Legal Insight Issue 3


Franchising Update

The Chocolates 4 U Case – not so sweet!

Legal Professional Privilege – Employees Waiving Your Privilege

Succession Law Update

Franchising Update

The Franchising Code of Conduct ("Code") is a mandatory code which regulates the conduct of franchising participants. The Code is governed by the Trade Practices Act 1974 (Cth) ('TPA") and a breach of the Code constitutes a breach of the TPA. The Code was recently amended in respect of a franchisor's disclosure requirements to the franchisee, including:

  1. If the expected annual turnover of a franchise exceeds $50,000 during the term of the franchise agreement, a long-form disclosure statement must be given;
  2. If the expected annual turnover of a franchise is under $50,000 during the term of the franchise agreement, a shot-form disclosure statement may be given;
  3. Long-form disclosure statement must include certain details such as:
    1. any undertakings or associated orders under section 87B;
    2. past franchisees;
    3. any criminal, trade practices or other litigation against the franchisor or a franchisor director.

The Code now applies to an overseas franchisor who grants only one franchise or master franchise in Australia.

We expect that the Code will be further amended to increase franchisor disclosure and to ensure improved due diligence by franchisees, to include a good faith obligation and to grant the Australian Competition and Consumer Commission ("ACCC") wider enforcement powers in respect of breaches of the Code. We also expect that the dispute resolution provisions under the Code will be improved in line with proposed amendments to the unconscionable conduct provisions of the TPA, with a view to providing better protection for small business and to discourage anti-competitive behaviour.

The Code provides for mediation of franchising disputes and the Office of the Mediation Adviser ("OMA") is responsible for appointing mediators from its National Panel of Mediators to mediate franchise disputes. Our John Vohralik, Consultant Director, is a member of the OMA National Panel of Mediators.


The Chocolates 4 U Case – not so sweet!

The ACCC brought proceedings against both a franchisor, Personalised Chocolates 4 U Pty Limited and its sole director, alleging that franchisees were misled or deceived to enter into franchise agreements and also for engaging in conduct in breach of the Code.

The Federal Court made orders in late 2009 against both the franchisor and its sole director, declaring that the franchisor breached various provisions of the TPA dealing with misleading and deceptive conduct and falsely represented that the franchisor's business system was not a franchise within the meaning of the Code. The Court declared that the sole director was knowingly concerned in all of the relevant breaches of the TPA and Code. The false representations included representations that franchisees would be provided with functioning software, a training manual and would be entitled to a refund of franchise fees in certain circumstances. The franchisor's website also contained supposed testimonials from franchisees that had never in fact been franchisees.

It is expected that the ACCC will continue to fiercely prosecute franchisors who engage in misleading or deceptive conduct or who breach provisions of the Code.


Legal Professional Privilege – Employees Waiving Your Privilege

In October 2009, in ASIC -v- Lindberg & Anor, the Victorian Supreme Court of Appeal ("Appeal Court") held that documents provided to a party to litigation by a stranger to the litigation cannot be subject to a claim for privilege by a person who could otherwise assert such a claim, as the litigating party already had possession of the documents.

During ASIC's investigation of the infamous AWB sales of wheat to Iraq, ASIC interviewed various AWB employees, directors, officers and legal advisors ("the Employees") and received statements from them and had made various transcripts ("Documents"). ASIC commenced proceedings against Mr Lindberg. Mr Lindberg sought discovery of the Documents from ASIC. AWB, although not a party to the proceedings, sought orders that ASIC be restrained from disclosing the Documents until AWB had a chance to inspect them and assert any potential claim for privilege. The Victorian Supreme Court made the orders sought by AWB. ASIC appealed claiming there was no privilege in the Documents, or, in the alternative, that any privilege had been waived and that the Court had no jurisdiction to order a party to litigation to provide documents to a non-party.

