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Industry Codes of Conduct

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Queensland University of Technology

Nick Dowse Industry Codes of Conduct Industry Codes of Conduct – Structure of Answer 1. Issue: “Has [X] contravened an applicable industry code of conduct under Part IVB TPA when it [did naughty thing]?” 2. Section 51AD prohibits corporations, in trade or commerce, from contravening an applicable industry code (s 51AD TPA). 3. Is the defendant a corporation caught by the TPA (doesn’t apply to natural persons)? a. Defined in s 4(1) TPA to include: i. (a) is a foreign corporation; 1. A corporation incorporated outside Australia. ii. (b) is a trading corporation formed within the limits of Australia or is a financial corporation so formed; 1. To determine whether a corporation is a “trading corporation” need to use the current activities test (Hughes v WACA). a. Trading denotes providing goods or services for reward” b. Must be “substantial” trading in relation to corporation’s overall activities, but not necessarily its sole or main activity. i. Can still be a “trading corporation” if your core business does not result in “reward” but you still receive a large proportion of revenue from other trading activities (E v Australian Red Cross). 2. A “financial corporation” is also defined in s 4(1) to mean: a. Banking (other than state banking) i. Must be interstate banking b. Insurance (other than state insurance) i. Must be interstate insurance c. Lending or borrowing money, as distinct from transactions that merely involve the use of money (Ku-ring-gai Co-op Building Society (No 12)) d. Needs to be significant activities but not necessarily sole or main activities e. The term “financial corporation” is not a term of act, no special or settled legal meaning; merely describes a corporation which engages in financial activities or is intended to do so (State Superannuation Board v TPC). iii. (c) is incorporated in a Territory; or 1. A company incorporated in Australian Capital Territory or Northern Territory. iv. (d) is the holding company of a body corporate of a kind above. b. Can also apply to the Commonwealth Crown i. TPA applies to the Commonwealth Crown “in so far as [it] carries on a business” whether that be directly, or by an authority of the Commonwealth (s 2A(1) TPA). 1. An authority of Commonwealth is: a. A statutory corporation (s 4(1)); or b. Corporation in which a statutory corporation has a controlling interest (s 4(1)). ii. The effect of s 2A(2) is to apply the TPA as if the Crown (or its authority) were a corporation. iii. The Crown is sometimes referred to as the “government” – it is a separate legal person 1. Includes the executive branch of government, represented by the Ministries and Departments and officers who attend to its business 2. Government departments are not separate legal entities (but they are still the Crown) iv. Three-step analysis to determine if government body is caught 1. Step 1: Is the relevant entity the Crown? a. Does it enjoy the rights and privileges of the crown? Page 1 of 8 Nick Dowse Industry Codes of Conduct b. If it is a statutory corporation it is necessary to have regard to the particular legislation under which it was constituted to determine whether it has the status of the Crown c. If the statute is silent, this suggests that the corporation is not the Crown. As a matter of statutory construction, it seems that the courts will require a clear indication that the corporation is the Crown 2. Step 2: If it is the Crown, does it carry on a business? a. Instrumentality providing government printing services, crown decides to sell it off as a one-time measure = not carrying on a business, not a substantial activity (J S McMillan v Cwth) b. Cwth contracting for goods/services for its own use = not carrying on business, public procurement in nature (GEC Marconi Systems) i. Note: criticism from Finn J: 1. ‘Government contracting (in procurement and otherwise) is of major significance in the economic life of this country… It is somewhat surprising, that when the State enters the market place to acquire goods or services, it should exempt itself from those norms of conduct considered appropriate to the conduct of trade and commerce that it has imposed upon the private sector as of course….” 3. Step 3: If it is the Crown and does carry on a business (steps 1 and 2 satisfied), does one the exemptions apply? a. Exemptions in s 2C TPA: i. Imposing or collecting taxes (s 2C(1)(a)(i)), or levies (s 2C(1)(a) (ii)), or fees for licences (s 2C(1)(a)(iii)); or ii. Crown bodies that merely grant licences in relation to goods/services (s 2C(1)(b) + 2C(3)) 1. Taxi licences = exempt 2. Operate private hospitals = exempt 3. Licence/permit to acquire goods/services = NOT exempt iii. Wholly intra- or inter-governmental transactions (s 2C(1)(c)). b. State or territory crowns are not bound by Part V TPA (s 2B). 4. Is the conduct in “trade or commerce”? a. Generally requires conduct to be commercial in nature. b. Consumer transactions involving acquisition of goods/services from a business will always occur in trade or commerce. c. Most things will occur in “trade or commerce” so it’s easier to just list what’s NOT trade and commerce: i. Personal tractions (private sale of property) (Argy v Blunts) 1. Business-like steps could not convert a sale of a private residence into trade and commerce. 