AMENDMENTS TO THE FRANCHISING CODE TO SUPPORT DEALERS

On 1 June 2020, the Federal Government announced amendments to the Franchising Code directly aimed at better protecting the interests of new vehicle Dealers. Minister for Industry, Science and Technology, Karen Andrews, said that the amendments “balance the need to better protect Australian car Dealers with ensuring an environment that is attractive to manufacturers to invest in our nation.”

The amendments to the Franchising Code have come about after the Government released an exposure draft of the ‘New Vehicle Dealership Agreements’ regulations, which amend the existing Franchising Code of Conduct to apply specifically to new motor vehicle Dealers, on 14 February 2020. This was prompted by the 2017 ACCC market study of new car retailing and the 2019 Parliamentary Joint Committee on Corporations and Financial Services ‘Fairness in Franchising’ report, both of which identified concerns at the power imbalance in commercial relationships between large car manufacturers and new car Dealers (among other things).

A Regulatory Impact Statement was subsequently released which identified four specific amendments to the Franchising Code of Conduct, which the Government considered addressed key concerns raised by stakeholders in the new motor vehicle industry regarding end of term arrangements, capital expenditure disclosure and access to dispute resolution.

The amendments to the Franchising Code are summarised below.

Expanded definition of Vehicle Dealerships

The amended Franchising Code includes a new definition, namely ‘new vehicle dealership agreement’, which means a motor vehicle dealership agreement relating to a motor vehicle dealership that predominantly deals in new passenger vehicles or new light goods vehicles (or both). This definition expands on the previous definition of a ‘motor vehicle dealership’ which relevantly referred to ‘a business of buying, selling, exchanging or leasing motor vehicles that is conducted by a person…’. This change appears to be intended to capture ‘agency’ type arrangements.

End of term obligations

Manufacturers and Dealers are now required to provide at least 12 months’ notice when not renewing a dealership agreement when the agreement is 12 months or longer. It will also require manufacturers and Dealers to discuss, plan and agree on end of term arrangements when not renewing an agreement. This includes an obligation requiring manufacturers and Dealers to provide a statement to the other party outlining why a dealership agreement is not being renewed.

Application, saving and transitional provisions apply, which means the new end of term obligations apply to dealership agreements entered into, on or after the commencement of these new regulations (1 June 2020) and won’t apply to agreements in force immediately before until such time as the agreement is renewed or extended.

Capital expenditure disclosure

Manufacturers will be required to provide a greater degree of specificity to pre-contractual disclosure of significant capital expenditure. These provisions will apply if a disclosure document is created or updated after commencement of these new regulations and the dealership agreement is entered into, renewed or extended after the disclosure document was created or updated.

Access to dispute resolution

This change now expressly allows multi-franchisee dispute resolution. These provisions apply irrespective of whether the dealership agreement is currently in force or entered into at a later date. This change would assist in situations like the dispute Holden Dealers are having with GM Holden, where over 150 Dealers are all affected by the decision to retire the Holden brand in Australia. Absent this new provision or agreement by the Manufacturer, every Dealer would have to participate in a separate mediation in which the same issue is in dispute.

The amendments to the Franchising Code omit some material protections that Dealers have been lobbying for inclusion in any amended Franchising Code. These protections include:

  • better security of tenure;
  • the abolition of ‘no fault’ terminations;
  • equitable compensation for Dealers for early termination of their Dealer agreements; and
  • the right to renew being solely at the Dealer’s discretion.

The Government also announced that it is continuing to explore how it can support the automotive sector through the broader review of the Franchising Code and it is hoped that these additional protections are included in any further review.

A detailed Explanatory Statement of the changes to the Franchising Code can be obtained from the following link: https://www.legislation.gov.au/Details/F2020L00636/Explanatory%20Statement/Text

This article was written by Evan Stents, Lead Partner, Automotive Industry Group, HWL Ebsworth Lawyers.

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