When should an agreement be a franchise? The Federal Court held that even without a 'Franchising Agreement' an agreement was deemed to be a franchising agreement because it consisted of sufficient elements as set out in the Franchising Code.

1. Steve Brown
IS ITA
FRANCHISE?

2. www.etiennelaw.com
Is It a Franchise?
When should a:!
Distributorship Agreements!
License Agreement for Intellectual Property!
Heads of Agreement!
Rights Agreements!
Other types of Agreements!
be considered Franchise Agreements.

3. www.etiennelaw.com
Franchising Code of Conduct
there is a written, oral or implied agreement!
that agreement grants the right to carry on the business of offering,
supplying or distributing goods and services in Australia under a system or
marketing plan substantially determined by the franchisor!
the operation and the business will be substantially or materially
associated with the trade mark, advertising or a commercial symbol!
the franchisee must pay or agree to pay the franchisor an amount of
money in return for the right to conduct the business

4. www.etiennelaw.com
The Answer According !
to the Federal Court
Raffety v Time 2000 West Pty Ltd (No.4) [210] FCA
725!
The question of whether a particular agreement
within the Franchising code is to be determined by
reference to the definitions in the Code and not by
reference to any preconceived notions of other
agreements which are not ordinarily understood to
be franchise agreements.

5. www.etiennelaw.com
I Don’t Have a Marketing Plan
“it will be sufficient for the purposes of clause 4.1(b)
that there be a power in the agreement which is said to
be a franchise agreement to impose a system or
marketing plan substantially determined, controlled or
suggested by the franchisor or an associate of the
franchisor.”!
Justice Besanko considered whether the terms of the
definition of a marketing system were satisfied and
identified that if some or all of the elements were
present, a system or marketing plan probably exists.

6. www.etiennelaw.com
Elements to Identify a Marketing
Plan
Centralised book keeping and record keeping computer operation
provided for distributors.!
Reservation by the franchisor of a right to screen and approve all
promotional materials used by the distributors.!
Prohibition of repackaging of products by the distributor.!
Comprehensive advertising and promotional programme by the
franchisor.!
Division of a state into marketing areas.!
Establishment of sales quotas.!

7. www.etiennelaw.com
Franshisor has right to approve any sales personnel.!
Mandatory sales training regime.!
Provision of quotation sheets to distributor’s employees.!
Provision by the franchisor of prescribed invoices and other sales
forms.!
Requirement that the distributor collect certain information from
the customer and provide to the franchisor.!
Restriction on the distributor selling any of the franchisor’s products
with first consulting the franchisor.

8. www.etiennelaw.com
Justice Besanko’s Findings
Many of the elements were present!
There was a system or marketing plan!
The Heads of Agreement was an agreement to enter
into a franchise!
The Rights Agreement was a franchise agreement for
the purposes of the code.

9. www.etiennelaw.com
But I Assumed!
Assuming that an Agreement is simply a license
agreement or a distributor agreement can be:!
Risky!
Possibly costly!
without careful consideration of the Code of Conduct

10. www.etiennelaw.com
Risks
If a franchisor does not comply with the Codes
penalties may be imposed by!
Courts or!
ACCC

11. www.etiennelaw.com
Consequences
A franchisor may be liable to!
pay compensation to the franchisee; or!
offer the franchisee an opportunity to exit their
agreements

12. www.etiennelaw.com
Company Directors Beware
If a company enters into a license, distribution or other
type of agreement that attempts to avoid the code it’s!
Directors!
Servants!
Agents!
Associates!
may be held liable

13. For Further Information Contact!
Steve Brown!
8845 2400 sbrown@etiennelaw.com
DON’T BE PENALISED
FOR
FALLING FOUL OF THE
FRANCHISING CODE