2. However, if lending money at commercial interest rates, or investing in property may come within “trade and commerce”. ii. Lectures about religious matters (Plimer v Roberts) iii. Olympic selection (amateur sport) (Forbes v Aust Yachting Federation) iv. Educational and political campaigns (Orion v RSPCA (Vic)) v. Misleading statement by one employee to another in the course of construction work on building site (Concrete v Nelson) d. An employee may be liable under the state equivalent (s 9 FTA) if employer engaged in trade or commerce and conduct occurred in the course of trade or commerce. e. Must take place “in” trade and commerce i. Not merely connected with or incidental to trade or commerce (Hearne v O’Rourke). f. Includes almost all external transactions or communications carried out to further Page 2 of 8 Nick Dowse Industry Codes of Conduct commercial interests. This includes trade between Australia and outside Australia (s 4(1) TPA). g. Provision of professional services (lawyers, accountants, doctors etc) can come within “trade and commerce” (Bond v Theiss). h. Government policy statements or announcements are unlikely to occur in trade or commerce (Unilan Holdings v Kerrin). i. But if designed to encourage commercial transaction with crown, may come within. i. The trade or commerce complained of does not need to be that of the defendant (Houghton v Arms). 5. Is the corporation subject to an applicable industry code? a. The term “applicable industry code” is defined in s 51ACA to mean: i. The prescribed provisions of a mandatory industry code (s 51ACA(1)(a)); and 1. A mandatory industry code is one declared as such by regulation (s 51AE(a)&(b)). ii. The prescribed provisions of a voluntary industry code that binds the corporation in question (s 51ACA(1)(b)) 1. A mandatory industry code is one declared as such by regulation (s 51AE(b)&(c)). b. There are 4 mandatory industry codes of conduct: i. Franchising code (r 3 Trade Practices (Industry Codes -- Franchising) Regulations 1998 (Cth) ii. Oil Code (not examinable) iii. Horticulture Code (not examinable) iv. Retail grocery industry unit pricing (r 3 Trade Practices (Industry Codes — Unit Pricing) Regulations 2009 (Cth)) (not examinable) 6. Is this a “franchise agreement”? a. Defined in cl 4 of Franchising Code of Conduct (Schedule 1 to Regulation). b. Can be written, oral or implied (cl 4(1)(a)); and c. Must be an agreement for a right to carry on a business which is substantially determined/controlled by the franchisor (cl 4(1)(b)); and i. Indicators of a “marketing plan” controlled by franchisor (ACCC v Kyloe): 1. Compensation and bonus plan for distributors selling its products 2. Centralised computer bookkeeping 3. Reservation of right to screen promotional material 4. Prohibition on repackaging 5. Assistance in conducting opportunity meetings 6. Provisions of recommended resale prices 7. Comprehensive advertising and promotional program ii. Providing some training on how to run the business is not enough = system must be substantially determined/controlled/suggested by franchisor (ACCC v Kyloe). d. Business is associated with a trade mark, advertising or commercial symbol owned by the franchisor (cl 4(1)(c)(i)); and e. Before starting the franchisee must pay to the franchisor a fee (cl 4(1)(d)). i. Initial capital investment fee (cl 4(1)(d)(i)); or ii. Payment for goods/services (cl 4(1)(d)(ii)); or iii. Fee based on % of gross/net income (royalty) (cl 4(1)(d)(iii)); or iv. A training fee ((cl 4(1)(d)(iv)) v. NOTE: must be a fee over and above operating expenses, needs to be a extra type of “buy in” fee, so it doesn’t include payment for goods at or below usual wholesale price etc. f. Deemed franchisee agreements: i. Transfer, renewal or extension of existing franchise (cl 4(2)(a)); and ii. A motor vehicle dealership agreement (cl 4(2)(b)). 1. Defined in cl 3(1) to be a business of buying, selling, exchanging or leasing Page 3 of 8 Nick Dowse Industry Codes of Conduct cars, trucks, tractors, motorised farm machinery, motorised construction machinery, aircraft, motor boats etc. g. Deemed exclusions (can never be franchise agreements): i. Employer/employee relationship (cl 4(3)(a)); ii. Partnerships (cl 4(3)(b)); iii. Landlord/tenant (cl 4(3)(c)); iv. Mortgagor/mortgagee (cl 4(3)(d)); v. Lender/borrower (cl 4(3)(e)); vi. Cooperatives (cl 4(3)(f)). h. The Franchising Code of Conduct does not apply where: i. Another mandatory industry code applies (cl 5(3)(a)) (not examinable); or ii. Franchise agreement is for same goods or services supplied by franchisee for 2 years before entering into the franchise and sales under the franchise account for 20% or less of franchisee turnover (cl 5(3)(b)). i. CONCLUSION: Does the Code apply? If so, the franchisor will be bound the Code of Conduct and must comply with its requirements. 7. Franchisor’s Disclosure Obligations a. To combat the information asymmetry (ie where one party knows more about a particular transaction than the other) not allegedly dealt with by s 52, clause 10 of the Franchising Code requires the franchisor to make certain disclosures to comply with the Code. b. Franchisor must give to the franchisee 14 days before signing or making non-refundable payment: i. A copy of the code (cl 10(a)); and ii. A disclosure document (cl 10(b)); and 1. The form of the disclosure document is different depending on whether or not the franchise has an annual turnover of more than $50,000 or not (cl 6(2)). 2. Where expected annual turnover is $50K or more (cl 6(2)(a)(i)): a. Must take the form of Annexure 1 which contains 23 classes of information of benefit to the franchisee, including: i. Details of the franchisor, including their business experience (cl 2 & 3); and ii. Details of any criminal, trade practices, or other litigation (cl 4); and iii. Details of payments made by franchisor to people other than officers, directors or employees of the franchisor (cl 5.1)); and iv. Details of existing franchisees, including the number of franchises terminated, transferred and not renewed in the past 3 years (cl 6) v. The franchisee’s site or territory, including whether or not it is exclusive or not (cl 8.1); and vi. Whether or not the franchisor or other franchisees are able to compete with the franchisee in the territory, whether the franchisor can change the
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