Those with a name such as Andrew Llewellyn Terry, respectively reflecting Scottish, Welsh and English heritage, should exercise caution in telling Irish jokes. Nevertheless, it would be a shame to allow political correctness to get in the way of a good story, particularly when the Irishman has a rare victory. A tourist was lost somewhere in a remote region of Ireland. He stopped to ask a local farmer how to get to Dublin. The Irishman thought about it carefully for a few minutes then replied, Well, I wouldn’t start from here.

This story came to mind recently when reading that Western Australia has decided to follow South Australia’s example by proposing to introduce a state law legislating a good faith obligation in franchise agreements. The motivation of the South Australian and Western Australian Governments, and of the academic who apparently drafted the bills, a Professor Zumbo of the University of New South Wales _ to protect franchisees from rogue franchisors _ is of course admirable. But the advice of the Irish farmer is relevant in this context also. You wouldn’t start from here.

Having regard to the fact that recent franchising inquiries _ the 2006 Matthews Inquiry and the 2008 South Australian, Western Australian and Federal Inquiries _ have recommended the introduction of a good faith obligation, the current legislative proposals may be regarded as less than radical. However the Federal Government, for sound commercial reasons, decided not to amend the Franchising Code of Conduct to incorporate the convenient and superficially attractive formula of a stand-alone ‘good faith’ provision. The Government noted that the law on good faith is still evolving and that there is no standard set of behaviours that constitute good faith. A general obligation of good faith would increase uncertainty in franchising and could be expected to have adverse commercial consequences for franchisees.

Arguing against good faith is difficult. The concept of good faith has gained traction as the solution to all real and imagined ills within the franchising sector. For those agitating for reform it has assumed symbolic significance as it seems to enshrine notions of the much admired Aussie characteristic of a ‘fair go’.
 
The reality is nevertheless much starker. Good faith is, in the words of Professor Bridge, a Canadian academic, an imperfect translation of an ethical standard into legal ideology and legal rules. Bridge comments that it is a concept which means different things to different people in different moods at different times and in different places. It is an inherently unclear and elusive concept and its legislative adoption would propel the franchise sector into an era of unprecedented uncertainty and disputation.

The good faith proposal is impractical, ill-considered and divisive. Its adoption by South Australia and Western Australia would destroy one of the most important features of the Australian franchising sector _ its regulation by a single national scheme rather than by the mix of federal and state legislation that bedevils other areas of commerce.

It is particularly ironic that at the same time that enlightened commonsense has finally prevailed to replace the hotch-potch of nine regulatory regimes (federal, state and territory) for fair trading with a single Australian Consumer Law, two of the stakeholders are proposing to go it alone for franchising.

This will not be good for the development of franchising in South Australia and Western Australia and it will not be good for individual franchisees in these states, who will discover that the reality of a legislated good faith obligation does not, and cannot, match the rhetoric. The unrealistic expectations created by the political posturing are likely to be a greater concern to franchisees than Professor Zumbo’s rogue franchisors given the efficacy of Australia’s underlying misleading and unconscionable conduct laws.

Regulatory reform is a work in progress but in relation to the good faith proposal, the Irish farmer’s advice is pertinent. You wouldn’t start from here.

Andrew Terry is Professor of Business Regulation, University of Sydney, and consultant to DC Strategy