural requirements apply with regard to the franchise agreement in your jurisdiction? Are there any mandatory terms? What terms are typically included in the agreement?

The mandatory terms are addressed in question 4.4. Few provisions are prohibited by the code, but there are some, including:

• the inclusion of a general release or waiver; and
• the right to vary the franchise agreement unilaterally or retrospectively (refer to question 8.3 for a discussion of unilateral changes to the operations manual, which will raise issues in this regard).

Franchise agreements commonly address the following issues:

• the appointment of the franchise to the territory – essentially the licence to operate the franchised business;
• the extent of exclusivity that the franchisee enjoys in its territory;
• the conditions precedent that must be satisfied before the agreement commences, particularly the provision by the franchisee of:
• • the certificates required by law; and
  • signed deeds of guarantee and indemnity, deeds of confidentiality (where the franchisee is a company) and non-compete undertakings;
• the term and renewal;
• the use of the franchise trading name and brand;
• the location of the franchise within the territory;
• fit-out and maintenance;
• signage;
• relocation;
• compliance with the operations manual;
• operating hours;
• staffing;
• training;
• product offering;
• product quality;
• sourcing of products and/or ingredients or components;
• computer systems and communications;
• marketing obligations, including compliance with the franchisor's initiatives and local efforts;
• any marketing fund;
• the fees payable and other financial obligations, such as insurance;
• record keeping and provision of records, often including an obligation to provide management accounts quarterly or half-yearly and tax returns;
• customer complaints;
• business sale;
• termination and post-termination obligations, including restraints of trade; and
• dispute resolution.

7.2 Do any specific requirements apply regarding the governing law or jurisdiction of the franchise agreement?

Disputes must be litigated in the state or territory in which the franchisee trades or operates. The Franchising Code of Conduct says nothing about the selection of the governing law. Common law principles do require a connection between the parties and the jurisdiction, however. It is common for the proper law and the jurisdiction for dispute resolution to be the same, but there is no need at law for that to be the case.

7.3 Does the franchisor have any mandatory rights and obligations under the franchise agreement?

See question 4.4.

7.4 Does the franchisee have any mandatory rights and obligations under the franchise agreement

See question 4.4.

7.5 What restrictions can the franchisor impose on the franchisee's activities under the terms of the franchise agreement (eg, purchasing requirements, non-compete obligations, exclusivity, price control)?

There is an overarching prohibition against unfair contractual provisions set out in the Competition and Consumer Act 2010. The inclusion of unfair contractual provisions in contracts that qualify was recently made an offence with significant penalties. It is beyond the scope of this FAQ to examine the application of the laws on unfair contract terms, save to say that these laws will apply to most franchises. Unless these laws are breached (assuming they apply), though, the franchisor is free to impose:

• restrictions on where and from whom products/ingredients/components may be acquired (the franchisor may require that these be bought from the franchisor itself or – more commonly – from approved suppliers);
• requirements that the franchisee not be involved in any way in any other businesses, with corresponding commitment obligations on the manager;
• requirements that key people not have any other jobs or be involved in any other business and/or devote a minimum number of hours a day/week to the franchise;
• post-termination restraints of trade on the franchisee and its officers (effected through corresponding deeds) – although the effectiveness of the restraints depends on compliance with rather exacting common law principles; and
• some limited price controls, particularly on the franchisee's ability to charge a higher price than the price the franchisor advertises, whether during a campaign or on an ongoing basis.

Australian competition law prohibits resale price maintenance. A franchisor, thus, cannot specify the price or a minimum price (including the prohibition of discounting) where the goods or services sold by the franchisee are supplied by the franchisor.

7.6 Is there a duty of good faith imposed upon the franchisor and franchisee?

A duty of good faith is imposed on both the franchisor and franchisee. Although it is not entirely settled in Australian law, this duty is implied into commercial contracts as a matter of common law. The requirement to act in good faith is, as a result, a contractual obligation under the franchise agreement, on this basis alone. The Franchising Code of Conduct complements that by expressly requiring the parties to act in good faith (Division 3). What that entails is not entirely clear, as the code relies on the 'unwritten law', which is the common law principles to which reference was just made. What is clear is that the parties must not act in bad faith. The code populates the duty slightly by requiring the court to consider:

• the honesty and arbitrariness of the conduct; and
• whether the party cooperated to achieve the purposes of the agreement (Paragraph 6(3) of the code).

