Senate Inquiry into Franchising Code a Major Opportunity for Dealers

In March this year, the Senate referred the Franchising Code of Conduct (Code) to the Parliamentary Joint Committee on Corporations and Financial Services for inquiry. The Inquiry is one of the most significant reviews into franchising laws as they affect new motor vehicle Dealers since the introduction of the Code in 2010.

The Inquiry is being conducted in consultation with key franchising sector stakeholders and will call witnesses and review submissions. It represents a major opportunity for Dealers to highlight actual issues caused by the imbalance of power between Dealers and Manufacturers that the Code was designed to address, but has failed to prevent.

The Terms of Reference of the Senate Inquiry are wide-ranging and include the following:

  1. The operation and effectiveness of the Code in ensuring full disclosure to potential Dealers of all information necessary to make a fully informed decision when assessing whether to enter a franchise agreement, including information on:
    (a) likely financial performance of a franchise and worst case scenarios;
    (b) the contractual rights and obligations of all parties, including termination rights and geographical exclusivity;
    (c) expected running costs, including cost of goods required to be purchased through prescribed suppliers.
  2. The effectiveness of dispute resolution under the Code;
  3. The impact of the Australian Consumer Law unfair contract provisions on new, renewed and terminated Dealer Agreements entered into since 12 November 2016, including whether they have resulted in changes to standard Dealer Agreements;
  4. Whether the provisions of other mandatory industry codes of conduct, such as the Oil Code, contain advantages or disadvantages relevant to franchising relationships in comparison with terms of the Code;
  5. The adequacy and operation of termination provisions in the Code;
  6. The imposition of restraint of trade on former Dealers following the termination of a Dealer Agreement, and
  7. The enforcement of the Code and other applicable laws, such as the Competition and Consumer Act 2010.

The AADA has made a submission to the Parliamentary Joint Committee that highlights a range of particular instances in which the current Code does not adequately protect Dealers in practical terms. These include:

  1. Existing provisions in relation to legitimate warranty claim audits and clawbacks;
  2. Unfair contract terms;
  3. Non-renewals of Dealer Agreements by Manufacturers in circumstances where dealership businesses are profitable and not in breach;
  4. Concerted practices by Manufacturers of exerting unfair pressure on Dealers to relocate or refurbish dealership premises, and
  5. Potentially misleading directives from Manufacturers to Dealers in respect of communications to customers about their Australian Consumer Law rights.

Independent of the Senate Inquiry, AADA has also made several submissions to the ACCC and relevant Government Departments in connection with the Terms of Reference of the Inquiry, in particular:

  1. The power imbalance between motor vehicle Manufacturers and franchised new motor vehicle Dealers, and
  2. The need for an industry-specific Code of Conduct for the new motor vehicle retail industry (Dealer Code).

    In considering the contents of a Dealer-specific Industry Code, the provisions advocated by the AADA include:

  3. A minimum tenure of five years and one renewal period of five years;
  4. Codifying that any right of renewal may only be exercisable by a Dealer (and not the Manufacturer) so long as the Dealer is not in breach of the Dealer Agreement;
  5. Alternatively, a prohibition on Manufacturers issuing non-renewal notices to Dealers without a Manufacturer first issuing a written statement setting out why the
  6. Manufacturer has decided not to renew that Dealer, what steps the Dealer could take to address those reasons and what rights the Dealer has to challenge those reasons if the Dealer disagrees;
  7. A prohibition on Manufacturers imposing undisclosed capital expenditure during the term of a Dealer Agreement beyond a threshold amount (under any circumstances) – or otherwise a guarantee of a minimum extension of tenure in the event of significant capital expenditure being incurred within the term of a Dealer Agreement;
  8. A prohibition on Manufacturers disclosing significant capital expenditure in a disclosure document in the form of a range that is not reasonably precise or confined;
    Mandatory end of term ‘buy-back’ arrangements;
  9. A prohibition on Manufacturers engaging in unjust conduct or entering into unfair contract terms as is the case in the Motor Dealers & Repairers Act 2013 (NSW);
  10. A prohibition on Manufacturers prescribing how a Dealer must respond to consumer requests, complaints, claims or legal proceedings in circumstances where Dealers have independent statutory obligations to consumers under, for example, the Australian Consumer Law, and
  11. More effective statutory indemnity provisions in favour of Dealers. In particular, the right to indemnity under section 274 of the Australian Consumer Law should not be restricted to only where there is a ‘finding of liability’.

The Parliamentary Joint Committee’s report following the Inquiry is due by 30 September 2018.

This article was written by Evan Stents – Lead Partner, and Christian Teese – Senior Associate, Automotive Industry Group | HWL Ebsworth Lawyers

Evan Stents
Lead Partner, Automotive Industry Group, HWL Ebsworth Lawyers

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