12 June 2020

Changes to the Franchising Code of Conduct – New Car Retailing Market

Greg Moroney, Brian Smith, Lachlan Thorburn
Greg Moroney Commercial Lawyer
Brian Smith Commercial Lawyer
Lachlan Thorburn Litigation Lawyer

Competition and Consumer (Industry Codes) Amendment (New Vehicle Dealership Agreements) Regulations 2020 (“NVDA Regulations”) were passed by the Australian Parliament on 29 May 2020 to take effect on and from 1 June 2020. 

The NVDA Regulations are the result of the Australian Competition and Consumer Commission (“ACCC”) making a number of recommendations aimed at addressing concerns within the new car retailing market which were leading to suboptimal outcomes for consumers and hindering effective competition. The ACCC also noted that some of the competition concerns within the new car retailing market stem from the power imbalance in the commercial relationships between the large car manufacturers and two other groups, namely new car dealers and independent repairers.

The NVDA Regulations addressed these issues faced by the new car retailing market by amending Schedule 1 of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Code) in the following manner:

1.  Definitions

Introducing a number of new definitions, namely:

  1. new light goods vehicle
  2. new passenger vehicle
  3. new vehicle
  4. new vehicle dealership agreement.

New vehicle dealership agreement means a motor vehicle dealership agreement relating to a motor vehicle dealership that predominantly deals in new passenger vehicles or new light goods vehicles (or both)”.

By application of the new light goods vehicle and new passenger vehicle definitions, NVDA’s involving passenger cars up to nine seating positions including that of the driver and vehicles with a gross vehicle mass not exceeding 3.5 tonnes will be affected;

2. End of Term Provisions

Introducing a new Part 5 Division 2 – End of Term Provisions the effect of which is to:

  1. mandate end of term obligations for an NVDA of 12 months or longer;
  2. require each of the franchisor and the franchisee to give notice to the other if it intends to extend the agreement or enter into a new agreement at least 12 months before the end of the term of the agreement;
  3. require the franchisor to give notice to the franchisee if it intends to enter into a new agreement that the franchisee may request a disclosure document under clause 16 of the Code require the franchisor and the franchisee if either does not intend to enter into a new agreement or to extend the agreement to include in its notice to the other reasons for its intention;
  4. in the event that either party does not intend to extend the agreement or intend to enter into a new agreement the parties must agree to a written plan (with milestones) for managing the winding down of the dealership, including how stock (including new vehicles, spare parts service and repair equipment) will be managed over the remaining term of the agreement. The parties must work together to reduce stock at the remaining term of the agreement.

3. Capital Expenditure

Regulate capital expenditure and for that purpose:

  • Inserts Part 5 Division 3 – Capital expenditure containing a new definition for “significant capital expenditure” as follows:

“(2) for the purpose of subclause (1), significant capital expenditure excludes the following:

  1. expenditure that is disclosed to the franchisee in the disclosure document that is given to the franchisee before:
    • entering into or renewing the agreement; or
    • extending the term or scope of the agreement;
  2. if expenditure is to be incurred by all or a majority of franchisees-expenditure approved by a majority of those franchisees;
  3. expenditure incurred by the franchisee to comply with legislative obligations;
  4. expenditure agreed by the franchisee.”
  • mandates that a franchisor does not require a franchisee to undertake significant capital expenditure (as defined) in relation to a franchised business during the term of the franchise agreement
  • imposes an obligation on the franchisor to include in a disclosure document as much information as practicable about expenditure including such things as the rationale for the expenditure, the amount, timing and nature of the expenditure and the anticipated outcomes and benefits of the expenditure;

4. Resolving Disputes

In addition to the dispute resolution provisions of the Code Inserts Part 5 Division 4 – Resolving disputes whereby two or more franchisees who each has a dispute of the same nature with the franchisor to ask the franchisor to deal with the franchisees together about the dispute.

The amendments effected by the NVDA Regulations have application on and from various dates and accordingly franchisors and franchisees will need to check the Regulation to ascertain what provisions are relevant and from what date.

Please contact Greg Moroney if you require further information pertinent to your situation.

 

1 Explanatory Statement on NVDA Regulations 2020 issued by the authority of the Minister for Industry, Science and Technology for the Treasurer 29/05/2020.

 

 


Individual liability limited by a scheme approved under professional standards legislation (personal injury work exempted).

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