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2019-2020
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
FRANCHISING LAWS AMENDMENT (FAIRNESS IN FRANCHISING) BILL 2020
EXPLANATORY MEMORANDUM
(Circulated by authority of Senator Deborah O'Neill)
Fairness in Franchising Bill 2020
OUTLINE
This Bill amends the Competition and Consumer (Industry Codes--Franchising) Regulation
2014 (Franchising Code) to address the power imbalance in franchising.
The Bill comprises two Schedules.
Schedule 1 - Franchising Code amendments
This Bill seeks to address the power imbalance in franchising, that is quite different from
other small businesses, by offering an optional binding alternative dispute resolution that is
determined by an expert in that field.
This Schedule does this by giving the Australian Small Business and Family Enterprise
Ombudsman (the Ombudsman), in circumstances where mediation has failed or if both
parties to a franchising dispute otherwise agree, the power to assist with having matters
resolved by arbitration. It does this by establishing a mediation and franchising adviser within
the Ombudsman with the power to appoint arbitrators to resolve the disputes.
Lastly, amendments under this Schedule will enable multi-party resolution of franchising
disputes and give the Ombudsman the power to assist with multi-party mediation and
arbitration. This is relevant to franchising, where multiple parties can have the same issues
that require resolution.
Schedule 2 - Quantum of penalties for breach of the Franchising Code of Conduct
The amendments under this Schedule will significantly increase the quantum of penalties
available for breach of the Franchising Code of Conduct, to ensure that penalties are a
meaningful deterrent.
NOTES ON CLAUSES
Clause 1: Short Title
1. This clause is a formal provision specifying the short title of the Bill. Once enacted it
may be cited as the Franchising Laws Amendment (Fairness in Franchising) Act 2020.
Clause 2: Commencement
2. This clause provides for the commencement of the entire Act to be the day this Act
receives Royal Assent.
Clause 3 - Schedules
3. Each Act specified in a Schedule to this Act is amended or repealed as is set out in the
applicable items in the Schedule. Any other item in a Schedule to this Act has effect
according to its terms.
4. The note to clause 3 clarifies that, subject to item 27 of Schedule 2, the provisions of
the Competition and Consumer (Industry Codes--Franchising) Regulation 2014 that
are proposed to be amended or inserted by this Bill, and any other provisions of that
instrument, may be amended or repealed by a future instrument.
Schedule 1 - Franchising Code Amendments
Part 1 - Main amendments
Items 1 and 4
5. These items replace references to 'mediation' in clauses 21 and 36 of the Franchising
Code with 'mediation or arbitration'.
Item 2 and 3
6. These items amend clause 35 the Franchising Code to allow for multi-party resolution
of disputes. If two or more franchisees have a dispute of the same nature with a
franchisor they may ask the franchisor to deal jointly with the franchisees.
Items 5 to 7
7. Franchise agreements under the Franchising Code must provide for complaint handling
procedures that comply with Division 2 of Part 4 of the Code.
8. Items 5 to 7 amend clause 38 (within Division 2 of Part 4) which relates to the
notification of disputes.
9. Item 5 inserts new subclause 38(2A) to specify that parties to a dispute must try to
resolve the dispute amongst themselves before seeking mediation or arbitration of the
dispute.
10. Item 6 amends subclause 38(3) to require the internal complaint handling procedures of
franchising agreements to allow, as an alternative to resolving disputes by mediation,
for arbitration. All parties to a dispute must agree to it being resolved by arbitration.
11. Item 7 amends existing subclause 38(4) to reflect that parties may now jointly choose to
resolve a dispute by arbitration. Where the parties seek to mediate the matter first, the
existing provisions will continue, whereby either party may ask the mediation and
arbitration adviser to appoint a mediator if the parties cannot agree on the identity of the
mediator.
12. New subclause 38(5) provides that, if the parties have agreed to resolve the dispute by
arbitration, the identity of the arbitrator will be a person from the list of arbitrators put
together by the mediation and arbitration adviser. The arbitrator will either be chosen
by the parties to the dispute or, if the parties cannot agree, by the adviser.
13. Subclause 38(6) allows for the party that made the initial complaint to withdraw it at
any time during the dispute.
Items 8, 14, 17 and 22
14. These items are technical amendments to reflect the name change of the adviser to the
mediation and arbitration adviser.
Item 9
15. Clause 39 of the Franchising Code sets out the requirements for mediation within the
internal complaints handling mechanisms of franchising agreements.
16. Item 9 inserts new subclause 39(7), which specifies actions that a mediator must take
after an agreement is reached in relation to the dispute. The mediator must, within 14
days of agreement, set out in writing the terms of the agreement, give a copy of the
agreement to the parties, and also notify the mediation and arbitration adviser that an
agreement has been reached.
