18Obligation to act in good faith

18 Obligation to act in good faith

Obligation to act in good faith (1) Each party to a franchise agreement must act towards another party with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to: (a) the agreement; and (b) this Code. This is the obligation to act in good faith.

Civil penalty: 600 penalty units.

(2) The obligation to act in good faith also applies to a person who proposes to become a party to a franchise agreement in respect of: (a) any dealing or dispute relating to the proposed agreement; and (b) the negotiation of the proposed agreement; and (c) this Code. Matters to which a court may and must have regard (3) Without limiting the matters to which a court may have regard for the purpose of determining whether a party to a franchise agreement has contravened subsection (1): (a) for all agreements—the court may have regard to: (i) whether the party acted honestly and not arbitrarily; and (ii) whether the party cooperated to achieve the purposes of the agreement; and (b) for a new vehicle dealership agreement—the court must have regard to whether the terms of the agreement are fair and reasonable. Franchisor must not enter into franchise agreement that includes provision limiting or excluding obligation to act in good faith (4) A franchisor must not enter into a franchise agreement that includes a provision that limits or excludes, or purports to limit or exclude, the obligation to act in good faith.

Civil penalty: 600 penalty units.

(5) A franchisor must not enter into a franchise agreement that includes a provision that limits or excludes, or purports to limit or exclude, the obligation to act in good faith by applying, adopting or incorporating, with or without modification, the words of another document, as in force at a particular time or as in force from time to time, in the agreement.

Civil penalty: 600 penalty units.

Other actions may be taken consistently with the obligation (6) To avoid doubt, the obligation to act in good faith does not prevent a party to a franchise agreement, or a person who proposes to become such a party, from acting in the party’s, or the person’s, legitimate commercial interests. (7) To avoid doubt, if a franchise agreement does not: (a) give the franchisee an option to renew the agreement; or (b) allow the franchisee to extend the agreement; this does not mean that the franchisor has not acted in good faith in negotiating or giving effect to the agreement.