The obligation to act in good faith also applies to a person wishing to become a franchisee in respect of:

• any dealing or dispute relating to the proposed agreement;
• the negotiation of the proposed agreement; and
• the code.

Franchise agreements cannot exclude the obligation to act in good faith (Paragraph 6(4) of the code). Other commercial contracts permit the express exclusion of the good-faith duty and, if clear, have the effect of preventing the implication (in terms of an implied duty read into the contract by the court) of that duty. However, that is specifically prohibited in the case of franchising.

7.7 What are the parties' rights and obligations in relation to renewal of the franchise agreement, and what is the process for renewal?

There is no obligation for the franchise agreement to include provisions entitling or even addressing renewal. It is possible for a franchisee to sign up for a designated term only, although this is not common in Australia.

If the franchise agreement does provide for renewal, it is simply a question of the parties complying with the terms of the franchise agreement dealing with renewal. Often, this involves the franchisee providing written notice within time indicating an intention to renew. Many franchise agreements require the franchisor to renew (by entering into a fresh contract in the then current form) if certain conditions are met, including that the franchisee is not in breach.

The same disclosure obligations apply to the renewal of a franchise agreement as apply to the initial execution. That requires the franchisor to provide, at least 14 days before the renewal date, a copy of:

• the franchise agreement (in a condition ready for execution, save for minor exceptions);
• the updated disclosure statement, together with a copy of the code;
• an updated key fact sheet; and
• if the franchisee is to sub-let the premises from the franchisor (or an associate), a copy of:
• • the lease (or summary); and
  • the landlord disclosure statement (or summary).

The principal difference from on-boarding a new franchisee is that there is no need for the franchisor to obtain a solicitor's certificate or accountant's certificate evidencing advice provided to the franchisee.

There are also no cooling-off rights on renewal. When the franchisee first signs up, it has 14 days after execution to terminate the franchise agreement without cause. This is the cooling-off period; but it does not apply on renewal.

7.8 What formal, substantive and procedural requirements apply with regard to termination of the franchise agreement in your jurisdiction?

Franchise agreements almost always include termination provisions permitting termination for breach, in addition to the franchisee's cooling-off rights. The code regulates the terms of these clauses. Division 5 addresses the subject, providing for:

• the cooling-off rights, which if exercised require the franchisor to repay all amounts paid to date by the franchisee (save for the amount it is permitted to retain to cover its reasonable expenses incurred);
• termination for breach by the franchisee;
• termination without cause;
• termination on prescribed grounds; and
• termination by consent.

A franchisor may terminate without cause if the franchise agreement makes provision for this form of termination. This is permissible, however, only if the franchisor provides reasonable notice. What is 'reasonable' will depend on:

• the nature of the franchise; and
• the investment made by the franchisee.

The period that a franchisee has been in the franchise is irrelevant. Just because a franchisee has operated a store for 10 years does not mean that the franchisor must give it more than 30 days' notice of termination.

The franchisor's overarching obligation to act in good faith must be considered. Franchisors may terminate where they:

• rationalise their operations;
• change their distribution model (eg, by converting from third-party distribution to company-owned stores); or
• withdraw from the market.

In such cases, however, the franchisor must compensate the franchisee. Franchise agreements rarely address this, but in order for the franchisee to terminate on these grounds without cause, the franchise agreement must provide for the payment of compensation and the calculation of the amount payable, which must address:

• lost profits;
• unamortised capital;
• loss of opportunity; and
• the costs incurred in winding up.

A failure to comply not only prevents effective termination, but also exposes the franchisor to a penalty of as much as A$500,000.

It is unclear whether compensation is adequate unless the franchise agreement provides for a sum equal to the then-current market value of the franchise. It can certainly be argued that the current market value incorporates lost profits, unamortised capital and loss of opportunity – possibly even the costs incurred in winding up, but even that is not certain and has not been tested in court.

