The Changing Franchise Agreement

A long-time Convention guest, this year HWL Ebsworth Lawyers Partner Evan Stents, delivered hopeful news to Dealers.

From the outset, Evan Stents made no illusion about the nature of Franchise Agreements and whose interests they are foremost designed to protect.
At the beginning of his address, Stents made it clear that ‘Franchise Agreements are drafted by car companies and their lawyers principally to protect the interests of the car companies.’ They are generally not ‘documents prepared for negotiation’ and Dealers are invited to ‘take [the agreement] or leave it.’

However, the good news is that a number of significant proposed changes to the Franchising Code of Conduct by the Federal Government may make conditions fairer for Dealers. Stents referred to this as ‘shifting [the] power balance back in favour of franchisees.’

Before touching on these proposed new laws, Stents summarised the nature of Australian market conditions today. Already experienced first-hand by many of the audience in attendance, Stents talked about the pressure Dealers face with dwindling margins, unrelenting competition, as well as the influx of new Chinese brands entering the market.

In reference to the withdrawal of Australian car manufacturing, Stents explained how collectively 200 thousand cars are being produced by Holden, Ford and Toyota combined, when in fact, they would need to strive to hit this number individually in order to remain viable.

In highlighting the complexity and competitiveness of the auto market in Australia, Stents asserted that ‘anything that can assist Dealers in relationships regulating their franchise agreements… is very important.’

The main areas where legislative change is in motion include the Franchising Code of Conduct, a review in respect to unfair contracts and reviews of Competition Policy.

Automotive Dealer has already covered many of the proposed changes taking place in previous magazine issues, with Stents himself invited to author the articles highlighting the details of legal developments. In his address at the Convention, Stents mentioned the unfortunate fact that benefits from these legislative changes will only affect Dealers who enter new agreements after January 1, 2015.

Dealers with current Franchise Agreements will remain bound by the terms of their contracts until they are up for renewal.

In light of this, Stents highlighted a number of existing laws which Dealers may not be aware of that are in place to offer protection. One such law, albeit exclusive to New South Wales, is the Motor Dealers and Repairers Act 2013, which, in November last year, introduced new provisions regulating the relationships between NSW motor dealers and motor vehicle manufacturers.

The law has given Dealers more rights in relation to ‘unfair contracts’ under a range of new definitions, as well as a dispute resolution system.

Though these laws are NSW-specific, Stents assured that they have had a wider impact and may very well set a new precedent for other states in Australia. Furthermore, now that the legislation is in place, Stents suggested that car makers may be more careful and introspective about how they negotiate with Dealers to avoid litigation resulting from disputes.

In his closing comments, Stents identified the importance of not only knowing what future legal provisions will be in place for business protection, but also understanding the law right now.
Laws are indeed currently in place to protect Dealer interests; you just have to know where to look.

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