Call For Legal Clarification On Franchises

The Australian:

Just as big business is warning the Rudd Government to freeze spending for 3 years, a significant business association is calling for a government helping hand to clarify a legal decision with uncertain consequences.

The Franchise Council of Australia, which represents franchisors, that are often bigger small businesses, and franchisees, many of which are micro-businesses, is worried that a court decision might end up burning thousands of businesses.

And this is a $150 billion industry with nearly 1000 franchise systems, contributing to 14% of Australia’s GDP.

FCA executive director Steve Wright is concerned about the wider implications of the decision of the NSW Court of Appeal in Ketchell v Master Education Services Pty Ltd.

‘The FCA chose to get involved in this issue only after it had been through its third court process - NSW Court of Appeal - and because of its sector-wide implications, for both franchisors and franchisees,’ he says. ‘The FCA is not buying into the argument between Ketchell and Master Education Services, it is buying into the Court of Appeal decision, because of its potential ramifications for the whole sector - franchisors and franchisees.’

The stoush between Jean Ketchell, the franchisee, and Master Education Services, the franchisor, was decided on by the NSW Court of Appeal.

It found that the relevant franchising contract was illegal because the franchisor had not obtained a signed certificate from the franchisee that said the Franchising Code of Conduct was fully understood.

The code says a franchisor must not enter into a franchise agreement unless the prospective buyer has signed a statement saying they had ‘received, read and had a reasonable opportunity to understand’ a copy of the code. Read on…