The code specifies notice requirements. Termination for breach requires the franchisor written setting out the breach and what the franchisee must do to remedy that breach. A deadline for remedying the breach must further be specified, which must be at least 30 days.

Termination must not take effect for 28 days if the franchisee refers the termination for dispute resolution, under either the alternative dispute resolution provisions of the code or corresponding provisions in the franchise agreement.

The code permits termination with seven days' notice on the following specified grounds:

• The franchisee is insolvent;
• The franchisee is deregistered;
• The franchisee has voluntarily abandoned the business;
• The franchisee has been convicted of a 'serious offence';
• The business has been operated in a way that endangers public health or safety; or
• The franchisee has acted fraudulently.

A franchisor may terminate on any of the above grounds, but only if the franchise agreement includes a termination provision permitting this (as many Australian franchise agreements do).

The code was recently amended to allow a franchisee to propose termination to the franchisor. This is not a right of termination as such, but it can nevertheless force a termination.

The franchisee must set out its reasons. Australian franchise agreements rarely contain provisions that deal with this form of termination. The code requires the franchisor to:

• consider the proposal in good faith; and
• respond in writing within 28 days.

A franchisor is in no way obliged to consent to the termination as a rule. However, a franchisor may be prevented from refusing if the conditions are right. If the franchisor does not consent, it must state the reasons therefor. Again, the franchisor's duty to act in good faith impinges on its freedom to refuse a termination request. If it would be unreasonable to refuse the termination request (and the franchisee can assess this from the reasoning provided by the franchisor), the franchisor must agree to termination on the terms proposed.

7.9 Are there any restrictions on repatriating funds out of your jurisdictions?

Repatriating money to an overseas franchisor is generally not regulated. There is an exception where the company seeking to repatriate is related to the overseas recipient. This therefore applies to an overseas franchisor that sets up a local subsidiary to run the local operation. Where that is the case, the transfer must be at arm's length. The point is to avoid shifting profits overseas to avoid paying tax in Australia. This can happen where prices are unrealistically high. These businesses are open to an Australian Taxation Office audit.

7.10 Are there any withholding taxes that apply to franchising in your jurisdiction (not including the effect of double taxation treaties)?

Generally, a franchisee making royalty and interest payments to non-resident franchisors must withhold a flat rate of:

• 30% from the gross amount of a royalty payment; and
• 10% from the gross amount of an interest payment.

Where there is a tax treaty agreement with the non-resident's country of residence, the withholding rate specified in the tax treaty applies.

8 Operational standards

8.1 What legal status does the operations manual have in your jurisdiction?

Technically, the operations manual has no legal status. It is generally given effect by including an obligation in the franchise agreement for the franchisee to comply with the operations manual, as amended from time to time. A failure to comply represents a breach of that obligation, permitting the franchisor to employ whatever remedial measures are available to it under the franchise agreement, including termination – although only where:

• the breach is material; and
• termination is not otherwise unconscionable.

This means that the drafting of the operations manual is critical, as it must be clear:

• what is required of the franchisee; and
• when there is no compliance.

Poor drafting will almost necessarily result in dispute.

8.2 How can the franchisor ensure compliance with its operational standards during the term of the franchise agreement?

Securing compliance with the operational standards depends on:

• the measures available to the franchisor in the franchise agreement; and
• the effectiveness of the franchisor's contract management.

The only measure in many franchise agreements that may be employed when franchisees become non-compliant is the issue of a breach notice, encouraging compliance under threat of imminent termination should the franchisee fail to comply with the breach notice. The Franchising Code of Conduct requires a breach notice to set out:

• the breach;
• the measures required by the franchisee to remedy the breach; and
• the period within which the remedy must be effected.

Better-drafted franchise agreements give the franchisor more options to achieve compliance more effectively. The gold standard includes project management measures, where non-compliance results in an agreed management plan requiring compliance. This allows the franchisor to performance-manage the franchisee.

