Regulating the Franchise Relationship: Franchisor Opportunism, Commercial Morality and Good Faith

  • Andrew Terry
  • Cary Di Lernia
Part of the Contributions to Management Science book series (MANAGEMENT SC.)


As franchising increases its influence internationally, regulators increasingly face the challenge of the appropriate manner of its regulation. A recent Australian report has focussed attention on an obligation of good faith as an appropriate regulatory strategy to address opportunistic conduct and has concluded that while the prior disclosure obligations of Australia’s regulatory instrument for franchising (the Franchising Code of Conduct) are for the most part adequately addressed, there remain concerns because of the ‘continuing absence of an explicit overarching standard of conduct for parties entering a franchise agreement’. The Opportunity not opportunism report of the Parliamentary Joint Committee on Corporations and Financial Services (December 2008) recommended that the optimal way to provide a deterrent against opportunistic conduct in the franchising sector was ‘to explicitly incorporate, in its simplest form, the existing and widely accepted implied duty of parties to a franchise agreement to act in good faith’. In November 2009 the Australian Government rejected this recommendation on the basis that it would ‘increase uncertainty in franchising’. This paper explores the challenges faced in grafting the civil law concept of good faith onto a common law system. It suggests that in Australia and other common law jurisdictions – and even in civil law jurisdictions – good faith is more an elusive ideal than a well settled commercial standard and that issues of definition, scope and application may frustrate its intended application in the franchising context.


