On Uluru and international agreements Down-Under

On Uluru and international agreements Down-Under

June 11, 2020

A person about to undergo open heart surgery decides, so as to save money, to perform the surgery himself while facing a mirror. Sounds reasonable? Obviously not... So why when it comes to entering into international agreements would one purportedly “save” money by not seeking relevant jurisdictional legal advice and work with an appropriately qualified and experienced lawyer? Take, for example, an Israeli company proposing to enter the Australian market. The Israeli attorney who accompanies the Israeli company is typically not acquainted with Australian law or business culture and can not provide the appropriate Australian legal advice. As an aside, such an Israeli attorney probably does not know that when Australians speak of the Heart of Australia they are actually referring to the Uluru Rock, sacred to the Pitjantjatjara Anangu, the Aboriginal people of the area and a UNESCO World Heritage Site.

Australian law, for example, which applies to any Australian franchise agreement, states that a such an agreement cannot include a clause requiring litigation to be conducted outside of Australia. Accordingly, Australian Courts will not recognise an arbitration award or a judicial decision given outside Australia relating to a dispute regarding an Australian franchise agreement. Yet, the Israeli Supreme Court in a decision in June, 2020, upheld a provision in an agreement between an European food franchisor and an Australian franchisee for the sale of its products in Australia, that any dispute would be arbitrated in Israel. The Israeli Court enforced the arbitration provision and held that the dispute will be heard in Israel, notwithstanding that an Australian Court will not subsequently enforce the arbitration award.

A company seeking to enter the Australian market should be aware of the legal considerations relevant to Australia. The franchising industry, for example, is highly regulated in Australia and is governed by the provisions of the Franchising Code of Conduct. The Code is administered by the Australian Competition and Consumer Commission which has broad investigative powers, can issue infringement notices and initiate legal proceedings to seek the imposition of financial penalties. The Code includes provisions regulating franchisor disclosure and good faith obligations; provides a dispute resolution mechanism; a cooling off period on commencement of a franchise agreement; and procedures for ending a franchise agreement, all of which should be considered by a company seeking to penetrate such market, either by itself or by operating with local Australian entities.

Establishment of an Australian domiciled subsidiary company to directly franchise to Australian franchisees is popular for foreign franchisors that want to maintain a high level of control and may wish to relocate key people from head office (Israel, for example) to Australia. But whilst enhanced control may be attractive to the non-Australian franchisor, associated regulatory and compliance obligations may not be. An Australian subsidiary will require at least one Australian resident director and may require enhanced financial disclosure which may not be welcome. An alternative is a master franchise agreement with an unrelated Australian entity. The risk in such an arrangement is the lack of control and the potential for damage to the franchisor's brand and image if mishandled by the independent Australian resident master franchisee. Overlaid on these considerations is the question of tax - Australian tax, Israeli tax, the Australia-Israel avoidance of double tax treaty and the availability of transfer pricing and the repatriation of money back to the Israeli domiciled head franchisor - are just some of the issues to be considered.

In short, it is imperative that any decision to commence activity or operations in Australia be taken on the basis of appropriate Australian legal (and accounting) advice. Any establishment visit to Australia should be made in the company of an Australian lawyer. For an Israeli company, the greatest benefit is derived if the Australian lawyer is present in Israel, understands both the Israeli and Australian mentalities and their intrinsic differences, and most of all, can provide tailored Australian legal advice in real (Israeli) time, in the Israeli tempo and in Israeli time zone. It may not be fair to compare the use of the company’s usual Israeli lawyers (as talented as they may be) to a self-inflicted open heart surgery in front of the mirror, but it may be easier to equate it to the use of a podiatrist (as experienced as such may be in the work “down-under”) for this purpose ...