If you are a party to a franchising agreement, you are likely aware of the Franchising Code of Conduct. The Franchising Code of Conduct outlines mandatory rules that all businesses must abide by and regulates the Australian franchising industry. Relevantly, the Franchising Code of Conduct provides steps to resolve disputes. These steps promote fairness for those involved in the conflict and include requirements to provide a written notice, actively negotiate and options to use alternative dispute resolution methods. This article will take you through the Franchising Code of Conduct’s key provisions relating to dispute resolution.
Dispute Resolution Process
First and foremost, the Franchising Code of Conduct requires that the franchisor and franchisee act in good faith towards one another throughout their entire relationship, especially during dispute resolution procedures.
The key steps to dispute resolution are outlined below.
1. Written Notice
You must provide written notice to the other party with details of your complaint. This applies regardless of whether you are the franchisee or the franchisor. Nevertheless, a franchisor is more likely to issue a notice of breach of the franchise agreement. The Franchising Code of Conduct requires that this written notice outlines:
- the nature of the dispute;
- the desired outcome; and
- actions needed to settle the dispute.
2. Negotiation
Once you send a written notice of the dispute, the parties must try to resolve the dispute. This may include participating in discussions, avoiding disruptions to regular service, delivery and support or refraining from doing anything to damage the network’s reputation.
The solution to simpler disputes may be relatively straightforward, such as fee adjustments, policy updates, network consultation or changes in management processes. However, where matters are more complex, or parties cannot resolve the problem due to a breakdown in the relationship, either party might wish to refer the matter to alternative dispute resolution.
You can take various alternative dispute resolution (ADR) methods, such as arbitration, mediation or conciliation. Under the Franchising Code of Conduct, arbitration is a voluntary dispute resolution option. Accordingly, you can only use it where parties agree in writing to resolve the dispute via this method.
3. Mediation
Of all dispute resolution methods, mediation is the least formal and the most common way of resolving disputes. Mediation is when parties try to negotiate an outcome for their disagreement with the help of an impartial mediator in a strictly confidential setting. Here, parties cannot use mediation discussions in court proceedings.
Mediation involves the parties agreeing on a mediator or having one appointed by the Ombudsman. The mediator will usually speak with both parties together and in separate sessions.
Typically, a mediator is a lawyer or barrister by practice with additional qualifications facilitating the discussion. However, they do not make any decisions on the legal issues, only trying to encourage an agreement that settles the dispute. Upon reaching an agreement, the parties normally sign a deed of settlement and release setting out the terms and conditions of the resolution, which becomes legally binding on them.
Cost of Disputes
The Franchising Code of Conduct requires parties to any alternate dispute resolution – such as conciliation, mediation or arbitration – to equally split the costs of the ADR process. This is the default unless the parties have agreed otherwise. Further, each party must pay their own costs of attending the dispute resolution process.
Continue reading this article below the formMulti-Franchisee Disputes
The Franchising Code of Conduct also provides a procedure for dispute resolution where there are two or more franchisees with similar disputes under their franchise agreements with the same franchisor. The franchisees are allowed to discuss their issues with each other despite any confidentiality obligations in the franchise agreement.
In this situation, all parties may agree to resolve the dispute using the same method. If there is an agreement, all franchisees or franchisors may pass on the matter to an alternative dispute resolution practitioner for a single process to minimise costs and allow for a more comprehensive resolution.
Despite this, each dispute will be considered separate. Accordingly, although all matters may be heard together, each franchisee may have different outcomes.
Legal Proceedings
Generally, parties will attempt to resolve the dispute co-operatively before going to court. However, in some circumstances, attempts to resolve the dispute may occur after the commencement of court proceedings. For example, this may happen when one party takes urgent court action seeking an injunction that requires or restricts specific activities by the other party.
Disputes About Early Termination
In 2021, the Franchising Code of Conduct was updated to implement a process for franchisees requesting to end their franchise agreement early.
The Franchising Code of Conduct provides that a franchisee can give a written proposal for early termination of their franchise agreement at any time. This proposal should include the following:
- terms of termination; and
- reasons for the termination.
Once the franchisor has received the proposal for early termination, it must give the franchisee a substantive written response to the proposal. This response should be provided within 28 days and include any reasons for refusing the request.
If the franchisor does not agree or does not provide substantive reasons, the franchisee may (if appropriate) issue a notice of dispute and initiate the dispute resolution process.
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Key Takeaways
The Franchising Code of Conduct outlines mandatory rules that all franchise businesses must abide by and regulates all participants in a franchising network. The key things to know about dispute resolution include the following:
- all parties must act in good faith towards one another during and actively partake in any alternative dispute resolution procedures;
- notice of disputes and settlement proposals should be provided in writing and set out clear outcomes;
- disputes should be dealt with internally first but can happen simultaneously with court proceedings;
- where parties cannot resolve a dispute, they will likely be referred to alternate dispute resolution methods.
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Frequently Asked Questions
The Franchising Code of Conduct outlines mandatory rules that all businesses must abide by and regulates all participants in a franchising agreement. This includes provisions about dispute resolution.
The Franchising Code of Conduct outlines mandatory rules that all businesses must abide by and regulates all participants in a franchising agreement. The key things to know about dispute resolution include that all parties must act in good faith towards one another during dispute resolution procedures. Parties should also provide notice of disputes in writing, and where they cannot resolve a dispute, they should refer to alternate dispute resolution methods.
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