Australia’s general election earlier this year delivered a surprising result as it saw the Liberal-National coalition return to form a majority government. For the past two decades, Australia’s economy has been growing positively as it has benefitted from increased export prices, low unemployment and low public debt. However, Australia has not been immune to the recent global slowdown in economic growth, resulting from the US-China trade dispute. Furthermore, the reduced demand in energy and resources (key exports for Australia) from Asia has had an impact on growth. Yet lawyers highlighted interesting trends in their respective industries, with some key developments emerging in the franchise industry and growth in the natural resources sector.
The Australian franchise industry saw “lots of movement and change” in the past year, according to some of the many practitioners we spoke to for our 2019 research. The much-awaited “Fairness in Franchising” inquiry report was published in March 2019, triggered by “active journalists representing disgruntled franchisees and highlighting the plight of small businesses”. The report makes 71 recommendations, including: greater responsibilities and enforcement powers for the Australian Competition and Consumer Commission (ACCC); expanding civil penalties to all breaches of the franchising code; added disclosure, especially on financial performance when franchises are sold; and greater accountability around marketing funds.
However, it may be some time before we see the report’s recommendations materialise. Firstly, a task force spanning different governmental bodies must be established to develop solutions to the issues identified. Practitioners also expect that “industry will lobby for changes to the recommendations”. Furthermore, given the recent federal election, it is likely the government will be occupied with other matters for the time being. Consequently, practitioners reported an uptick in “requests from clients to check over documents to measure compliance with the potential new regulations”. The inquiry has also seen “more disgruntled franchisees come to the forefront and so more disputes are coming forward”. Increased advisory work and disputes are likely to continue as the industry awaits to see how the regulations pan out. Yet, despite the reputational damage to the franchising industry caused by the scathing report, practitioners were positive that “franchising remains an attractive way of doing business” and they have “not seen overseas entities backing off” from the Australian market. This is likely because franchising remains big business in Australia, making up 9 per cent of the country’s GDP in 2016, as noted by the report itself.
The energy sector has seen an “increase in the volume of work” after the Australian market was “relatively quiet for the last three to four years, perhaps due to the fall in oil prices”, as interviewees told us. Australia remains one of the largest producers of LNG worldwide, with the market worth $50 billion and exports growing 20 per cent in 2019, a trend that continues to be driven by demand in Asia. It is little surprise, therefore, that lawyers told us they were “working on new LNG projects”. Despite this, domestically concerns have been voiced following the gas crisis on Australia’s East Coast, as gas costs for domestic users have risen, which has led to some manufacturers closing. To deal with this crisis, sources told us: “The government has released new gas acreage for gas and oil companies to bid with the condition that the gas must be sold to domestic consumers.” Consequently, this has led to lawyers becoming increasingly involved in “assisting on projects with tight deadlines”.
The Environmental Protection Agency (EPA) published its policy aimed at regulating major emitters of greenhouse gases. Companies will need to offset their operations when they go beyond a certain level and operations will need to be carbon-neutral. “The lack of clarity from the federal government concerning regulation of large emitters, especially of those in Western Australia where LNG producers are situated, has meant it is down to the EPA to produce a policy,” say sources. While for some the policy “caused some consternation in the mining community and is still being reviewed”, other respondents to our research indicated that “all companies are conscious of their carbon footprints as they proactively manage criticism from NGOs, and are seeking opportunities to improve”. Lawyers have seen greater interest in supplementing power projects, investigating alternative renewables and more innovative transactions, such as purchasing solar farms. One practitioner noted the importance of the policy, pointing to a “moral obligation on Australia to reduce its greenhouse emissions”.
An increase in market inquiries undertaken by the Australian Competition and Consumer Commission “heralds a shift in their approach”, remarked one lawyer we spoke to. The increase has been attributed to the increase in their allocated resources. Practitioners noted that “public market reviews will be more intensive” and that the regulator is “asking for more documents in the merger and enforcement context and being more rigorous”. In fact, the ACCC’s activism has been noted worldwide, as it was awarded government agency of the year by WWL’s sister publication Global Competition Review. In July 2019, the authority also published its digital platform inquiry. Recommendations include a change to the merger law to allow the ACCC to consider whether a transaction could remove a potential competitor – this would apply to all mergers the ACCC assesses. Another significant recommendation is a code of conduct specifically for digital platforms, namely Google and Facebook, to enable Australian citizens to understand and control the nature and use of personal data being collected. It will be interesting to see whether such recommendations result in legislation and what consequent impact it will have on how practitioners advise clients on their merger processes.
The alternative dispute resolution field has remained buoyant. Practitioners noted, “Arbitration is changing in Australia; much more of it involves international parties.” Meanwhile, there are “a lot of disputes coming out of large construction and infrastructure projects in the Northern Territory, many of them billion-dollar projects”. Interviewees also reported “a rise in buyer conflicts with sellers across the board in commodities, which might be because the commodity market is in a bit of turmoil”. Overall, there is an “increasing focus on cost and efficiency, as sophistication on the client side has led to a more streamlined process for proceedings”. This inevitably ensures that the market remains competitive as practitioners seek to distinguish themselves.
Overall, there have been some key developments in franchise and competition, thanks to the regulator. This is in line with the recurring trend, evident in our research, for regulatory authorities such as the ACCC and Australian Taxation Office becoming more “hardened” and making “effective use of their power”. It will be interesting to see how their suggestions to change the relevant sectors pan out and what impact this will have on how lawyers advise their clients.