Parliamentary Committees

ECONOMIC AND FINANCE COMMITTEE: FRANCHISES (SUPPLEMENTARY REPORT)

The Hon. M.J. WRIGHT (Lee) (11:22): I move:

That the 75^th Report of the committee, entitled Franchises (Supplementary Report), be noted.

The Hon. M.J. WRIGHT: I am pleased to present to the house the 75^th report of the Economic and Finance Committee entitled Franchises. I also note that this speech deals with the legislative landscape as it appeared at the time of the report's publication. I note that the Small Business Commissioner Bill was introduced during the last sitting week and will be debated in this chamber. I look forward to the details of that bill contributing to a wider debate that includes the findings of the committee's report.

In December 2010 the committee resolved terms of reference that invited written submissions from interested parties to comment specifically on how the changes to the Franchise Code of Conduct have addressed the recommendations made by the committee in its 2008 inquiry on franchises. The inquiry received 71 submissions, with a mix of private individuals, businesses, government agencies and industry peak bodies responding.

By way of history, in 2008 the fifth Economic and Finance Committee published its 65^th report entitled Franchises. The 2008 franchises report contained 26 recommendations. These recommendations covered a variety of issues raised during the inquiry including: enhancing disclosure across a range of areas; statutory definitions of unconscionable conduct' prescribing good faith and fair dealing in the code; wider, more enforceable, alternative dispute resolution processes; and a more active role for the Australian Competition and Consumer Commission as the industry watchdog.

The report coincided with a series of reports into franchising at state and commonwealth level. In July 2010 the Franchising Code of Conduct was amended, with 12 areas subject to alteration, including franchise failure, payments to third parties, unilateral variation, confidentiality, end of franchise agreements, notice of renewal, good faith and mediation. In addition to changes to the code, the Competition and Consumer Act 2010 provided further changes to the regulatory landscape for franchises.

The report I speak to today is the Economic and Finance Committee's analysis of these reports and the changes made at a national level and whether any issues remain in the wake of these reforms. The committee notes that, of the 26 recommendations in the 2008 Economic and Finance Committee report, 21 were, on its analysis, not acted on as a result of the 2010 changes. Of the eight that were, the majority were addressed, on the committee's analysis in part, meaning some element of the recommendation, perhaps even just the spirit of it, was implemented but not the full effect as intended.

In reviewing the condition of the code and the franchise sector in the wake of the 2008 reports, the 2010 changes to the code and the introduction of the Competition and Consumer Act 2010, the committee notes the emphasis on disclosure mechanisms at the expense of the more far-reaching recommendations from this committee. For all this, the committee considers the changes made to the regulatory regime to be generally positive, if marginal in places. The committee is of the view that those recommendations not acted on, those dealing with good faith and alternative dispute resolution, as opposed to mediation or litigation, are likely to remain live in the minds of those interested in improving the sector.

The committee notes the introduction of a small business commissioner in South Australia is designed, in part, to provide further resources to supporting the provisions of the franchise code, among other industry regulations. Evidence considered by the committee suggests that, over time, the commissioner's office may provide an adjunct to existing national franchise regulation dealing in a local context with some of the problematic issues affecting franchises. Examples might include the interface between franchising and retail tenancy legislation, targeted advice for franchisees and prospective franchisees, franchise registration, and interface with the ACCC on franchise matters.

The committee is of the view that the volume of franchise related activity dealt with in the commissioner's office should be monitored. Should volumes increase, there should be consideration given to allocating resources to ensure the office is not constrained from performing its functions. Should state-based legislation be introduced, specifically dealing with franchises in South Australia, the small business commissioner may play a role in the regulation of any state-based system. It may be, however, that the commissioner's proposed powers make such legislation unnecessary. Given the above and pursuant to section 6 of the Parliamentary Committees Act 1991, the Economic and Finance Committee recommends to parliament that it note this report.

