SA Small Business Commissioner proposes additional regulation for franchises in South Australia

By Marian Ngo, Lawyer, MST Lawyers

The Small Business Commissioner Act 2011 (SA) (“the Act”) established the Office of the Small Business Commissioner (“OSBC”) in 2012.  The OSBC’s mandate includes providing a framework for small business operators to resolve disputes and providing “information to improve the capacity of small businesses to manage their affairs and inform their decision making, so that disputes are less likely to occur”.

The Act has been referred to as “back-door franchising legislation” and is controversial in the franchising sector as it enables the South Australian Government to develop industry codes of conduct under the Fair Trading Act 1987 and impose civil penalties for contravention of the same.  In the event that an industry code is enacted in relation to the franchising industry, franchisees and franchisors operating in South Australia will be required to comply with both the national Franchising Code of Conduct (“the Code”) and the South Australian industry code.

Surely enough, on 17 April 2015, the South Australian Small Business Commissioner released draft Fair Trading (Franchising Industry Dispute Resolution Code) Regulations (“the proposed industry code”), seeking feedback within a relatively short time frame i.e. by 15 May 2015.

In effect, the proposed industry code compels franchisors and franchisees engaged in a dispute in South Australia to participate in an alternative dispute resolution procedure conducted by the OSBC.  Under the proposed industry code, parties to an alternative dispute resolution procedure would be required to comply with the written requests of the OSBC within 14 days, including requests to:

• exchange information relevant to the dispute with the other party;
• answer questions in respect of matters relevant to the dispute;
• attend meetings; or
• participate in mediation or another form of alternative dispute resolution.

For the purposes of conducting the alternative dispute resolution procedure, the OSBC may refer the dispute to mediation or after consultation with the parties, appoint a person “able to provide expert advice on matters relevant to the dispute to assist the officer”.

In the event that the OSBC arranges mediation under the proposed industry code, each party is required to pay a fee of $195 for each day, or part of a day, on which the mediation occurs. Contravention of the proposed industry code could incur civil penalties of $4,000 in the case of a body corporate and $500 in the case of a natural person.

The Law Society of South Australia has responded to the proposed industry code, its submission can be read here. Franchisors and franchisees operating in South Australia should continue to comply with the Code whilst monitoring developments in relation to the proposed industry code. In the event that the draft regulations are passed, franchisors and franchisees engaged in a dispute in South Australia will be required to comply with both the dispute resolution provisions set out in the Code and the South Australian industry code. 

For further information, please contact our Franchise Law team by email franchise@mst.com.au or by telephone +61 38540 0200.