The document summarizes key information for motor vehicle dealers regarding franchise agreements and the current legislative landscape in Australia. It notes that while there is no ideal franchise agreement, recent and proposed changes to laws such as the Franchising Code of Conduct may help improve protections for dealers. It outlines challenges facing the Australian automotive industry and reviews existing legal protections for franchise agreements from unfair contract terms and unjust conduct. The presentation provides an overview of relevant laws and regulations regarding franchise agreements in Australia.

1. [Insert Title]
Presented by [Insert Speaker]
[Insert date as: Day, # Month Year]
Motor Vehicle Dealers
– Your Ideal Franchise
Agreement
Presented by Evan Stents
Lead Partner – Automotive Industry Group
HWL Ebsworth Lawyers
10 July 2014

2. Bad News
&
Good News

3.  Bad News: There is no such thing as an ideal Franchise
Agreement
 Good News: There are changes in the legislative landscape that
may see improvements to Franchise Agreements
There are existing legal protections for dealers and
their Franchise Agreements
Bad News & Good News

4.  Sales – circa 1 million cars
 Cars manufactured in Australia – circa 200,000
 Toyota, Holden and Ford will cease production in 2017
 Import duties 0% - 5%
 Over 50 brands sold in Australia
Snapshot of the Australian Automotive
Industry

5.  Fragmented market
 Chinese entering the market
 Increased competition from the internet & erosion of PMAs
 Diminishing margins and reliance on holdback
 Traditional dominant brands have not adjusted their marketing approach
 Unrealistic glass box investments
 Unrealistic KPIs
 Lack of security of contractual tenure
Snapshot of the Australian Automotive
Industry

6.  Current reviews:
 Franchising Code of Conduct
 Unfair contracts
 Competition Policy
Changes to legislative landscape

7.  The Federal Government has released an exposure draft and timetable for
implementation of amendments to the Code
 The new Code (at this stage) will commence on 1 January 2015
 Proposed amendments include:
 Imposing an express requirement to act in good faith on parties to a franchise
agreement;
 The introduction of civil penalties and fines for breaches of certain provisions of the
Code;
 A requirement to provide a ‘risk’ statement to a prospective franchisee prior to giving
disclosure;
 A prohibition on a franchisor seeking to impose significant capital expenditure upon a
franchisee during the term unless it has already been disclosed or the franchisor has
issued a statement demonstrating that there is a business case for it to be incurred;
Amendments to Franchising Code of Conduct
(Code)

8.  An inability of a franchisor to enforce restraints of trade in certain defined
circumstances where the Franchisor does not renew a franchise agreement
 A requirement that disputes have to be litigated in the State where the franchise is
operated;
 Imposing a greater limitation on the type of circumstances in which a franchisor may
immediately terminate a franchise agreement.
 The amended Code will only apply to franchise agreements or renewals
which happen post 1 January 2015
Amendments to Franchising Code of Conduct
(Code) (cont.)

9.  Under the Competition and Consumer Act 2010 (Cth) (CCA), a term of a contract is
unfair if it:
 Would cause a significant imbalance in the parties’ rights and obligations; and
 It is not reasonably necessary in order to protect the legitimate interests of the party
who would be advantaged by the term; and
 It would cause detriment (whether financial or otherwise) to a party if it were to be
relied on
 Currently, protection from unfair contracts is only available to consumers
 On 23 May 2014 Treasury released a Consultation Paper that considers extending
the current unfair contract provisions contained in the CCA to apply to small
businesses in business-to-business contracts
 Submissions close on 1 August 2014
Review of ‘unfair contracts’ protection

10.  The Competition Policy Review Panel has released an Issues Paper arising out of its
review of Australian competition policy and law
 AADA Ltd has submitted to the Panel that its review should consider (among other
things):
 Abolition of luxury car tax
 The impact of removing prohibition on importation of second-hand vehicles
 International price discrimination by OEMs
 Classification of dealers as SMEs for the purposes of competition law given dealers’
relative size in business-to-business dealings with OEMs
Review of competition policy

