Regulatory and representative bodies in Australian franchising

3.23 Following is a list of the regulatory and representative bodies for the franchising sector in Australia who were involved in this inquiry.24

Australian Competition & Consumer Commission (ACCC)

3.24 The ACCC is an independent statutory authority responsible for enforcing the Trade Practices Act 1974 as it applies to the franchising sector. Its role is to ensure compliance with the Franchising Code of Conduct (the Code) and the TPA through education, liaison and, where necessary, enforcement action. To this end, it develops educational and compliance materials such as guidelines, articles and fact sheets, and gives presentations in each state and territory.25

Office of the Mediation Adviser (OMA)

3.25 The OMA is a government funded body established in 1998, when the Code first came into effect. The role of the OMA is to appoint mediators to assist franchisors and franchisees in resolving their disputes without going to court.26 However, franchising parties in dispute do not have to use an OMA mediator; they can use an alternative mediator if both parties agree.

 

Dispute resolution

3.35 Part 4 sets out the procedures for resolving franchising disputes. The Code states that mediation must take place where a dispute cannot be resolved between the parties themselves and either party refers the matter to a mediator. The mediation adviser, appointed by the Minister in accordance with section 25 of the Code, appoints a mediator of their choice where the parties cannot agree to a mediator on their own. The parties (or their representatives) must attend mediation to attempt to resolve the dispute, though no requirement to participate in good faith exists within the Code. If, after 30 days of unsuccessful mediation, either party asks the mediator to terminate the mediation, this must occur. The Code does not provide for the mediator to make a determination about the merits of each party’s case in the event of failed mediation. (Trade Practices (Industry Codes – Franchising) Regulations 1998, sections 24 to 31, pp. 24-26)

Other mandatory industry codes

3.45 Two other prescribed mandatory industry codes have been established under section 51AE of the Trade Practices Act 1974 (TPA). They are the Oilcode and the Horticulture Code.

Oilcode

3.46 The Trade Practices (Industry Codes – Oilcode) Regulations 2006 (the Oilcode) came into effect on 1 March 2007. It operates as a mandatory industry code under section 51AE of the TPA and replaced the repealed Petroleum Retail Marketing Sites Act 1980 and Petroleum Retail Marketing Franchise Act 1980.43

3.47 The Oilcode regulates the conduct of suppliers, distributors and retailers in the downstream petroleum retail industry. It was implemented to establish the following:

• consistent and transparent approaches to terminal gate pricing and fuel re-selling agreements;

• standard contractual terms for supplier-retail re-selling agreements; and

• an independent dispute resolution scheme.44

3.48 As with the Franchising Code of Conduct, the ACCC is responsible for administering the legislation under which the Oilcode operates. The Oilcode’s effectiveness is also monitored by the ACCC.45

3.49 The most relevant aspect of the Oilcode to this inquiry is the dispute resolution scheme. Under section 41 of the Oilcode, the Minister is required to appoint a Dispute Resolution Adviser (DRA). This person must arrange mediation or other assistance where the relevant parties cannot resolve the dispute themselves and is granted the authority to make a non-binding determination about the dispute.

Section 45(1) also stipulates that mediation and assistance provided in accordance with the Oilcode must be carried out in good faith.

3.50 These dispute resolution processes do not restrict parties to the dispute from making direct complaints to the ACCC or pursuing litigation.47

Horticulture Code

3.51 The Trade Practices (Horticulture Code of Conduct) Regulations 2006 (the Horticulture Code) came into effect on 14 May 2007. It regulates participants in the horticulture industry and was implemented to achieve the following objectives:

• provide greater clarity and commercial transparency between growers and wholesale traders; and

• establish a dispute resolution scheme.48

3.52 The dispute resolution procedure provisions stipulate the circumstances in which a mediator may be appointed to resolve disputes. In contrast to the Oilcode, the Horticulture Code does not oblige the parties to mediate in good faith, and the appointed mediator may terminate the mediation if it is unlikely to resolve the dispute. (Trade Practices (Horticulture Code of Conduct) Regulations 2006, section 36).

