The current Franchising Code of Conduct was repealed and replaced with the new Franchising Code of Conduct on 1 January 2015. The new Code introduces the following changes:
- obligations for parties to act in good faith in their dealings with each other;
- the introduction of financial penalties and infringement notices for serious breaches of the Code;
- Franchisors being required to provide prospective Franchisees with an information sheet outlining some crucial elements of franchising (a template form has been published) as soon as possible;
- Franchisors, with respect to marketing and advertising must provide greater transparency for the use of and accounting for money used for those activities, and the establishment of a separate marketing fund for those marketing advertising fees;
- further disclosure requirements regarding the ability for parties to sell online;
- imposing infringement notices and court penalties; and
- changes to the dispute resolution process.
In this article, we will focus on the obligations to act in good faith. Although there is no definition of good faith in the Code, it states that the obligation of good faith is to reflect the common law principles. This requires the parties to exercise their powers reasonably. If a party fails to take into consideration the interest of the other party or acts dishonestly this conduct may be deemed as not acting in good faith.
The Courts have determined that dealings which are not in good faith involve parties which have other motives, denying another party of their benefits under the contract or acts which undermine the other party.
The Code allows the Court to consider various matters including those listed under the Code to determine whether the party has acted in good faith, such as where the parties have acted honestly and not arbitrarily and co-operated to achieve the purposes outlined in the agreements.
The obligation to act in good faith affects all elements of the franchising relationship including, pre-contractual negotiations, performance of the contract, dispute resolution and the end of an agreement. This obligation to act in good faith cannot be contracted out of nor excluded or limited in any manner.