A failure to provide Disclosure Documents no longer invalidates Franchise Agreements
Today, the High Court handed down a unanimous decision reversing the NSW Court of Appeals decision in Ketchell.
The Franchising Code of Conduct prohibits franchisors entering into, renewing or extending franchise agreements unless they receive from the prospective franchisee notification that they have received a copy of the current Disclosure Document and a copy of the Code. The NSW Court of Appeal held that a failure to receive such a notification before entering into a franchise agreement rendered that agreement null and void. This decision created considerable concern amongst franchisors and the franchise industry. The Franchise Council of Australia supported the appeal of this decision to the High Court.
The High Court has now reversed the decision on largely technical grounds. All franchise agreements entered into without the franchisor having first provided a Disclosure Document (and received notification) will stand, although the franchisor will be in breach the Franchising Code of Conduct and will be open to damages claims.
Despite the High Court's decision, though, issues of invalidity may remain. A failure to provide a Disclosure Document could result in claims of misleading and deceptive conduct. In many case, franchisees will be able to escape on this basis. Indeed, the High Court went further, acknowledging that in extreme cases of non disclosure it may be appropriate for a Court to declare the franchise agreement void.
If you would like to talk about how this may affect you, contact either Rob Toth or Martin Algie.
