Alert: Strict Compliance With The Code Is Necessary

In a recent case, Ketchell v Master of Education Services Pty Ltd, the New South Wales Court of Appeal has handed down a significant decision that will have far reaching effects on franchisors.

Facts

Under clause 11(1) of the Franchise Code of Conduct (Code), a franchisor must receive a written statement signed by the franchisee before entering into a franchise agreement, to the effect that the franchisee had a reasonable opportunity to read and understand the disclosure document and franchisee agreement. The franchisor in this case did not receive this statement.

In a previous case in the Supreme court involving The Cheesecake Shop, which dealt with a similar issue, the court held that failure to obtain the relevant statements required under clause 11(1) of the Code did not render the contracts void for illegality, but left open the position for a franchisee to sue for damages if the franchisee suffered loss as a result of the breach of the code.