Well-drafted franchise agreements also allow franchisors to 'step in' and take over the business. This may be necessary to protect the goodwill of the brand where the non-compliance is sufficiently serious. This can be used as a short-term fix or as part of a longer-term plan.

8.3 Can the franchisor make unilateral changes to its operational standards during the term of the franchise agreement?

Yes, if the franchise agreement provides for it. Operations manuals are amended from time to time to address changes in circumstances. A franchisee that is obliged to comply through a provision in the franchise agreement must comply with the manual and any changes of which it is advised. The franchise agreement should make provision for changes and when those changes come into effect.

As an aside, the Franchising Code of Conduct prohibits unilateral amendment of the franchise agreement. However, the franchise agreement is not amended by a change to the operations manual; the obligation remains the same – to comply with the operations manual. Each change, however, must be summarised in the annual update of the disclosure statement.

9 Intellectual property

9.1 How are brands protected in your jurisdiction and what specific implications does this have in the franchising context?

A brand that is a trademark may be registered on the Trademarks Register. As the owner of a registered trademark, the franchisor can enforce its rights of exclusive use (of that and any similar marks) granted under the Trade Marks Act. A device brand also has protection as copyright under the Copyright Act.

A brand need not be registered, however. First, there is no requirement for registration. Second, a brand may be protected from abuse if it has been in use for some time. A history of use is the foundation of a cause of action in passing off and breaches of the Competition and Consumer Act 2010 (misleading and deceptive conduct).

9.2 How are other intellectual assets of the franchisor (eg, know-how, trade secrets) protected in your jurisdiction and what specific implications does this have in the franchising context?

Franchises sometimes involve designs, patents and trade secrets. Protection is most effectively provided by secrecy – that is, not disclosing the information unless necessary and then only under a deed of confidentiality. There is legislative protection for registered designs, preventing the use of a registered design. However, that protection is limited. Patent protection is similar to that in most Western countries, where letters patent must be granted; once granted, the franchisor may prevent use and sale of the patented system or invention. There is no statutory regime for the protection of trade secrets in Australia. Instead, the equitable doctrine of breach of confidence is used to protect these secrets – unless there is a confidentiality deed in place, in which case that may be enforced to provide protection. The franchisor, however, loses the ability to do so if the trade secret is not in fact secret; thus, maintaining secrecy is critical.

10 Employment

10.1 What is the applicable employment regime in your jurisdiction and what specific implications does this have in the franchising context?

Fair Work Act: The Australian Parliament addressed this with an amendment to the Fair Work Act (FWA), making franchisors potentially liable for franchisee infractions of the labour laws.

Under Section 588B of the FWA, a franchisor can be fined and/or sued for:

• a franchisee's failure to comply with an award which sets minimum rates of pay for various categories of workers. A perennial issue in franchising is the underpayment of workers by franchisees, especially in franchised industries with tight margins and casualised labour forces. A good example is the hospitality industry;
• a franchisee's failure to comply with national employment standards;
• a franchisee's failure to keep adequate records and issue payslips; and
• sham contracting – that is, making someone an independent contractor when they are really an employee.

Franchisors can avoid penalties for franchisee infractions by putting a plan in place to protect themselves. This is addressed by the operations manual requiring the franchisee to:

• check that its employees are legally allowed to work in Australia and keep immigration records to confirm this;
• pay its staff correctly and comply with the act and all award provisions that apply; and
• provide a signed confirmation notice to the franchisor each quarter declaring that it is compliant with the above points.

The franchisor must also conduct random audits of its records and speak with employees to ensure the franchisee complies with the above to qualify for the statutory dispensation from penalties. It is recommended that this take place annually.

The franchisor must ensure that compliance notices are received and, if not, must contact franchisees to obtain them. If there is any hint that a franchisee is not compliant, the franchisor should audit the business and insist that the franchisee commence complying.

The franchise agreement therefore needs to make provision for the conduct of audits and for remedial action if an audit reveals non-compliance. Failure to make provision leaves the franchisor exposed to claims under the FWA. The franchise agreement should provide further that non-compliance may be addressed by the franchisor offsetting any obligations the franchisee has under the award against what the franchisor would otherwise have to pay that franchisee.

