The concept of good faith is one that has left many franchisors and franchisees alike scratching their heads. Many franchisees enter into a franchise arrangement assuming, of course, the franchisor will act in good faith. Indeed, many legal claims are premised on such a term implied into the relevant franchise agreement.

On 1 January 2015, changes were made to the franchising code of conduct that formally put in place a legislative obligation of good faith for parties to a franchise agreement. But what about franchisees that signed before this date?

What Did the County Court Decide?

The County Court of Victoria has recently handed down a decision that explores the concept of an implied term of good faith in the context of franchise agreements entered into pre 1 January 2015. If you’re a franchisee, you may want to look away now.

In the matter of United Petroleum Franchise Pty Ltd (ACN 127 764 989) Plaintiff v Gold Fuels Pty Ltd as Trustee of the Nijhawan Family Trust (ACN 153 627 484) & Ors, it was argued that the franchise agreement contained an implied term of good faith that the franchisor owed the franchisee.

Was a Term of Good Faith Implied Into the Contract?

In considering whether such a term was indeed implied into the contract, and as such enforceable, the Court considered two questions:

  1. Whether such a term existed as a matter of law; and
  2. If it did, was it breached as a matter of fact.

Regarding the first issue, the Court noted that the Victorian Court of Appeal had in prior cases rejected the notion that a broad duty of good faith should be implied into every commercial contract. The Court then considered the factors in the widely applied precedent of Esso Australia Resources v Southern Pacific Petroleum (“Esso”) to consider whether factors existed to imply such a term in this instance.

Here, the Court examined whether the relationship between United and Gold Fuels was “clearly unbalanced” and if the franchisee could be shown to be “at a substantial disadvantage and particularly vulnerable.”

In reaching its decision, the Court noted the following factors in determining that an implied term didn’t exist in the franchise agreement:

  • The advice the franchisor provided the franchisee;
  • The level of experience of the franchisee;
  • The communications exchanged in pre-contractual negotiations; and
  • Other factors.

In determining the implied term did not exist in this franchise agreement, the Court relied on Esso where it was held that the Court should only interfere in the interests of certainty in contracts when:

  • The relationship between parties is unbalanced; and
  • One party is at a substantial disadvantage; or
    • Is particularly vulnerable in the context of a franchise agreement.

It was unnecessary, having answered ‘no’ to the first questionfor the Court to examine the factual matters alleged to have constituted a breach.

Key Takeaways

Lessons for franchisees? If you have a renewal term coming up, and can elect to maintain the same terms or enter into the franchisor’s current franchise agreement, you may want to consider going for the latter. That way, you can be sure a term of good faith exists. Questions? Get in touch with our franchise lawyers on 1300 544 755.

COVID-19 Business Survey
LegalVision is conducting a survey on the impact of COVID-19 for businesses across Australia. The survey takes 2 minutes to complete and all responses are anonymous. We would appreciate your input. Take the survey now.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. For just $199 per month, membership unlocks unlimited lawyer consultations, faster turnaround times, free legal templates and members-only discounts.

Learn more about LVConnect

Emma Jervis
Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.
Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2019 NewLaw Firm of the Year - Australian Law Awards 2019 NewLaw Firm of the Year - Australian Law Awards
  • 2020 Fastest Growing Law Firm - Financial Times APAC 500 2020 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review 2020 AFR Fast 100 List - Australian Financial Review
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards
  • Most Innovative Law Firm - 2019 Australasian Lawyer 2019 Most Innovative Firm - Australasian Lawyer
Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at

View Privacy Policy