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Published: 07-Mar-2018 Last Edited: 10-Mar-2018

For the purpose of protection and consumers there are many acts that have been formulate in all countries. The following paper throws light on the Franchising Code of Conduct and Competitor and Consumer act, which has been developed for the purpose of fair trading and protecting customers (Latimer, 2012). The paper explains in detail the acts, their functioning and the changes that have been made in their functionality. Along with this some recommendations are also proposed for making a positive change in the acts and improve its impact and functionality

Competitor and Consumer act, 2011

Competition and Consumer Act came into being in January 1, 2011. This act was also known as Trade Practices Act, 1974. This act is administered by Australian Competition and Consumer Commission (ACCC), which is an authority of the Australian Government formed with the amalgamation of Australian Trade Practices Commission (TPC) and Prices Surveillance Authority. The act's main purpose is to protect the consumers by promoting competition and fair trade.

This act also aims at better relationship amongst the various members of the supply chain- suppliers, wholesalers, retailers, competitors and customers. This act includes those people that are involved in act of doing business outside the national boundaries (Asbill & Goldman, 2001). The Competition and Consumer Act has established four organizations viz- Australian Competition and Consumer Commission, National Competition Council, Australian Competition Tribunal, Australian Energy Regulator.

Franchising code of conduct

The franchising code of conduct came into being in July, 1998 to regulate the Australian franchise sector. This encouraged the franchisers to work under the expert team with franchising experience. The idea of the act is to make sure that the members behave in cordial and fair manner with each other. This also aims at disclosure of various documents by all the franchisors- a disclosure document, a copy of franchise agreement, and the dispute resolution procedures for the franchisees and franchisors (Latimer, 2012).

This act led the franchisers stay in peace by freeing them from the burden of getting prior-registration, they were now only asked to follow the compliance. The amendment in the act was made three times before the final law came into being in July, 1988. Anyone found guilty of breaching the franchising code of conduct act leads to punishment as per the law.

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Importance of Competitor and Consumer act, 2011

The importance of Competitor and Consumer act, 2011 lies in the fact that this act aims at providing equal opportunities to all the businesses irrespective of its size, thereby promoting and emphasizing fair competition. As per this act, a business gets freedom of taking private actions. This law provided the following advantages:

  • Let the businesses compete fairly.
  • Collective bargaining to the small businesses.
  • Protection against misleading conduct.
  • Not letting the big players fixing prices for a product.
  • Protection against market sharing agreement (Malbon & Bishop, 2006).
  • Protection towards customers against unfair trade practices.
  • Immunity from legal actions.
  • Protection towards customer guarantees.
  • Check limitation and prevention of competition (Malbon & Bishop, 2006).

All the above points clearly states the important role of the act for the businesses. This act not only provides protection to the small manufacturers or business holders but also to the consumers. They do so by giving specific set of customer guarantees, which he gets as soon as he buys the product. The consumer can approach the any member across the supply chain-seller, manufacturers, wholesaler, and retailer etc to get the product rectified. The rest depends upon the members about what is basically needs to be done by them to the product (Loewinger & Lindsey, 2006).

The act's main purpose remains the same, which is checking the limitation and prevention of competition by not letting the suppliers, manufacturers and many others indulging in the activity of price fixing, producing unacceptable quality product, produces demonstration model and supplied within unreasonable time.

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Importance of franchising code of conduct

The franchising code of conduct helps in protecting the franchising members against each other by asking the franchisor and the franchisee to disclose certain factors and facts set certain set procedures in transactions and dealings (Giddings, Frazer, Weaven, & Grace, 2009).The main importance of franchising code of conduct act lies in three main areas:

  • Making of the franchise agreements.
  • Procedure for ending franchise agreement.
  • Steps for resolving franchising disputes (Giddings, Frazer, Weaven, & Grace, 2009).

Secondly, this also helps in ending the franchise agreements under some circumstances which may be the breach of agreement details by the franchisee, before the expiry other certain reasonable reasons and some special circumstances like- bankruptcy, serious offense by the franchisor etc. ( Giddings, Frazer, Weaven, & Grace, 2009).

Thirdly, this act gives the specific set of procedures to be followed at the time of disputes in between franchisor and the franchisee. The act says that dispute should primarily be resolved in between the parties. In the absence of any conclusion between them within next three weeks, those parties should allow a third party intervention in order to resolve the dispute.

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Safeguards Provided

Competitor and Consumer Act and Franchising Code of Conduct helps in solving numerous problems prevailing in the market.

The Competitor and Consumer act helps in checking the Anti- competitive behavior and this purpose can only be solved if the businesses understand the various terms and conditions, acts as per the laws etc during transactions (Outhred, 1998). Section 45 prohibits contracts, agreements or understandings which are meant or leads to lessen the competition in the market.