11.  Australian Consumer Law (ACL) – unconscionable conduct
 Common law duty of good faith
 Motor Dealers & Repairers Act 2013 (NSW) (MDR Act)
Protection under existing law

12.  A person must not, in trade or commerce, engage in unconscionable conduct in
connection with the supply or acquisition of goods or services (except to or from a
listed public company) (section 21(1));
 The Court may consider whether the supplier (section 22):
 had a relatively stronger bargaining power than the customer;
 forced conditions on the customer not necessary for the protection of the
legitimate interests of the supplier;
 made sure the customer could understand the contract;
 used any undue influence, pressure or unfair tactics;
 charged the customer more than the customer could achieve elsewhere;
ACL – Unconscionable Conduct

13.  treated the customer differently to like-customers in similar transactions;
 breached any applicable industry code;
 disclosed any risks to the customer that the supplier was aware of;
 disclosed the terms of the contract, as well as the supplier’s willingness to
negotiate;
 has the right to unilaterally vary a term of the contract;
 has acted in good faith.
ACL – Unconscionable Conduct cont.

14.  In franchise agreements, there is an implied term of ‘good faith and fair dealing’
which requires each party to ‘exercise the powers conferred upon it by the
agreement in good faith and reasonably, and not capriciously or for some
extraneous purpose’ (Far Horizons Pty Ltd v McDonald’s Australia Ltd [2000] VSC
310)
 In addition, franchisors are required to act ‘reasonably and honestly’, not to act
for an ulterior motive, to recognise and have regard for the legitimate interest of
both parties to the contract, and to avoid rendering the franchisee’s interest
under the contract worthless (AMC Commercial Cleaning (NSW) Pty Ltd v Coade
[2010] NSWSC 832)
 There is also an obligation on a franchisor to do everything on its part to ensure
the franchisee has the benefit of the contract (Laurelmont Pty Ltd v Stockdale &
Leggo (Queensland) Pty Ltd v Anor [2001] QCA 212)
Common law duty of good faith

15.  The Motor Dealers & Repairers Act 2013 (NSW) (MDR Act) sets standards
of conduct to protect dealers from unfair contracts and unjust conduct
 MDR Act commenced on 27 November 2013
Motor Dealers & Repairers Act 2013 (NSW)

16. The MDR Act:
 Restores the unfair contracts protections previously available under s 106
of the Industrial Relations Act
 Prohibits unjust conduct by manufacturers and distributors
 Provides for resolution of disputes between dealers and manufacturers
and distributors
 Provides dealers with a low cost alternative to court proceedings through
the NSW Civil and Administrative Tribunal (NCAT)
 Motor industry bodies and the Small Business Commissioner can act on
behalf of dealers
Rights for dealers under MDR Act

17. Under the MDR Act, a contract is deemed to be unfair if it:
 Would cause a significant imbalance in the parties’ rights and obligations;
and
 It is not reasonably necessary in order to protect the legitimate interests
of the party who would be advantaged by the term; and
 It would cause detriment (whether financial or otherwise) to a party if it
were to be relied on.
What is an MDR Act unfair contract?

18.  Permits one party to avoid or limit performance of the contract;
 Permits one party (but not another party) to terminate the contract;
 Penalises one party (but not another party) for breaches or termination of the
contract;
 Permits one party (but not another party) to vary terms of the contract;
 Permits one party to unilaterally vary the characteristics of the goods to be
supplied under the contract
 Permits one party to unilaterally vary the goods required to be sold or the place at
which goods are required to be sold by the motor dealer;
 Unreasonably limits the assignment by the motor dealer of the motor dealer’s
rights under the contract or the sale of the motor dealer’s business;
 Limits one party’s right to sue another party.
Examples of an MDR Act unfair contract

19. Under the MDR Act, unjust conduct is:
 Conduct that occurs in connection with a supply contract and is conduct
that is dishonest or unfair; or
 Conduct that is authorised by an unfair term of a supply contract.
What is MDR Act unjust conduct?

20.  Complaint lodged with Small Business Commissioner
 Mediation facilitated by Small Business Commissioner
 After mediation, if the dispute remains unresolved, complaint can
progress to NCAT
Process of a complaint under the MDR Act

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