Posted by Elizabeth Gore-Jones
on 12 September 2022
Recent changes to the Franchising Code of Conduct introduced penalties if Franchisors fail to disclose materially relevant facts within 14-days of their occurrence.
The new penalty regime means that a Franchisor who fails to comply with its obligations may be liable for a penalty being the greater of:
a. 10 million dollars;
b. 3x the value of the benefit the Franchisor obtained from the contravention;
c. If the court cannot determine the value of the benefit then 10% of the annual turnover of the Franchisor during the 12 months after the contravention occurred.
One little-known materially relevant fact which may catch some Franchisors relates to the control of the intellectual property.
If there is a change in the intellectual property that is material to the Franchise system, then the Franchisor must disclose that to its current Franchisees and proposed Franchisees.
Intellectual property includes a change to the copyright, trade marks, know-how, or other intellectual property.
If a Franchisor makes a material change to its operations manual, then this may be caught by this provision as the operations manual forms a part of the intellectual property.
If the Franchisor changes its trade marks and the trade mark is material to the Franchise Agreement, then, the Franchisor again must notify the Franchisee within 14-day.
If a Franchisor has issued disclosure to a proposed Franchisee then it must notify of the change before that Franchisee enters into the Franchise documents.
We will cover more examples of these new extreme penalties over the next few weeks.