Promote Formation of cartels (grouping with the competitors) so as to decrease the competition through cartel conduct which leads to fixation of price rather than competitive pricing, sharing markets amongst the competitors, setting bids before the actual bidding by the suppliers etc. (Davis, 2005). Provides a power of collective bargaining wherein the competitors negotiate together with the supplier or any other in lieu of selling a product or buying a product.

Act also checks on “exclusive dealings” wherein one party imposes certain restriction on another while transactions of goods and services. Imposes a minimum resale prices, which means that a supplier cannot force the reseller to fix a particular price for the product below which he cannot sell a product. Reseller is free to sell, display, or advertise at any price (Davis, 2005).

Making the possession of the market unlawful. So that the companies do not make misuse of the power or take undue advantage of it. Protecting from predatory pricing, in which any company tries to gain leadership through lowering down the prices to reduce competition (Davis, 2005). Stopping price signaling which means the act of companies of disclosing prices to competitors or disclosing information to them.

Checking on refusal terms and conditions to supply products or services. This is done by checking on conditions under which the supplier is refusing to supply the goods and services. This helps in keeping on unfair trade practices. Not letting the business in getting engaged in unconscionable conduct which means rude and unexpected behavior of the members on both side of the transaction (Lozada, Hunter & Kritz, 2006).

The Franchising code of conduct provide following advantages and safety which are as follows:

  • Safeguard through franchise agreements made between the franchisors and the franchisees. It is advised to require a disclosure document, agreement and an exposure of experienced law body dealing in franchises matter. This act also protects against the scams which a franchisee can encounter in dealings made, helps in identification of a genuine business, setting price by the franchisees, etc
  • Safeguard against ending and cancellations of the agreements. There are various circumstances under which the franchisor can cancel the agreement or vice versa. This may happen not only form the franchisor side but also from the franchisee side because of various reasons- selling of franchise, franchisor insolvency, bankruptcy, breach of set terms and conditions etc. ( Lozada, Hunter & Kritz, 2006).
  • Safeguard against disputes between the franchisor and the franchisees. The act provides a specific set of procedure for the dispute resolution. The act suggest that the parties should try to resolve things in between them and in case of no conclusion a mediator help should be taken.
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Problems faced by franchises and how the instrument help overcome these problems

As per a statistics of a survey conducted by the Australian Franchising 2006, 35% of the parties are involved in conflicts. The main causes of conflict are found to be compliance of the system, communication barriers, misrepresentation of the disclosures, and mediation etc. The problems may also arise because of differences in between the franchisor and the franchisee, delay in the payment by the franchisee, lack of support by the franchisor. No problem exists without a solution.

The code suggests that all conflicts can be resolved and have also suggested a specific set of procedure for the conflict resolution. The code suggest that the parties involved should first try to resolve conflict in between them and if they found themselves unable to do that then they can also ask a third party to intervene in between them which is called a mediator. The parties are expected to participate in the procedure meant for resolution of the conflict (Terry & Lernia, 2009).

Law helps in overcoming such problems by making the parties understand the purpose of franchise agreement, disclosing facts and figures, setting ground rules during the transactions etc. It is the duty of both the parties to investigate thoroughly about their respective backgrounds. If the terms and conditions are found to be doubtful, the procedure towards franchise should get stopped for a while before the thorough investigation (Terry & Lernia, 2009).

Practical examples of franchises in Australia and how Law helps overcome them

There are various examples wherein companies have found themselves in imbalanced state because of numerous issues in franchise system.

Example 1: Astram Financial Services Pty Ltd v Bank of Queensland Ltd[2010] FCA 101- Both the companies entered into franchise agreement to carry a franchise in Campbell town by the former. The agreement was made between Mr. Ramsey on behalf of Astram and the bank. The franchise however could not work as was thought between the two as the bank was considered to misrepresent the success path. Astram was unable to achieve to its target which the bank assured it to be achievable (Paterson, 2001). The case went to the court wherein the bank stated that the promised or comments made towards each other were unqualified. The court stated that it is the responsibility of Astram to calculate the business risk and thus rejected their plea. Law helped in making the decision and recommend that it is the duty of the franchisee to assess and read the issues carefully before entering into franchise agreement.

Example 2: DIAL-AN-ANGEL ORS v PENCHIME PTY LTD ANOR [1998] WASC 180 (11 June 1998- Dial-an- angels took the franchise from Penchime Pty ltd under the franchise agreement. After the expiration date the former does not wanted to renew the contract rather wanted to start his own business under some different name which lead the franchisor to file a case (Paterson, 2001). However, the court rejected the request made by the franchisor and enforced restriction on the franchisee to carry out the same business under different name as the court didn’t find much clue about the harm towards intellectual property by the franchisee.

