New Decision Favours Franchisors

On 27 August 2008 the High Court of Australia overturned a decision of the New South Wales Supreme Court of Appeal relating to the interpretation of the Franchising Code of Conduct.

In the matter of Master Education Services Pty Ltd v Ketchell the issue concerned the Code's requirement that a franchisor obtain written acknowledgment that disclosure documentation and a copy of the Code has been provided to a prospective franchisee.  In this case the High Court ruled that a failure by a franchisee to comply with the obligation to provide a written confirmation on receipt of the documentation and acknowledgment of an understanding of the documentation, did not render the franchise agreement void and unenforceable. 

Whilst the decision turned on the requirement to obtain a written statement, the reasoning of the High Court would seem to rule out other breaches of the Franchising Code, including a failure to provide a disclosure statement, automatically causing a contract to be void and unenforceable.  Instead the remedies for non-compliance with a provision of the franchising code of conduct will depend on the circumstances of each case.  Those remedies could include a court ordered termination of the contract but may also include damages, variation to the contract and injunctions.

This decision will give comfort to franchisors who previously faced the prospect that an error in their documentation process could cause their franchise agreements to be unenforceable.  Franchisees will continue to have the benefit of the wide range of remedies available under the Trade Practices Act for non-compliance but will not automatically find contracts unenforceable.

 For further information please contact Lynette Reynolds

T  (07) 3292 9735

E  This e-mail address is being protected from spambots. You need JavaScript enabled to view it