An audit should also be conducted before any franchisee leaves the network to assess:

• whether there has been an infraction; and
• if so, the amount that the franchisee may owe.

It follows that the franchisor is exposed for the same amount. An audit allows the franchisor to be prepared. Ideally, the franchise agreement should permit the withholding of funds to satisfy that exposure; but, it does depend on how well drafted the franchise agreement is.

10.2 Can franchisees be deemed to be employees of their franchisor?

Yes, but only if the franchise appointment is in fact an engagement to provide services and not to operate a business under the franchisor's brand.

11 Competition

11.1 What is the applicable competition regime in your jurisdiction and what specific implications does this have in the franchising context?

The Competition and Consumer Act 2010 (CCA) is the governing statute on these issues. It principally provides for competition violations and consumer protection. Any of these issues could apply in franchising. Typically, the following competition issues arise in the franchise sector:

• resale price maintenance, which prohibits a franchisor from preventing franchisees from discounting goods or services that the franchisor supplies to them for resale;
• price fixing, which prevents competitors from agreeing on the price they charge, which can arise in franchising if the franchisees reach agreement; the franchisor's knowledge of this could result in the franchisor being an accessory; and
• third line forcing, which involves supplying goods or services on the condition that the customer (ie, the franchisee) buys goods or services from a third party. This is now rarely an issue, as the CCA was amended to make this conduct unlawful only if it substantially lessens competition, which almost never occurs in this space.

12 E-commerce

12.1 How is e-commerce regulated in your jurisdiction and what specific implications does this have in the franchising context? Can franchisees be prohibited from using e-commerce in their businesses?

Transactions undertaken or completed electronically are given effect by a suite of Commonwealth and state acts. The foundation is the Electronic Transactions Act 1999 (Cth). This is replicated in each state by corresponding legislation, such as the Electronic Transactions Act 2000 No 8 (New South Wales). The Commonwealth act applies when the state legislation does not. This legislation effectively validates transactions effected electronically.

The Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010 is an overarching piece of legislation, in that it applies generally to all business. It imposes consumer guarantees on the goods and services provided, even when delivered virtually. Defective goods and services are protected. This applies in business-to-business transactions worth up to A$100,000.

The Australian Consumer Law also governs how those goods and services are marketed. It includes a prohibition on any company (whether in Australia or overseas) misleading Australian consumers. Electronic marketing that constitutes spam falls under the Spam Act 2003. This prohibits the sending of '"unsolicited commercial electronic messages" by email, SMS, multimedia message service or instant messaging without the consent of the recipient. The Spam Act requires a marketer to:

• obtain permission from the recipient;
• identify itself as the sender (including its contact details); and
• make it easy to unsubscribe.

There is a possible 'out': consent may be inferred consent, which can occur where:

• the data subject has knowingly and directly provided his or her email address; and
• it is reasonable to believe that he or she would expect to receive marketing from your business.

This obviously does not protect cold email outreach, but may afford protection if you collect emails through online contact forms and the like.

The Privacy Act 1988 has general application. It obliges you to protect your customers' personal information and not misuse it. Consent is central to the regime. You are permitted to use the information you collect for the purposes for which it is provided and for which consent has been given. Obtaining consent to use information – even for the purposes of delivering a service for which a customer contracts you – is important. Commonly, marketers that collect personal details will obtain at the point of collection consent to use the information for marketing and further consent to the disclosure of that information to those affiliates and contractors needed to effect the marketing. Information must not be moved offshore without consent.

13 Consumer protection

13.1 What consumer protection measures are applicable in your jurisdiction and what specific implications do these have in the franchising context?

The Competition and Consumer Act 2010 (CCA) includes consumer protection provisions, which apply to franchisors and franchisees. The principal issues that arise in practice are as follows:

• misleading and deceptive conduct – particularly in the recruitment of franchisees, often when representations are made regarding likely profits;
• unconscionable conduct – particularly where the franchisor engages in conduct that might be considered unfair and unreasonable and which is unnecessary for the adequate protection of the franchisor's legitimate interests. Examples include:
• • seeking a sizeable fit-out fee and retaining it for over a year without delivering a site (ACCC v Campbell] [2019] FCA 886); and
  • terminating a franchise where it is unreasonable in all the circumstances, particularly where the franchisor has an ulterior motive for terminating (Burger King Corporation v Hungry Jack's Pty Limited (2001) 69 NSWLR 558); and
• unfair contract terms – that is, provisions that are manifestly unfair and unnecessary.