Item 10
17. This item adds new clause 39A at the end of Division 2 of Part 4 of the Franchising
Code. This sets out the requirements for arbitration within the internal complaints
handling mechanism of franchising agreements. These requirements largely reflect the
Code requirements under Division 3 of Part 4.
18. If the parties to a dispute have agreed to resolve a matter through arbitration but cannot
decide the identity of the arbitrator, they may request the mediation and arbitration
adviser to appoint an arbitrator. Subclause 39A(1) provides that the adviser must do so
within 14 days of receiving such a request, unless convinced of particular matters.
19. An arbitration must be conducted within Australia (subclause 39A(3)) but the method
by which the arbitration will be conducted as well as the place and date of
commencement will be determined by the arbitrator (subclause 39A(2)). Arbitration
may be conducted in person, or by electronic means, including by videoconference or
teleconference.
20. Clause 39A also requires the attendance at arbitration of each party to a dispute, either
in person, or by other means if allowed by the arbitrator (subclause 39A(5)). Subclause
39A(6) clarifies that parties may send a representative with authority to settle the
dispute, or another representative, if a person with authority to settle is contactable by
that representative at the time of the arbitration.
21. Subclause 39A(7) specifies actions that an arbitrator must take after a dispute is
resolved. The arbitrator must, within 14 days of agreement, set out in writing the terms
of the resolution, give a copy of this to the parties, and also notify the mediation and
arbitration adviser that the dispute has been resolved.
Items 11 to 13
22. As an alternative to the internal complaints handling mechanism of a franchising
agreement, participants in franchising may seek to have disputes resolved under
Division 3 of Part 4 of the Franchising Code (the Code complaints handling
mechanism). Clause 40 of the Franchising Code sets out the requirements for
notifications of disputes under this mechanism. Items 11 to 13 of the Bill modify these
requirements.
23. Item 11 inserts new subclause 40(2A), which adds a further requirement that parties
must attempt to resolve the dispute before taking action to resolve it by mediation or
arbitration.
24. Item 12 amends subclause 40(3) to provide that either party to a dispute may seek to
have the dispute resolved by mediation or both parties may agree to have it resolved by
arbitration.
25. Item 13 amends existing subclause 40(4) to reflect that parties may now jointly choose
to resolve a dispute by arbitration. Where the parties seek to mediate the matter first,
the existing provisions will continue, whereby either party may ask the mediation and
arbitration adviser to appoint a mediator if the parties cannot agree on the identity of the
mediator.
26. New subclause 40(5) provides that, if the parties have agreed to resolve the dispute by
arbitration, the identity of the arbitrator will be a person from the list of arbitrators put
together by the mediation and arbitration adviser that is either chosen by the parties to
the dispute or, if the parties cannot agree, by the adviser.
27. Subclause 40(6) allows for a party that made a complaint to withdraw a complaint at
any time during the dispute.
Item 15
28. Existing clause 41 of the Franchising Code sets out the requirements for mediation
undertaken under the Code complaints handling mechanism. Item 15 inserts new
subclause 41(7), which specifies actions that a mediator must take after an agreement is
reached. The mediator must, within 14 days of agreement, set out in writing the terms
of the agreement, give a copy of this to the parties, and also notify the mediation and
arbitration adviser that an agreement has been reached.
Items 16 and 18
29. Existing clause 42 of the Franchising Code provides for the termination of mediation
undertaken under the Code complaints handling mechanism. Subclause 42(4) sets out
the steps the mediator must take after a mediation has been terminated.
30. Item 16 adds new paragraph 42(4)(e), which will require the mediator to include in a
certificate, provided to the mediation and arbitration adviser and the parties, the fact
that the parties may agree to refer disputes to arbitration when mediation has been
terminated.
31. Item 18 inserts new subclauses 42(6) and (7), which specify that, after a mediation is
terminated, the parties may jointly agree to refer the dispute to arbitration. The steps
parties must take to choose the arbitrator mirror the steps taken if they had initially
decided to have the dispute arbitrated.
Item 19
32. This item adds new Subdivision C of Division 3 of Part 4 of the Franchising Code.
33. New clause 43A sets out the requirements for arbitration conducted under the Code
complaints handling mechanism.
34. The mediation and arbitration adviser must appoint an arbitrator within 14 days after
receiving a request unless satisfied of particular matters (subclause 43A(1)).
35. An arbitration must be conducted within Australia (subclause 43A(3)) but the method
by which the arbitration will be conducted as well as the place and date of
commencement will be determined by the arbitrator (subclause 43A(2)). Arbitration
may be conducted in person, or by electronic means, including by videoconference or
teleconference.
