The Competition and Consumer (Industry Codes—Oil) Regulations 2017 (“the Oilcode”) governs the relationship between petroleum suppliers, distributors and retailers who are involved in the sale, supply or purchase of declared petroleum products in Australia under a form of agreement captured by the Oilcode.
Amongst its key functions/purposes, the Oilcode provides for certain statutory provisions relating to fuel re-selling arrangements and operates to encourage transparency between industry participants.
Due to the distinct and unique nature of the fuel industry, the Oilcode has historically been detached from the Franchising Code of Conduct (“the Franchising Code”), which regulates the conduct of franchising participants in various other industries in Australia with greater scrutiny than the Oilcode historically has.
Following a recent contentious parliamentary inquiry into the Franchising Code, the Parliamentary Joint Committee on Corporations and Financial Services released a report in March 2019 which recommended a host of significant changes to the Franchising Code aimed at improving its operation and effectiveness (“the Report”).
Of the 71 recommendations contained within the Report, some of the key suggested changes to the Franchising Code included:
- Mandatory registration of franchise systems, as well as an obligation on franchisors to lodge template documents with a specified body on an annual basis.
- Civil penalties to apply to franchisors who fail to comply with this obligation.
Reporting and Disclosure
- Heightened reporting and disclosure obligations on the part of Franchisors, both on an ongoing basis and in circumstances where a business is sold by a franchisee to a new operator.
- The inclusion of a right of termination for Franchisees in particular circumstances, such as due to a bad business model on the part of a franchisor;
- Significantly limiting the ability of franchisors to terminate their franchise agreements, which may potentially involve removing the ability of franchisors to exercise their discretion in this respect and having this determined by a third party.
Unfair Contract Terms
- The inclusion of an express prohibition on unfair contract terms and the imposition of civil penalties for franchisors who breach this prohibition.
- This would have the effect of significantly deterring franchisors from including harsh provisions within franchise documents and simply taking the risk that the provision would be struck out by a Court if contested by a franchisee.
Alignment of Codes
Significantly, and of particular interest for the fuel industry, was that the Report also recommended an alignment of the Franchising Code and the Oilcode, and urged for options to be explored which would ensure the two codes remain aligned over time.
The Report, and the subsequent attention from both media and industry participants, has had the effect of turning the spotlight toward the petroleum industry and the franchising arrangements within same, leading some to believe that the Oilcode may in fact be revised in the near future in order to more closely align itself with the Franchising Code.
Given the fact that the petroleum industry has retained a relatively distinct regulatory framework in the Oilcode to date, it appears that any such alignment (particularly in light of the changes suggested to the Franchising Code and as outlined in the Report) could dramatically affect the way in which fuel re-selling agreements are structured by traditional Oilcode Franchisors moving forward.
On face value, the suggested changes as recommended by the Report would provide further protection for both existing and future Oilcode franchisees – an overall positive outcome.
However, given the recommendations (if in fact implemented) would impose significantly more onerous obligations on Franchisors generally than ever before, franchisors within the petroleum industry may look to restructure their current form of transaction agreements to “fall outside” of the scope of the Oilcode.
This would alleviate the need for compliance with such heightened obligations by Oilcode franchisors to their benefit, and yet consequently could adversely affect Oilcode franchisees which would no longer retain the benefits and protection mechanisms the Oilcode provides.
Such restructuring arrangements may involve Oilcode franchisors turning to more simplified model arrangements, as well as the general loosening of obligations thereunder that would otherwise traditionally satisfy the key thresholds set out under the definition of “Fuel Re-selling Agreement” provided for within the Oilcode.
If Oilcode franchisors indeed head down the path of attempting to circumvent the Oilcode, it will be interesting to receive the Court’s interpretation and opinion on any revised transaction documents and/or structure changes imposed, in the event that a franchisee were to dispute the non-application of the Oilcode.
The talk of impending changes to the Oilcode has many stakeholders within the Australian fuel industry on their toes, as it appears the future of the Australian fuel industry and the franchise systems which operate within it may be due for a significant overhaul.
Irrespective of whether the recommendations contained within the Report do in fact materialise, it is of paramount importance that franchisors, franchisees, suppliers, dealers, resellers and retailers continue to stay up to date with the constantly evolving regulatory framework governing their relations.
Rostron Carlyle Rojas Lawyers are experts in service station, franchising and convenience, and property law matters. For further information or assistance in this regard, please contact Corporate, Commercial and Property Partner James Hatzopoulos on (02) 9307 8900 or by email at firstname.lastname@example.org.