Business Opportunities Weblog

February 25, 2008 by Angela Shupe | 1 Comment

The Australian:

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 per cent 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.

In this case, the franchisor seemed to tick all of the code’s disclosure boxes but did not obtain the written statement from the franchisee. It sounds like a technical mistake many franchisors could have made.

Wright sees this ruling as a can of worms that could destabilise the franchise industry.

“The Court of Appeal ruling could be taken to mean that any agreement, no matter how successfully it has been operating for however many years, could be deemed to be invalid if any technical non-compliance can be established by a litigant,” he says.

Depending on the ruling, it could completely affect the current contracts that exist between franchisor and franchisee. In some cases deeming them to be invalid. I’m sure many franchise business owners in Australia are looking back right now to make sure their contracts are in order so they can try to avoid this problem.

Image from Stock.xchng.

In Franchising, News | 1 Comment