Franchise decision puts heat on minister

Commerce Minister Simon Power. Photo / Mark Mitchell

Commerce Minister Simon Power is likely to face a roasting from franchise law experts today after the Government's decision to leave the franchising sector unregulated.

The minister's appearance at the University of Auckland's first franchise law symposium comes hot on the heels of his announcement that the current system of industry self-regulation is adequate, and no regulation specific to the sector is needed.

That decision is the result of a review launched after cases of alleged fraud involving franchises.

Former Green Acres master franchisee Keith Lapham has been charged with fraudulently obtaining $3.5 million from 172 people he sold ironing sub-franchises to.

Gehan Gunasekara, a franchising expert at Auckland University Business School, said the Government had gone ahead with the decision knowing the symposium was coming up.

"The matter of timing was a bit disappointing from our point of view, we thought that we could make a valuable contribution."

He said that after conversations with Australian expert Andrew Terry, who is in the country for the event, he was more convinced that Australia's decision to regulate had been a good one. He said the New Zealand market was flooded with franchise systems and while competition might eventually sort that out, "in the meantime a lot of people might get burned".

A new study by the Business School of litigation in the 22 years since the Fair Trading Act came in showed that there was a higher incidence of disputes when people bought franchises, compared with the purchase of other kinds of businesses.

In that period, 30 per cent of all claims for misleading and deceptive conduct under the act involved franchises.

This was a high figure given that franchising accounted for only an estimated 12 per cent of the economy.

The Franchise Association of New Zealand, whose members adhere to a voluntary code, applauds the Government's stance.

Chairwoman Estelle Logan, who is also speaking at today's event, said there had been a perception issue.

The body's complaints and mediation processes were not turning up evidence of widespread problems.

"Green Acres wasn't a franchising issue, Green Acres was a fraud issue. It just happens that they are a franchise."

However she conceded that only 40 to 50 per cent of the franchise industry belonged to the association.

FACE OFF

* Commerce Minister Simon Power will face up to the franchise industry at the first franchise law symposium today.

* It follows the Government's decision to leave franchising unregulated.

* The Franchising Association says self-regulation is working, even though only half the industry are members.

* Experts say franchises are more likely to be involved in disputes than other types of businesses.