Is Franchise Law in New Zealand Changing?

By ASCO Agmen-Smith Lawyers

5 November 2010

Yes it is.  The question is by how much and when?

Firstly there are major changes in general business law under heavy discussion at the moment which will affect all businesses, including franchisors and franchisees.  These laws will affect how franchisors and franchisees do business with the public, and depending on the final details, may affect how they do business with each other.  These include the proposed addition of “good faith” requirements in the Fair Trading Act which is a key part of general consumer law.  There are also proposals for the possible regulation of unfair contract terms and of unconscionable conduct.

All these changes however are at the proposal stage only.  Whether or not they will be passed by the government, and if so when remains uncertain.  It is however more likely than not in my opinion that there will be some general law changes made and in place before the election due for November next year. 

Quite separate is the question of whether or not there will be franchise specific laws.  There were firm proposals for such laws under the last Government.  They were put on hold following the change of Government.  Changes in this area are less likely, but not impossible.  If they do happen they are more likely to be imposing a limited range of compulsory requirements along the lines of the voluntary requirements which already exist in the Franchise Association of New Zealand Inc Code of Practice.  The Code already requires such things as disclosure, independent advice pre-contract and cooling off periods plus better dispute resolution systems.  None of this would be a challenge to most franchisors including particularly franchisors expanding to New Zealand from Australia where there are much more detailed and restrictive compulsory requirements. 

Behind all this activity at Government level there are other changes in the law which affect franchising which continue to happen through the Courts as the common law develops.  A simple example: a case in which we were recently involved where the Franchise Agreement did not provide for any clear provision about the franchisor actually paying the franchisee, if at all? (Not an agreement we prepared or advised on!).  The Court varied the agreement by writing into it the missing obligations to pay.  Court driven requirements will always continue to emerge, and keep changing or clarifying the law in different ways.  Most likely there will also be some Parliament driven legislation or regulation, but the shape and timing of those changes is still some way out in the future.