Possible tougher Trade Practices Laws

For 200 years the law in Australia has recognised that if a person engages in unconscionable conduct in a commercial transaction, another person affected by that conduct may have remedies or rights. The prohibition was confirmed in 1974 by including it in the Trade Practices Act. But there remains a great deal of uncertainty about when conduct in business goes beyond “driving a hard bargain” and becomes “unconscionable conduct”.

There are a handful of legal precedents in Australia that help the understanding of unconscionable conduct, but their value is limited because of the infinite nature of commercial agreements and circumstances.  Dr Craig Emerson, Minister for Small Business, announced in November an enquiry into the state of the law in relation to unconscionable conduct and whether the Trade Practices Act should be amended to clarify or expand the law.

The terms of reference and the issues paper for the enquiry singled out franchising for special attention. The Minister asked an expert panel to consider whether a list of commercial behaviours in franchising should be included as examples of unconscionable conduct in the Trade Practices Act.

Dr Emerson announced last week that reforms to the Franchising Code of Conduct will require franchisors to provide prospective franchisees with a short, simple plain English document which sets out their rights and responsibilities as well as making it clear that there may be unilateral contract variations, unforeseen capital expenditure, requirements to meet legal costs and confidentiality restrictions. The document must also detail the process of sale of the business. This requirement will be in addition to current disclosure document requirements.

The Minister also announced changes to the Trade Practices Act which will make the unconscionable conduct provisions clearer and easier to understand.

The changes will take effect from mid-2010 followed by a reform free period of 3-5 years, which the panel suggested would allow time to assess the effectiveness of the new provisions.