Good Faith Fair Dealing Franchise System Commercial Contract Franchise Contract 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) FCA 1365Google Scholar
  2. Bobux Marketing Ltd v Raynor Marketing Ltd (2002) 1 NZLR 506Google Scholar
  3. Bridge M (1984) Does Anglo-Canadian contract law need a doctrine of good faith? Can Bus Law J 9:385Google Scholar
  4. Butt v M’Donald (1896) 7 QLJ 68Google Scholar
  5. Carter JW, Peden E, Tolhurst GJ (2007) Contract law in Australia, Lexis Nexis. 5th edn. Butterworths, AustraliaGoogle Scholar
  6. Commonwealth Government’s Response to the report of the Parliamentary Joint Committee (2009) On file with authorGoogle Scholar
  7. Council of the City of Sydney v Goldspar Australia Pty Limited (2006) FCA 472Google Scholar
  8. Dixon B (2007) Can the common law obligation of good faith be contractually excluded? Aust Bus Law Rev 35:110Google Scholar
  9. Dixon B (2005) Common law obligations of good faith in Australian commercial contracts – a relational recipe. Aust Bus Law Rev 33:87Google Scholar
  10. Douglas J (2006) Exploring the recent uncertainty surrounding the implied duty of good faith in Australian contract law: the duty to act reasonably – its existence, ambit and operation. Paper delivered at the LexisNexis Contract Law Master Class 24 August 2006 by The Hon Justice James Douglas. Available online:
  11. Dymocks Franchise Systems (NSW) Pty Ltd v Todd (2002) 2 All ER (Comm) 849Google Scholar
  12. Elite Specialty Nursing Services Inc. v Ontario, (2002) O.J. No.3009 (S.C.J)(QL)Google Scholar
  13. Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL (2005) VSCA 228Google Scholar
  14. Far Horizons Pty Ltd v McDonald’s Australia Ltd (2000) VSC 310 at 120Google Scholar
  15. Finding a Balance – Towards Fair Trading in Australia (1997), House of Representatives Standing Committee on industry, science and technologyGoogle Scholar
  16. Franchising Policy Council (2000) Review of the franchising code of conductGoogle Scholar
  17. Franchise Council of Australia (2000) Submission to the review of the franchising code of conductGoogle Scholar
  18. Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) FCA 903Google Scholar
  19. GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1Google Scholar
  20. Giles S, Redfern M and Terry A (1998) Franchising law and practice. Butterworths, AustraliaGoogle Scholar
  21. Hadfield GK (1990) Problematic relations: franchising and the law of incomplete contracts. Stanford Law Rev 42:927CrossRefGoogle Scholar
  22. Hughes Aircraft Systems International v Airservices Australia (1997) FCA 558Google Scholar
  23. Hunter Valley Skydiving Centre Pty Ltd v Central Coast Aero Club Ltd (2008) NSWSC 539Google Scholar
  24. Iglesias J (2004) Applying the implied covenant of good faith and fair dealing to franchises. Houst Law Rev 40:1425Google Scholar
  25. Ingot Capital Investments v Macquarie Equity Capital Markets [No. 6] (2007) NSWSC 124Google Scholar
  26. Jani-King (GB) Limited v Pula Enterprises & ors (2007) EWHC 2433 (QB)Google Scholar
  27. Luce Optical v Budget Specs (Franchising) (2005) FCA 1486Google Scholar
  28. Mackaay E, Leblanc V (2003) The law and economics of good faith in the civil law of contract. European Association of Law and Economics Conference, Nancy, France 18–20 Sept 2003Google Scholar
  29. Mason A (2000) Contract, good faith and equitable standards in fair dealing. Law Q Rev 116:66Google Scholar
  30. Mason v Freedman (1958) S.C.R. 483Google Scholar
  31. Mendelsohn M (1999) ‘Franchise regulation – Is the world going mad? Franchise N Z Mag 8(1):49Google Scholar
  32. Michel JH (1998) Brève postface en guise d’introduction. Centre de Recherches en Histoire du Droit et des Institutions, Facultés universitaries Saint-Louis Bruxelles, La bonne foi, vii, xGoogle Scholar
  33. Ministry of Economic Development (2009) Outcomes of the review of franchising regulationsGoogle Scholar
  34. Mogul Steamship Co. v McGregor, Gow & Co (1889) 23 Q.B.D. 5Google Scholar
  35. Ng Giap Hon v Westcomb Securities Pte Ltd (2009) SGCA 19Google Scholar
  36. O’Byrne SK (2004) Breach of good faith in performance of the franchise contract: punitive damages and damages for intangibles. Can Bar Rev 83:431Google Scholar
  37. Opportunity Not Opportunism: Improving conduct in Australian franchising (December 2008) Federal parliamentary joint committee on corporations and financial services, Parliament of AustraliaGoogle Scholar
  38. Overlook v Foxtel (2002) NSWSC 17Google Scholar
  39. Paterson JM (2001) Good faith in commercial contracts? A franchising case study. Aust Bus Law Rev 29:270Google Scholar
  40. Peden E (2003) Good faith in the performance of contracts. LexisNexis Butterworths, SydneyGoogle Scholar
  41. Pitegoff TM, Garner WM (2008) Franchise Relationship Laws. In: Barkoff RM, Seldon AC (eds) Fundamentals of franchising chapter  5, 3rd edn. American Bar Association
  42. Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234Google Scholar
  43. Shelanu Inc. v. Print Three Franchising Corp. (2003) 226 D.L.R. (4th) 577 (Ont. C.A)Google Scholar
  44. Spencer E (2008) Submission to the parliamentary joint committee inquiry, into franchisingGoogle Scholar
  45. Spencer E (2006) Standard form and relational aspects of franchise contracts. Proceedings of the 20th annual international society of franchising conference, Palm Springs, CAGoogle Scholar
  46. South Australia (May2008) Franchises: final report of the sixty-fifth economic and finance committee of the parliament of South AustraliaGoogle Scholar
  47. Stapleton J (1999) Good faith in private law. Curr Leg Probl 521:5–7Google Scholar
  48. Stack D (1999) The two standards of good faith in Canadian contract law. Sask Law Rev 62:201Google Scholar
  49. Steyn J (1997) Contract law: fulfilling the reasonable expectations of honest men. Law Q Rev 113:433Google Scholar
  50. Summers R (1968) Good faith in general contract law and the sales provisions of the uniform commercial code. Va Law Rev 54:195CrossRefGoogle Scholar
  51. Trade Practices Consultative Committee (1979), Small Business and the Trade Practices Act, Parliament of AustraliaGoogle Scholar
  52. Terry A, Di Lernia C (2009) Franchising and the quest for the holy grail: good faith or good intentions. Melb Univ Law Rev 33(2):542Google Scholar
  53. Terry A (2006) A census of international franchising regulation. Proceedings of the 21st annual international society of franchising conference, Las Vegas, NVGoogle Scholar
  54. Terry A (2005) Franchising, relational contracts and the vibe. Aust Bus Law Rev 33:289Google Scholar
  55. Western Australia (April 2008) Inquiry into the operation of franchise businesses in Western Australia – report to the Western Australian Minister for small businessGoogle Scholar
  56. Whittaker S, Zimmermann R (2000) Good faith in European contract law: surveying the legal landscape. In: Zimmermann R, Whittaker S (eds) Good faith in European contract law, Chapter  1, Cambridge, NY, Cambridge University Press
  57. Zaid F (2003) Canadian franchise litigation is proliferating for a variety of reasons. The Lawyers Weekly 3 Oct p 17Google Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  1. 1.Faculty of Economics and BusinessThe University of SydneySydneyAustralia

Personalised recommendations