The Mediation Process

Existing mediation provisions

7.9 As previously outlined in paragraph 3.34, Part 4 of the Franchising Code of Conduct (the Code) sets out mediation procedures to be followed in resolving franchising disputes. Parties are initially obliged to try to agree about how to resolve a dispute but, in the event that they cannot, may refer the matter for mediation. When either party seeks to put a mediation process in place, section 29(6) states: ‘The parties must attend the mediation and try to resolve the dispute’.5

7.10 Parties may agree to appoint a particular mediator. Where they cannot agree, either party may approach the Office of the Mediation Adviser (OMA), which will then appoint a suitably qualified and experienced mediator.6

7.11 The Department of Innovation, Industry, Science and Research (DIISR), which has responsibility for providing policy advice on franchising to the Minister for Small Business, Independent Contractors and the Service Economy, submitted the following information to the committee regarding the current operation of the OMA:

OMA statistics indicate that around 75 per cent of mediations conducted through the OMA result in a binding settlement.7 Under the terms of the Government contract with the OMA, the maximum fee for the mediator is $275…per hour. The cost of the mediation is shared between the parties involved (unless otherwise agreed). On average, mediations cost each party approximately $1,500 and average completion time after the appointment of the mediator is five weeks.

 

7.13 The Department also provided information on the level of activity of the OMA:

The latest report from the OMA indicates that the OMA has received around 3,064 dispute enquiries since 1 October 1998. Over the same period, 919 appointments were scheduled with mediators. The number of dispute enquiries received by the OMA each year is generally stable, averaging around 365 enquiries each year since 2002. This is despite the growth of the franchising sector over the same period. The largest number of dispute enquiries relate to the retail trade industry, including motor vehicle, fuel and food retailing.10

7.14 It identified ‘Terms of Termination/Exit Arrangement’ as the most frequently mediated issue and further noted that: ‘The majority of the referrals to the OMA are from the ACCC, solicitors and industry representatives (such as the Franchise Council of Australia)’.11

7.15 The lower number of referrals from franchisees is inconsistent with claims in franchisee submissions to the committee that there is significant disputation in the sector. This is likely to reflect a combination of lack of confidence by franchisees in mediation processes (discussed further below); use of mediators other than those appointed by the OMA; and the establishment of internal dispute resolution mechanisms in some franchise systems.

OAAL put forward a number of reasons why franchisees might choose not to engage in mediation through the OMA, including fear of retribution; potentially high costs; a sense that franchisors are unlikely to engage in meaningful negotiation; and the possibility that franchisors will draw out the process in order to pressure the franchisee into giving in to franchisor demands.

 

Committee view

7.27 It is difficult to assess the efficacy of current mediation provisions in the Code in the absence of a reliable understanding of the true extent of disputation in the sector. The committee therefore recommends that the government require the Australian Bureau of Statistics (ABS) to develop mechanisms for collecting and publishing statistics relating to the franchising sector, with a focus on franchise disputation and dispute-related franchisee turnover, using information collected from both franchisees and franchisors. This may be appropriately undertaken as part of existing business surveys, or as a new survey directed at the sector only.

 

In light of these comments, the relatively high settlement rate cited for the

OMA mediations is potentially misleading. The blunt settlement figure provides no indication either about the relative satisfaction of the parties with the mediation outcome, or whether the mediation outcome subsequently occurs. According to Mr Robert Gardini:

…the high settlement rate of motor vehicle dealer disputes under mediation is not representative of a high rate of dealers receiving equitable resolutions to their disputes. Although mediation is being sought more frequently by dealers, this is merely indicative of their inability to seek adequate redress in the court system, and not a testament to the effectiveness of the settlement process. It should not be forgotten that ‘settlement’ can encompass…any one scenario on a continuum of outcomes, including (at best) the circumstance of a satisfactory outcome for both parties, to the more realistic results whereby a dealer is reluctant but can live with the terms of the settlement, and finally (arguably the most common outcome) where a dealer has little choice but to accept any offer in the absence of either adequate legal redress or the ability to fund costly legal proceedings.