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Consumer law to provide BACKDOOR FRANCHISE REGULATION?

by Simon Lord, last updated on 29th October 2010

October 2010 - The Ministry of Consumer Affairs is proposing to extend some elements of consumer law into business-to-business standard form contracts, including franchise agreements.

According to Graham Billings, executive director of the Franchise Association, this could be potentially significant in that, if it goes through, businesses will have to treat other businesses in the same way as a consumer and trade terms deemed to be unfair can be challenged. This is despite recent cases where the Court of Appeal has found that where businesses had full opportunity to carry out due diligence and take legal and financial advice, it is fair and reasonable to hold parties liable to the terms of the agreement they sign.

‘The Ministry’s position appears to be that small businesses are unfairly treated by big companies such as gas and telecommunications suppliers,’ Mr Billings told a recent FANZ meeting. ‘The proposals seek to justify the inclusion of unconscionable conduct and good faith clauses in agreements, thereby potentially going even further [in terms of its impact on franchising] than the Australian legislation. This is being driven by Ministry officials and is being done in something of a rush. The Association had only two weeks to respond to calls for submissions and about ten days notice of oral submissions. It appears that they are trying to get this through before Parliament rises for the December recess.’

The Association has made both a written submission and oral presentation to the Ministry in which it stated that consumer law reform should not result in "backdoor" regulation of the franchise sector. See more information including a brief summary of the submissions.

The Association has asked for briefings under the Official Information Act and had one-to-one meetings with officials to attempt to avoid unintended consequences and backdoor regulation of the franchise sector through a hurried process. A 2008/2009 review  of the franchise sector by the Ministry of Economic Development found that there was no need for franchise-specific regulation in New Zealand.

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