13.2 Are franchisees covered under any of these consumer protection measures?

Franchisees are covered by all of the consumer protection measures in the CCA. In addition to those noted in question 13.1, franchisees must comply with the consumer guarantees provided for in the CCA. These were previously implied warranties in consumer contracts but are now statutory guarantees in respect of which consumers may seek redress for defective goods or services. The guarantees are as follows:

• Goods must be of acceptable quality (which is the analogue of the old 'fit for purpose'); and
• Services must be provided with all due care and skill and any goods used in connection with the delivery of those services must be fit for purpose.

A common trap for franchisees is the inclusion of a provision in standard terms that excludes liability. This is both illegal and unenforceable, unless it expressly excludes (from the liability exclusion) liability under the statutory guarantees. Liability under these guarantees cannot be limited in any way, unless the supplier falls under an exception that could apply to franchises; these apply only if they operate in the business-to-business space, where the goods or services they supply are not of a kind normally bought for personal or household use.

14 Data security and cybersecurity

14.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have in the franchising context?

A business covered by the Privacy Act must also report 'notifiable data breaches' – an ever-present risk in e-commerce. This requires compliance with the Notifiable Data Breaches Scheme. A data breach that involves personal information and is likely to cause serious harm to a person must be notified to both that person and the Office of the Australian Information Commissioner – the latter through the prescribed form. There have been many recent examples arising as a result of a spate of cyberattacks which have exposed customer data to the Dark Web.

14.2 What cybersecurity obligations are applicable in your jurisdiction and what specific implications does this have in the franchising context?

The regime described in question 14.1 obliges any business to which it applies (including franchisors and franchisees) to notify both that person and the Office of the Australian Information Commissioner of a notifiable data breach.

15 Disputes

15.1 In which forums are franchising disputes typically heard in your jurisdiction (ie, courts or arbitration)?

Franchise disputes can be heard in any court or tribunal. There are three tiers in the state and territory courts in Australia:

• the magistrates court (lowest);
• the county court; and
• the supreme court.

Although the names of the courts may differ from state to state, each state and territory has the same hierarchy.

Each court has a different jurisdictional cap, so the court in which a franchise dispute is litigated will depend on the size of the claim.

Franchisors and franchisees also have the option of the low-cost tribunals in each state and territory. The tribunal in Victoria is the Victorian Civil and Administration Tribunal. It has jurisdiction over standard commercial disputes, in addition to its more specialist jurisdiction (eg, domestic building disputes and immigration applications). This option is frequently used by franchisees on account of the cost. It is a low-cost jurisdiction: fees are lower and, more importantly, lawyers are often excluded. It is possible for reasonably sophisticated franchisees to run the matter themselves (without a lawyer), which is likely to mean that an unsuccessful application will not attract an adverse costs order. This makes pursuing a claim an attractive proposition and one that is used by many franchisees.

Alternatively, litigants can issue in the Federal Court (set up by the federal legislation), as a breach of the Franchising Code of Conduct represents a breach of the Competition and Consumer Act 2010, a Commonwealth statute, giving the Federal Court jurisdiction. Appeals will be to the Full Court of the Federal Court.

Arbitration of franchise disputes is also possible. However, this happens only where the franchise agreement permits arbitration as an option for dispute resolution. Where that is the case, the franchise agreement will set out the process. The code provides an alternative process where the franchise agreement permits arbitration, allowing the parties to use either process. That said, very few franchise agreements provide for arbitration.

15.2 Is mandatory non-binding mediation commonly used in franchising in your jurisdiction?

Mediation is available but is not mandatory. The Franchising Code of Conduct does not itself prevent legal proceedings before mediation takes place (paragraph 37). Many franchise agreements do prevent legal proceedings but this has no effect if the franchisee pursues mediation under the code.

