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Dalziel: Review of the Regulation of Franchising

Hon Lianne Dalziel
Minister of Commerce, Minister for Food Safety,
Associate Minister of Justice, MP for Christchurch East

16 August 2008 Speech Notes
Embargoed until 4pm Saturday 16 August
"Review of the Regulation of Franchising"

Speech by Commerce Minister Lianne Dalziel Business Opportunities & Franchise Expo
ASB Showgrounds

Thank you to the Franchise Association of New Zealand for allowing me the opportunity of today's Expo and Show Stopper Awards to announce and release a discussion document approved by Cabinet last week.

The "Review of the Regulation of Franchising" discussion document will enable this vital and growing sector of the New Zealand economy to have a say about whether government needs to tighten the rules around franchising – not to the extent that we choke the innovation the sector is known for – but rather to facilitate confidence in the sector that was somewhat shaken by events of earlier this year, where we saw the unhappy sight of hard working people – many of them migrants to New Zealand - who had lost their hard-earned money to a scheme which is still being investigated.

It is for this reason that I invited the Hon Chris Carter to join me today, because he has taken a particular interest in this in his role as Minister of Ethnic Affairs.

Unlike other jurisdictions, like Australia, there are no franchise-specific rules in New Zealand. Instead it is the standard laws that govern contracts and intellectual property that apply to franchises.

The key objective of the review, which will be supported by feedback from the sector, is to explore whether there is some form of franchise-specific regulation that could enhance the contractual arrangements that currently exist.
The particular focus is on whether those entering into franchise agreements have adequate information to make good business decisions, while ensuring that we don't impose unnecessary compliance costs on the sector that are disproportionate to the risks involved.

The discussion document identifies three aspects of the franchising relationship that may make a case for franchise-specific regulation:

• information imbalance: franchisees need to do their due diligence before entering into a franchise contract, but may not have all the necessary information, or know the right questions to ask, in order to make a well-informed business decision. Should franchisees be required to get independent advice before entering into an agreement or should there be a 'cooling off' period to enable advice to be sought after the fact?

• cost of resolving disputes: there are few options available, particularly to franchisees, to resolve disputes when they arise. Legal processes such as arbitration and litigation can be expensive, and can be damaging to the franchise relationship which relies on cooperation and collaboration. Should there be a requirement for mediation?

• public perception: the public’s confidence in the franchising sector may have been damaged following the cases which involve alleged fraud. It is important that there is confidence in the sector so that high quality business men and women are attracted to the sector, allowing it to continue to grow and prosper.

There are other issues that have been raised about various aspects of franchise contracts and these are included to seek feedback.

The discussion document explores possible options to address these issues, ranging from the status quo, which is a self-regulation model but which doesn't address the concerns of those outside the Association, all the way through to a legislated regulatory framework that includes mandated Codes and conditions.

I invite all of you to take the Discussion Document and consider it and make your views known.

I am aware that there are plans next year for an international franchise conference focused on understanding the different regulatory approaches adopted throughout the world. The timing should be ideal for the government to be able to consider this alongside recommendations arising from this review.

Can I conclude by congratulating all of you for participating in this Expo and can I thank the Franchise Association for its advocacy for a sector that is a vital part of the New Zealand economy. Can I acknowledge the sponsorship of Westpac – these events don't happen without sponsors – and can I congratulate those of you who have been chosen as the 'show stoppers' for going the extra mile.


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