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Changes made to code of conduct

The aim of franchising code of conduct is make sure that the members behave in order with each other. The Franchising code of conduct was amended in 2008 and 2010 . In 2008 it was amended under the review by Mr Greame Matthews. The new law stated that the reviewer is required to inquire into- good faith of franchising, the right of franchisees. For this the reviewer is asked to prepare a report consisting of findings and recommendations so that it can be released for the public preview. For this the reviewer can also seek help of the various stakeholders (Spencer, 2006).

The new changes also stated that the Franchisees are entitled for more information before entering into treaty. This also lead to increase in franchisor’s disclosure of the obligations. The code also aims at ensuring all the terms and conditions made in the agreement by the franchisees. All the documents should reach 14 days prior to the deal. The main changes includes: remedies incase the franchise fails, payment that is to be made to the mediator, attribution of the legal cost, maintaining confidentiality, procedures for ending the agreement, rules for transferring the franchise pact, unilateral variation etc. (Spencer, 2006)

Recommendations

For Franchising code of conduct & Competitor and Consumer Act it is advisable to get into details whether it is about various franchise methods or protection towards unfair trade practices so that any disputes and conflicts does not occur in later stages or before it gets too late. The franchise agreements should be made with due consideration by both the parties- franchisors and franchisee. The agreement should consist of the entire clauses agreed upon like- agreed fee, training fee etc. The franchisee must clearly understand about what sort of franchise agreements he wants to get into- Licensing or Manufacturing Franchise, Dealer Relationship, Distributorship, Agency Arrangements which is nothing but just the different patterns of franchising. Franchising has different advantages associated with it and hence should be handled with due care (Jankalova & Jankal, 2003).

The government should try for substantial role in regulating and educating the franchise sector, consumers, various supply chain members wherein they can arrange for the special classes meant for training purpose, arrange consumer forums specially meant for conflict resolution for the stated problems, showing some flexibility towards franchisors, arranging supplemental dispute resolution processes. The all stated points can help tremendously in proper rules and regulations within the country (Jankalova & Jankal, 2003).

References

  1. Asbill, R.M. & Goldman, S.M. (2001). Fundamentals of international franchising. US: American Bar Association.
  2. Davis, P. (2005). Retrieving corporate policy: managing minority dissent. Corporate Governance, 5(4), pp. 64-74.
  3. Giddings, J., Frazer, L., Weaven, S. & Grace, A. (2009). Understanding the dynamics of con?ict within business franchise systems. ADRJ, 20, pp. 24-32.
  4. Jankalova, M. & Jankal, R. (2003). National legislation related to franchising and its aspects in conditions of selected countries. Journal of Information, Control and Management Systems,1(2), pp. 1-10.
  5. Latimer, P. (2012). Australian Business Law 2012. CA: CCH Australia Limited.
  6. Loewinger, A.P. & Lindsey, M.K. (2006). International Franchise Sales Laws. US: American Bar Association.

  7. Lozada, H.R., Hunter, R.J. & Kritz, G.H. (2006). Master Franchising as an entry strategy:MArketing and legal implications. The Coastal Business Journal, 4(1), pp. 16-28.
  8. Malbon, J. & Bishop, B. (2006). Australian Export: A Guide to Law and Practice. UK: Cambridge University Press.
  9. Outhred, H. (1998). A review of electricity industry restructuring in Australia. Electric Power Systems Research, 44, pp. 15–25.
  10. Paterson, J. M. (2001). Good Faith in Commercial Contracts? A Franchising Case Study. Australian Business Law Review, (270).
  11. Spencer, E. (2006). Franchising- A way to supersize a business?The National Legal Eagle, 12(1), pp. 1-6.
  12. Terry, A. & Lernia, C.D. (2009). Franchising and the Quest forthe Holy Grail. Melbourne University Law Review, (33), pp. 543-575.

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Conclusion :

The Government of every country tries to make every possible step in order prevent the citizens from unlawful activities. Out of those various laws, the two laws which have been discussed shows the basic rules made towards the franchise system and competition and consumer protection. Both the laws deals with two different aspect of the market, the former deals with the rules and regulations made for the franchisers and franchisee while the later deals with the consumer protection and fair trade practices with the competitors. The franchise idea can always not proved to be success as most of the cases often lead to conflict and thus leads to solvency of the franchise. Both the franchisor and the franchisee are consumers themselves should keep their eye open and report in case of any unlawful activity. Certain preventive measures can help tremendously in improving the system.