Misleading and deceptive conduct in franchise disputes

Misleading and deceptive conduct in franchising disputes is a growing concern in the Australian legal landscape.

Franchising involves a contractual relationship between a franchisor and franchisee, where the franchisee is granted the right to use the franchisor's intellectual property, branding, and business systems in exchange for payment of fees and royalties.

Misleading and deceptive conduct can occur at various stages of the franchising relationship and can have significant financial and reputational consequences for both franchisors and franchisees.

Franchising Code of Conduct

Franchising in Australia is regulated by the Franchising Code of Conduct (the Code), which is a national code that applies to all franchising agreements. The Code requires franchisors to provide franchisees with a disclosure document and a copy of the franchising agreement at least 14 days before the franchisee signs the agreement. The disclosure document must contain detailed information about the franchising business, including the franchisor's financial position, the fees and royalties payable, and any other relevant information that would affect the franchisee's decision to enter into the agreement.

Despite the protections afforded by the Code, disputes can still arise between franchisors and franchisees, and misleading and deceptive conduct can be at the heart of these disputes. Some common examples of misleading and deceptive conduct in franchising disputes include:

  • Misleading or false representations about the franchisor's financial position, the profitability of the franchising business, or the market demand for the franchisee's products or services.
  • Failing to disclose important information in the disclosure document, such as the franchisor's history of disputes with franchisees or the details of any ongoing litigation involving the franchisor.
  • Imposing unreasonable fees or royalties on franchisees, or failing to provide adequate support and training to franchisees as required by the franchising agreement.
  • Failing to comply with the terms of the franchising agreement, such as failing to provide marketing support or failing to maintain the franchisor's intellectual property.

The consequences of engaging in misleading and deceptive conduct in franchising disputes can be severe.

Franchisees who have been misled or deceived may be entitled to compensation for any losses or damages suffered as a result of the conduct. This can include reimbursement of fees and royalties paid, as well as compensation for lost profits or damage to the franchisee's reputation. In addition to financial consequences, franchisors who engage in misleading and deceptive conduct may also face reputational damage, legal action, and regulatory sanctions.

Conclusion

In conclusion, misleading and deceptive conduct in franchising disputes is a serious issue in Australia that can have significant financial and reputational consequences for both franchisors and franchisees. It is essential that both parties understand their obligations under the Code and the franchising agreement and take steps to mitigate the risk of such conduct.

If you are involved in a franchising dispute, it is recommended that you seek legal advice from a specialist in franchising law.

About the Author

Catherine Ballantyne

Partner
Businesses rely on Catherine as a disputes specialist who will guide them through complex litigation, and who understands the commercial realities of being involved in a dispute.

Chris Verebes

Special Counsel
A specialist in franchising, Chris is a legal expert and trusted advisor to a number of high profile franchisors across Australia.