Federal Court throws out ACCC’s Franchise Application 

November 9, 2007

Lawyers expect that the Federal Court decision in Polar Krush ice machines will have a substantial impact on Australian franchising and distributorship industries. 

Malcolm McBratney , a partner at law firm, McCullough Robertson, said the recent case provides clarity on the difference between a franchise agreement and a distribution agreement, and importantly whether a particular arrangement will fall within the ambit of the Franchising Code of Conduct. 

Mr Mc Bratney said that the ACCC has taken Polar Krush to the Federal Court alleging that contraventions of the Code had occurred as the respondents had attempted to contract out of the Code by labelling its contracts as ‘sub-distribution’ agreements, rather than franchise agreements. 

“Justice Tracey of the Federal Court of Australia dismissed the ACCC’s application and found that the arrangement, which involved the sale and distribution of Polar Krush ice machines, was not a franchise agreement and therefore not subject to the Code.

This was a very important decision as it confirmed that it is possible to structure distribution style arrangements outside the Code, following years of uncertainty in this regard.” 

“In his decision Justice Tracey found that there was no ‘system’ or ‘marketing plan’ in place due to the fact that the alleged franchisors had no right to inspect the financial records of the sub-distributors, that the sub-distributors were under no obligation to provide a business plan and other than minor restrictions in advertising, the sub-distributors were free to run their business as they pleased. 

A lack of a system or marketing plan, together with the requisite control, meant that there was no franchise agreement as defined by the Code.” 


 
As reported at My Business



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