Franchising Law – The Federal Court Of Australia Declares Decision In Ketchell’s ‘Plainly Wrong’
In a decision which will only fuel more uncertainty in the franchising industry, Justice Rares of the Federal Court of Australia has refused to follow the decision of the Court of Appeal in Ketchell’s case, declaring that it was ‘plainly wrong’. The decision throws doubt over the consequences of a franchisor’s failure to comply with the Franchising Code of Conduct (Code). That doubt will not be resolved until the High Court delivers its judgment on appeal in Ketchell’s case which was heard on 10 June 2008.
What the Court of Appeal held in Ketchell’s Case
In Ketchell’s case, the Court of Appeal ruled that the franchisor’s failure to obtain the requisite certificate under clause 11 of the Code (to the effect that the franchisee had read, received and had a reasonable opportunity to understand the disclosure document and the Code) (Certificate) rendered the franchise agreement void for illegality. The Court of Appeal held that a court does not have the power to relieve against the directly prohibited conduct of clause 11 of the Code. According to one of the presiding judges, President Mason, who reviewed the Code and the applicable provisions of the Trade Practices Act (TPA), what is prohibited under clause 11 ‘is not just conduct but the contract itself and the recovery of money under it’. The decision sent shockwaves through the franchise industry, with many franchisors concerned about the status of their franchise agreements (and their ability to recover monies under them) after failing to obtain the Certificate from franchisees.
What Justice Rares of the Federal Court of Australia held
In the recent judgment, delivered on 30 May 2008, Justice Rares rejected an argument which was unusually raised by the franchisor (and not the franchisee) that its failure to obtain the Certificate rendered the franchise agreement void, in line with Ketchell’s case. In reviewing the decision in Ketchell’s, Justice Rares acknowledged that he should not depart from the ruling of an intermediate appellant court in another jurisdiction on the interpretation of Commonwealth legislation, unless he was convinced that the interpretation was ‘plainly wrong’.
Justice Rares had no hesitation in making such a finding in relation to Ketchell’s.
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