15.3 Is arbitration in your jurisdiction subject to any special requirements? Is your jurisdiction a party to the New York Convention?

No.

15.4 Can class actions be brought in your jurisdiction? If so, what specific implications does this have in the franchising context?

There can and have been class actions against franchisors. In Australia, class actions are heard in the Federal Court and the state supreme courts. To commence a class action, the following criteria must be met:

• At least seven franchisees must have claims against one franchisor or company within the franchisor's group of companies;
• The claims must arise out of the same, similar or related circumstances; and
• The claims must give rise to substantial common issues of law or fact.

15.5 Have there been any recent cases of note?

• 7-Eleven was sued by a group of franchisees. The case was settled in August 2021 by 7-Eleven agreeing to pay A$89 million in compensation. The case involved an allegation of misleading and deceptive conduct in 7-Eleven's pre-contractual disclosures habitually made to prospective franchisees concerning the rebates received and the use of those rebates.
• Mercedes Benz was sued by 38 dealers in a class action over its decision to move to a fixed-price agency sales model, under which Mercedes Benz could set the price at which dealers sold vehicles (which is prohibited in the franchise model under competition law as resale price maintenance). The case was based on unconscionable conduct and breach of the obligation in the Franchising Code of Conduct to act in good faith; the dealers argued that this would dramatically reduce their profits and wipe out years of goodwill with customers.
• Domino's was sued by disaffected employees of Domino's franchisees over its incorrect direction of its franchisees to pay workers according to workplace agreements it had struck with the fast-food union rather than the award rate, which resulted in those workers earning significantly less than the minimum wage.

16 Trends and predictions

16.1 How would you describe the current franchising landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Australia, along with New Zealand, is the most active franchise market in the world. Many successful small to medium-sized businesses consider franchising as a way of expanding. As a result, new franchises appear regularly.

Franchising has therefore for some time been the target of the Commonwealth Parliament as an area in which franchisees are open to exploitation. This has resulted in regular changes to the Franchising Code of Conduct, strengthening the protections available to franchisees – including:

• the provisions that may be addressed in the franchise agreement;
• the extent of information disclosure; and
• the clarity with which that information is disclosed.

There is every sign that this trend will continue.

17 Tips and traps

17.1 What are your top tips for franchisors seeking to enter your jurisdiction and what potential sticking points would you highlight?

• Franchising is highly regulated in Australia, so any franchisor seeking to enter the Australian market must familiarise itself with the Franchising Code of Conduct.
• The franchise agreement that the overseas-based franchisor is using can be repurposed for use in Australia, but it must be reviewed for compliance with Australian law – particularly the requirements of the code.
• Franchisors are unlikely to be able to repurpose any disclosure document that they are using in their home market to satisfy their disclosure obligations in Australia, although there are exceptions. For example, even though New Zealand does not have a mandatory requirement to issue a disclosure statement (unlike Australia), voluntary industry codes that many franchises comply with provide for disclosure in a similar form. Even where disclosure is otherwise required, the information differs markedly from that required in Australia. In most cases, the franchisor should be prepared for local lawyers to create a specific disclosure statement for the Australian franchise and have that updated annually.
• Depending on the industry, the economic conditions and the nature of demand differ – sometimes significantly – from state to state, so local knowledge of these conditions is advantageous when selecting territories and appointing franchisees.
• Franchising is highly regulated and part of that regulation involves mandatory waiting periods, during which actions, such as the execution of franchise agreements, must not take place. Failure to comply with these waiting periods will threaten the enforceability of your franchise agreement and may result in penalties under the Competition and Consumer Act 2010. Advice on compliance is therefore critical.
• The success of franchises often depends on managing franchisees efficiently and effectively. Among other things, this requires transparency and diligent monitoring of performance. It is possible to run a franchise from overseas, but having a local presence in some form to undertake this management is critical. A franchise agreement that correspondingly contains provisions facilitating that transparency and contract management is needed – features that an overseas franchisor may not include in the franchise agreement it uses, as the same need may not be present in its home jurisdiction.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.