Resolving franchising disputes
The Franchising Code provides mechanisms for parties to a franchise agreement to try and resolve disputes in a timely and cost effective manner.
Franchisors must develop an internal procedure for handling complaints. This procedure must be set out in the franchise agreement and meet certain minimum standards set by the Code. The Code also provides a procedure for resolving disputes. If a dispute arises, either party may initiate the complaint handling procedure under the Code, or under the franchise agreement.
The Franchising Code requires parties to first try to resolve their dispute with each other by writing to the other party and telling them:
- the nature of the dispute
- what outcome they want
- what action will settle the dispute.
If the parties can’t agree on an outcome within three weeks, either party may refer the matter to mediation, which involves an informal negotiation between the parties facilitated by an independent third party.
Mediation is a cost-effective way to resolve franchising disputes without resorting to complex and costly legal action. Participants in mediation should be aware that mediators don’t give legal advice or make decisions like a judge; they assist parties to come together and negotiate an outcome that is acceptable to both parties. Parties can agree to appoint a mediator or request that the Mediation Adviser appoint a mediator. Alternatively, the Small Business Commissioner in your state (if available) may be able to appoint a mediator.
If the dispute relates to a franchisor's intention to terminate a franchise agreement due to a breach by the franchisee, the franchisee should still take immediate steps to remedy the breach even though there is a mediation taking place.
Once mediation is requested, it becomes mandatory for both parties to attend and to genuinely try to resolve the dispute. A party will be taken to be trying to resolve a dispute if they approach the matter in a reconciliatory manner, including by making clear what they are trying to achieve through mediation. The parties should clearly state their concerns, and what they would like to see happen.
For agreements entered into, renewed, transferred or varied in any way on or after 1 January 2015, the franchisor cannot require the franchisee to participate in mediation outside the State or Territory in which their franchised business is based.
If using the complaint-handling procedure under the Code, the costs of mediation must be shared between the parties to the dispute unless they agree otherwise. The costs of mediation include the cost of the mediator, room hire and any additional inputs (for example, expert reports) that both parties agree are necessary to the conduct of the mediation. The parties must also pay their own costs to attend mediation.
For agreements entered into, renewed, transferred or varied in any way on or after 1 January 2015, the franchisor cannot require the franchisee to cover its costs to settle a dispute
Mediation is not always successful or appropriate for parties to a dispute. For example, mediation may not be appropriate if you require urgent relief. If you are unsure whether to proceed with mediation, consult your legal adviser.
The dispute resolution procedure in the Code does not affect a party’s right to take legal action over a franchising dispute. If you are considering taking legal action against another party, you should first obtain legal advice.
The Office of the Franchising Mediation Adviser (OFMA) is the appointed Mediation Adviser under the Code. OFMA can assist in the resolution of franchising disputes by referring the parties to trained mediators with commercial experience located across Australia.
OFMA also operates an early intervention dispute resolution service for the franchising sector. This service is free and enables a party to a dispute to informally raise their concerns with OFMA. OFMA will then contact the other party to the dispute to gauge their interest in settling the dispute quickly.
See the OFMA website or call 1800 150 667 (free call within Australia) or (02) 9267 0167.