Appeal Court – Decision

The Appeal Court:

  1. held that AWB was not entitled to access the Documents and any privilege in them was lost once the Documents were provided to/created by ASIC, (notwithstanding ASIC's concession that it could not be assured that some privileged information may not slip through its "protocol net");
  2. referred to numerous decisions, (although not without criticism), where privilege had been lost when an opposing party obtained "privileged" documents by accident, trickery, theft or dishonesty;
  3. found that privilege had been waived, therefore protection from disclosure could only be obtained by equitable remedies protecting confidential information;
  4. held that the substantive legal right entitling all people to be given an adequate opportunity to assert a claim for privilege was not applicable (and therefore AWB was not being denied the right), as the Documents were not in the possession of the party claiming privilege, either on its own or another's behalf - ASIC had possession of the Documents rather than AWB and had no interest in protecting any possible privilege of AWB;
  5. suggested that it would have rejected any argument that the Court does not have jurisdiction to order a party to proceedings (ASIC) to produce documents to a non party (AWB), for the purpose of the non-party asserting a possible privilege claim.

This decision is a timely reminder for companies to consider whether they have in place appropriate policies (and confidentiality clauses) regarding disclosure of company documents and information to third parties. Such policies should prevent employees disclosing privileged or confidential documents or information and will operate to provide a company with clearer remedies and a stronger claim in equity to protect confidential information, in the event a Court finds that privilege has been waived.


Succession Law Update

There have been recent significant reforms to the laws relating to wills, family provision and intestacy in New South Wales.

The Succession Act, 2006 (NSW) ("Act") commenced on 1 March 2008. The move towards uniform succession laws throughout Australia has gathered momentum.

The Succession Amendment (Family Provision) Act, 2008 commenced on 1 March 2009. These provisions empower the Court to make an order for the provision (or further provision) out of a deceased estate for the maintenance, education or advancement in life of an eligible person. Much of the prior regime under the Family Provision Act, 1982 ("FPA") has been retained.

The most recent reform, the Succession Amendment (Intestacy) Act, 2009, commenced on 1 March 2010. Rules of intestacy will apply where a person dies without a will or dies with a will but does not dispose effectively of all or part of their property.

Wills made on or after 1 March 2008 are governed by the Act. Wills made before that date continue to be effective but will be governed by the repealed provisions of the Wills, Probate & Administration Act, 1898 (now known as the Probate and Administration Act, 1898), the repealed FPA and in some cases, some provisions of the Act.

The Act provides a statutory order for distribution of intestate estates. If a person dies leaving a spouse only or a spouse and children (who are also children of the spouse), the spouse will receive the whole of the intestate estate. In the case of multiple spouses (e.g. where the deceased was married and also in a domestic partnership), the multiple spouses will share equally in the whole of the intestate estate and subject to certain criteria being met, the children receive nothing.

Importantly, a spouse is a person who was married to or in a "domestic partnership" (being a de facto relationship that has been in existence for a continuous period of at least 2 years or has resulted in the birth of a child) with the deceased immediately before his or her death.

If a person dies intestate leaving no spouse but leaves children, the deceased's children are entitled to the whole of the estate.

The intestacy rules get more complicated where a person dies intestate leaving children of a prior relationship. In such cases, the spouse is entitled to (or, if multiple spouses, they are entitled to share) the deceased's personal effects, a CPI adjusted statutory legacy of $350,000.00 and one half of the residue (if any) of the intestate estate. The remaining one half of the residue (if any remains) is vested in the children. A spouse has a right to acquire property from an intestate estate.

If a person dies intestate leaving no spouse and no children, their estate will be distributed in the following order: parents; siblings; nieces and nephews; grandparents; aunts and uncles; cousins or, if no surviving relatives, the State. The State may waive its rights and make provision in favour of any dependant; any person who has a just and moral claim; any organization or person for whom the deceased might reasonably be expected to have made provision; or the trustees for any of the above.

Although the intestacy rules provide a mechanism for distribution of intestate estates, it is often costly and time consuming to need to deal with these provisions. Also, estates may be distributed contrary to a person's wishes or adversely in terms of asset protection. In view of the recent significant reforms, now is an ideal time to make, review or update your will to ensure that it meets your requirements and reflects your current wishes. It may also be prudent to have a power of attorney and/or enduring guardian in place. Please contact us if you would like our assistance in this regard.



Hugh & Associates is a Sydney based legal firm with extensive experience in commercial, finance and insolvency law and litigation. If you require legal advice in these areas, we would be pleased to assist you.

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