36. Clause 43A also requires the attendance at arbitration of each party to a dispute, either
in person, or by other means if allowed by the arbitrator (subclause 43A(5)). Subclause
43A(6) clarifies that parties may send a representative with authority to settle the
dispute, or another representative, if a person with authority to settle is contactable by
that representative at the time of the arbitration.
37. Subclause 43A(7) specifies actions that an arbitrator must take after a dispute is
resolved. The arbitrator must, within 14 days of agreement, set out in writing the terms
of the resolution, give a copy of this to the parties, and also notify the mediation and
arbitration adviser that the dispute has been resolved.
38. New clause 43B provides for the termination of arbitration under the Code complaints
handling mechanism. An arbitrator must terminate an arbitration if the complainant
requests them to do so (subclause 43B(1)) and then must issue a certificate stating
particular matters (subclause 43B(2)) and provide this certificate to the mediation and
arbitration adviser and the parties (subclause 43B(3)).
39. New clause 43C provides that parties to a dispute are equally liable for the costs of
arbitration but must pay for their own costs of attending an arbitration. Costs of
arbitration include the cost of the arbitrator and matters such as room hire.
Items 20, 21 and 23
40. Existing Division 4 of Part 4 of the Franchising Code provides for the appointment and
responsibilities of the mediation adviser under the Code. Items 20 to 23 make changes
to the existing arrangements to include matters relating to the appointment of
arbitrators, the responsibilities of the adviser, and the identity of the adviser.
41. Item 20 changes the heading to the Division to reflect the addition of arbitration as a
mechanism for resolving franchising disputes.
42. Item 21 replaces existing clause 44 (mediation adviser) with a new clause 44 reflecting
the appointment of a mediation and arbitration adviser. It specifies that the adviser will
be the Deputy Ombudsman, or equivalent position in the Australian Small Business,
Family Enterprise and Franchising Ombudsman (subclause 44(2)).
43. The mediation and arbitration adviser is required to compile lists of people who are to
be mediators and arbitrators for the purposes of resolving franchising disputes
(subclause 44(3)).
44. The annual report of the Department under which the current Ombudsman operates is
required to include certain material relating to the operation of the Ombudsman for that
year. Item 23 proposes new clause 46 that imposes a similar transparency requirement
for the report to contain certain material relating to the operation of mediation and
arbitration involving the mediation and arbitration adviser.
45. These matters include, in relation to the reporting year:
the number of requests made to the adviser for the appointment of mediators or
arbitrators;
the number of occasions on which a request was received but the adviser
decided not to appoint a mediator or arbitrator;
the number of certificates the adviser had received notifying them of the
termination of mediations or arbitrations; and
the number of times that the adviser had been informed that a dispute had been
resolved.
Part 2--Consequential Amendments
Items 24 and 25
46. The existing definition of alternative dispute resolution under the Australian Small
Business and Family Enterprise Ombudsman Act 2015 provides a non-exhaustive list of
procedures and services for the resolution of disputes but explicitly excludes
arbitration.
47. These items amend the definition so that arbitration is included in the list of procedures
and services, and are intended to clarify that the Ombudsman can assist small
businesses (including franchisees, in relation to franchising disputes).
Part 3--Additional provisions
Item 26
48. This item revokes the appointment of the Franchising Mediator Adviser that was
appointed prior to commencement of this Bill.
Item 27
49. This item ensures that any legislative instrument that has the effect of removing the
availability of arbitration to resolve disputes in franchising or alternating who the
mediation and arbitration adviser is, then that instrument does not come into effect until
it has been approved by resolution of each House of Parliament.
Schedule 2 - Quantum of penalties for breach of the Franchising Code of Conduct
Item 1
50. This item repeals the existing subsection (2) and replaces it with civil penalty
provisions for Franchising Code of Conduct which is subject to subsection (2A).
Subsection (2A) provides a maximum civil penalty for a contravention by a body
corporate of the provision to a maximum of:
(a) $10,00,00;
(b) 3 times the benefit obtained by any direct or indirect action found by a court;
(c) If that benefit cannot be determined, then 10% of the annual turnover of the body
corporate during the 12-month period the contravention happened.
This reflects the penalties currently available under the Australian Consumer Law.
Statement of Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
Franchising Laws Amendment (Fairness in Franchising) Bill 2020
This Bill is compatible with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Overview of the Bill
The purpose of this Bill is to address the power imbalance inherent in the franchising sector
by providing arbitration as an alternative dispute resolution process.
Human rights implications
This Bill does not engage any of the applicable rights or freedoms.
Conclusion
This Bill is compatible with human rights as it does not raise any human rights issues.
Senator Deborah O'Neill