Husqvarna in breach of the Franchising Code of Conduct

Husqvarna Australia (Husqvarna), a subsidiary of the Swedish Husqvarna Group, has recently signed an enforceable undertaking to the Australian Competition and Consumer Commission (ACCC) in relation to breaches of the Franchising Code of Conduct (Franchising Code), the Competition and Consumer Act (CCA) and the Australian Consumer Law (ACL). The gardening and outdoor power tools company admitted that it had likely mislead its franchisees when stating that the Franchising Code of Conduct did not apply to their contracts as they were covered by a ‘dealership agreement’ rather than a franchise agreement.

With over 340 Husqvarna dealers in Australia covered by the ‘dealership agreements’, Husqvarna admitted that throughout the course of business, it had likely terminated one or more dealership agreements, in breach of the Franchising Code, which in turn resulted in a breach of the CCA.

After undertaking an investigation into the allegations against Husqvarna, the ACCC concluded that the dealership agreements meet the definition of a franchise agreement, with Husqvarna’s actions amounting to misleading and deceptive conduct in breach of the ACL. The ACCC provided that “where an agreement meets the definition of a franchise agreement, it will be covered by the [Franchising] Code regardless of whether it is referred to as a franchise agreement or not”. Husqvarna’s claim that the dealership agreements were not franchise agreements gave the impression to their dealers that they were not entitled to the various protections available under the Franchising Code.

The ACCC were also concerned about the existence of standard form agreements used by Husqvarna which contain a number of unfair contract terms which are both void and unenforceable. With the main focus of ensuring franchisees are protected by the Franchising Code of Conduct, the ACCC accepted an enforceable undertaking by Husqvarna which provided that Husqvarna will, amongst other things:

1. create a new agreement that complies with the Franchising Code of Conduct, free of any unfair contract terms, which will be offered to any new dealers;

2. provide all existing dealers with, an ACCC approved, written notification that the Franchising Code of Conduct applies to all existing dealer agreements, in addition to providing the opportunity for dealers to transition to the new agreement;

3. agree not to enforce any of the unfair contract terms in the existing dealership agreement;

4. provide all dealers, both new and existing, with a disclosure document and any other information required by the Franchising Code of Conduct; and

5. implement and maintain an ACL compliance program for a minimum of three years.

This matter provides a timely reminder to all franchisors that an agreement does not have to be called a franchise agreement to be covered by the Franchising Code of Conduct. The Deputy Chair of the ACCC has provided three key elements that indicate the existence of a franchise agreement:

1. the existence of a contract where one party grants the other a right to do business;

2. the business is associated with a particular trademark; and

3. a fee is required to be paid by the party wanting to run the business prior to starting the business.

For more information relating to franchising agreements and relationships, or for general commercial law advice, please contact:

Vittoria De Stefano
Principal Lawyer
T: 03 5226 8520
E: vdestefano@ha.legal

or

Alasdair Woodford
Senior Associate
T: 03 5225 5217
E: awoodford@ha.legal

This article was written with the assistance of Jordan Nichols, Graduate Lawyer