Franchising in Australia: Good Faith, Disclosure and Informed Decision-Making

Last Updated on 09/10/2026 by Damin Murdock and Janice Ng

The Franchising Code of Conduct: Disclosure Documents

The Franchising Code of Conduct regulates more than the formal execution of a franchise agreement. Its disclosure requirements, pre-entry safeguards and statutory obligation of good faith establish an integrated framework governing the relationship from recruitment and negotiation through to contractual performance and dispute resolution.

Under the former Code, the disclosure regime was directed to providing prospective franchisees with information necessary to make a reasonably informed decision about entering the franchise. Clause 8 required a franchisor to create and maintain a disclosure document in the prescribed form, while the earnings-information provisions addressed historical financial information, projections and forecasts. The Code also contemplated that earnings information could be supplied in a separate document attached to the disclosure document.

The accuracy of the disclosure document must correspond with the substance of the information actually provided. In Manhattan (Asia) Ltd v Dymocks Franchise Systems (China) Ltd [2014] FCA 1143, the Court recorded that the disclosure document stated that earnings information had been attached, although it was common ground that no such attachment had been provided. The case illustrates the compliance risk created where the disclosure document’s formal statements do not reflect the material supplied to the prospective franchisee.

A corresponding issue arises where a disclosure document states that no earnings information has been given, but the franchisor has made financial representations through advertising, emails or direct discussions. Whether each communication constitutes “earnings information” for the purposes of the Code depends upon the applicable definition and circumstances of provision. Nevertheless, a franchisor cannot safely treat promotional material and the formal disclosure process as legally separate. The same communications may also engage ss 4 and 18 of the Australian Consumer Law (the ACL).

Good Faith Obligations

The obligation of good faith extends the Code’s protection beyond disclosure. Clause 6 required each party to act in good faith, within the meaning of the unwritten law, in relation to matters arising under or in connection with the franchise agreement and the Code. It also extended to dealings with prospective franchisees concerning a proposed agreement.

Clause 6 identified three non-exhaustive considerations: whether the party acted honestly, whether it acted arbitrarily and whether it cooperated to achieve the purposes of the agreement. At the same time, the Code expressly recognised that good faith does not prevent a party from acting in its legitimate commercial interests.

The operation of those principles was considered in AHG WA (2015) Pty Ltd v Mercedes-Benz Australia/Pacific Pty Ltd [2023] FCA 1022. The Court described honesty, the absence of arbitrariness and cooperation as the statutory “touchstones” of good faith. It also observed that the obligation applies notwithstanding contractual language granting one party a power exercisable in its “sole discretion”: at [3066]-[3067]. A contractual discretion therefore cannot be exercised as though it exists outside the Code.

That does not mean every decision adverse to a franchisee is made in bad faith. A franchisor may pursue its legitimate commercial interests, reject an application or enforce a contractual condition where it does so honestly and for a proper commercial purpose. The Code does not establish a general jurisdiction to rewrite commercially harsh bargains.

The distinction lies principally in the method and purpose of the decision. A discretion may attract scrutiny where it is exercised according to criteria that were not disclosed, applied inconsistently, adopted for an extraneous purpose or invoked merely to defeat the commercial object of the agreement. A franchisor that establishes a contractual benefit but administers it in a manner that makes it practically inaccessible may face an argument that it has failed to cooperate in achieving the agreement’s purposes.

The provision of reasons is similarly contextual. Clause 6 does not impose a universal obligation to give written reasons for every decision. However, the absence of any explanation may be evidentially significant where a decision appears inconsistent, arbitrary or unsupported by the contractual criteria. A refusal to explain how an application was assessed may also impede meaningful engagement with the Code’s dispute-resolution procedures.

Good faith may accordingly apply to the administration of rebates, income-support arrangements, territorial rights, renewal processes and other contractual discretions. It may also regulate participation in mediation and dispute resolution. Strategic delay, refusal to engage or reliance on procedural technicalities may contravene the obligation where the conduct is dishonest, arbitrary or inconsistent with genuine cooperation. Conversely, firmly maintaining a legitimate position will not alone establish bad faith.

Remedies for contraventions of the Franchising Code of Conduct

Finally, remedies must be distinguished carefully. A contravention of the Code may support declarations, injunctions and other relief available under the Competition and Consumer Act. Pecuniary penalties, however, are public deterrent sanctions. In Australian Competition and Consumer Commission v Ultra Tune Australia Pty Ltd [2019] FCA 12, the Court described the ACCC’s ability to seek civil penalties for contraventions of civil-penalty provisions of an applicable industry code: at [26]-[27]. Such penalties are not compensation payable to an individual franchisee.

Conclusion

The Code’s central purpose is preventative as well as remedial. Meaningful disclosure protects the decision to enter the franchise, while good faith regulates the exercise of power after entry. Compliance therefore requires more than technically accurate documentation. It requires consistency between the commercial opportunity presented, the agreement ultimately executed and the manner in which its benefits and discretions are administered.

If you have any further questions with regards to the Franchising Code of Conduct or corresponding remedies in contravention of the Code, please do not hesitate to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube, LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google review.

DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article. If you require specific legal advice, please contact us.