Mr GOLDSWORTHY (Kavel) (11:27): I am pleased to make a brief contribution in relation to the motion moved by the member for Lee, the chairperson of the Economic and Finance Committee, that the 75^th report of the committee into franchises, entitled Franchise (Supplementary Report), be noted. Going back over some history concerning this matter, it dates back quite a number of years—I think about four or five years, if my memory serves me correctly—to the parliamentary term between 2006 and 2010, when the matter was first brought before the committee. It has been a longstanding matter that the committee has been dealing with.

I was a member of the committee in that parliamentary term. When we were first looking at that matter, I think the Minister for Correctional Services, the member for West Torrens, was the chairperson of the committee at the time. He was one of the chairpersons of the committee; I think we had two or three through that parliamentary term. If my memory serves me correctly, it dates back to 2006 or 2007, when we had a franchisee come and give evidence to the committee about some issues that business person had with their particular franchising system.

As the member for Lee has provided information to the house in relation to the specific reference concerning this particular report, I do not need to traverse that. It is all here in the report. In terms of some introductory information (and it is also highlighted in the report), the committee did not intend that this report be exhaustive or to re-examine in meticulous detail many of the prevailing issues in contemporary franchising law or practice.

As the committee's previous report, which the member for Lee spoke about and the two reports to which I have alluded, as well as several other reports, bills, discussion papers, media campaigns and regulatory changes in the last decade testify, the franchising industry is as much a generator of debate as it is of economic activity. While this report intends to add to the debate, it does so with some circumspection.

In relation to some further background concerning the deliberation on the evidence provided, and as the member for Lee also highlighted, in 2008 the fifth Economic and Finance Committee published its 65^th report, entitled Franchises. As I said previously, all the evidence and the work the committee did over those two or three years was finalised in that 2008 report, which received 46 submissions and held 10 hearings.

The inquiry commenced as a result of concerns within the community—not least amongst franchisees—about the manner in which the franchising sector was regulated, with a particular emphasis on the perceived entrenchment of a power imbalance between franchisors, who arguably hold most of the power, and franchisees, who carry most of the losses. The previous comments highlight that, which is why the committee was, in the first instance, prepared to investigate the issue and take evidence.

The chairperson of the committee, the member for Lee, when speaking to the motion, highlighted part 6 of the report, which includes 61 pages. The member for Lee spoke to the conclusions, and addressed every one of the conclusions the committee deliberated and decided upon. However, there are a number that I would also like to highlight, really reinforcing what the chairperson has highlighted in the house. That is, the committee notes that, of the 26 recommendations in the 2008 report, 21 were, on its analysis, not acted on. Of the eight that were, the majority were addressed—on its analysis—in part, meaning that some element of the recommendations, perhaps even just the spirit of them, was implemented but not to the full extent intended.

Moving through some of the other conclusions, from two parliamentary committee reports in 2008, with a combined total of 36 recommendations, barely a third were implemented or effected in some way. For all this, the committee considers the changes made in the regulatory regime to be generally positive, if marginal in places. The committee is of the view that of those recommendations not acted upon, those dealing with good faith and alternative dispute resolution, as opposed to mediation or litigation, are likely to remain live in the minds of those interested in improving the sector.

Furthermore, evidence considered by the committee suggests that, over time, the commissioner's office (and this is in relation to the potential for a small business commissioner being established) may provide an adjunct to existing national franchise regulations, dealing in a local context with some of the problematic issues affecting franchises. Examples might include the interface between franchising and the retail tenancy legislation (and we took some evidence in relation to that over a number of weeks, if I can cast my mind back a number of years in relation to that), targeted advice from franchisees and prospective franchisees, franchise regulation and interface with the ACCC on franchise matters.

That is highlighting a number of the conclusions (not in their entirety) but the chairperson, the member for Lee, did that in his contribution. It is not appropriate, in speaking to the motion, that we traverse those issues that were raised in the debate here only a couple of weeks ago in relation to the Small Business Commissioner Bill because that is still before the parliament in the other place. However, as a member of the Economic and Finance Committee, I certainly support the motion from the member for Lee in relation to the 75^th report entitled Franchises (Supplementary Report).

The Hon. M.J. WRIGHT (Lee) (11:35): I welcome the support from the member for Kavel, and I am happy to conclude on that note.

Motion carried.