Prior to 1 March 2008 foreign franchisors who appointed only one franchise or a master franchise in Australia did not have to comply with the
Franchising Code of Conduct. This exemption was abolished by the recent Code amendments requiring all foreign franchisors to abide by the Code, including making the relevant disclosure to franchisees.
The affect of this change is that many
foreign franchisors will for the first time have to prepare a Disclosure Document to be issued to franchisees and/or master franchisees. However it is also important to recognise that this obligation does not just affect foreign franchisors, but master franchisees in Australia. A master franchisee must provide all franchisees not only with their own disclosure document, but also with a copy of the foreign franchisor’s disclosure document. In satisfying this requirement the master franchisee may elect to give a separate disclosure document or a joint disclosure document with the foreign franchisor. However, even if the parties elect to give separate disclosure documents, the Code places the obligation on the master franchisee to ensure that all franchisees receive the necessary information. Consequently if the foreign franchisor fails to give disclosure this could have serious ramifications for the master franchise, which could include the unenforceability of the
Franchise Agreement.
While these changes may appear to place significant responsibility on the master franchisee operating in Australia they are designed to ensure that full disclosure is given to potential franchisees. Those operating under a foreign franchisor should advise the franchisor of the changes to the Code. It is important that foreign franchisors realise that they are subject to Australian laws and there are penalties for non-compliance. Further, it is in the interests of Foreign Franchisors to ensure they respond to these changes to ensure that they are able to continue granting franchises in Australia.
From HWL Ebsworth8-Apr-2008