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When operating a franchise system, disputes can arise for several reasons. For example, a franchisee might misuse your intellectual property or fail to meet their minimum performance standards. In any event, you should try and resolve the dispute in good faith. This requires you to act reasonably and not for an arbitrary or irrelevant purpose, such as failing to have regard for your franchisee’ legitimate interests.

This article explains five steps you should take to resolve a franchise dispute in-line with the dispute resolution provisions in the Franchising Code of Conduct (‘the Code’).

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1. Notify The Other Party

Whether it is you or your franchisee who raises a dispute, it is essential to do so in writing. However, the Code requires that you first try to resolve your dispute with the franchisee by outlining:

  • the nature of the dispute;
  • the outcome you want; and
  • what action will settle the dispute.

In many instances, a dispute will arise because your franchisee fails to comply with the franchise agreement. In this instance, you should identify the following (by issuing a formal breach notice, where relevant):

  • your franchisee’s obligation under the agreement; and
  • how your franchisee breached this obligation.

Your franchisee can dispute the validity of the breach notice or facts said to give rise to a breach. Furthermore, if they make this dispute known to you in writing, this will generally evoke the dispute resolution procedure. 

You may issue a breach notice when your franchisee breaches their obligations under the Franchise Agreement. However, a dispute notice is different and intends to put the other party on notice of the dispute formally. Often, franchisors will issue a dispute notice in response to a breach notice.

2. Respond to Feedback

Issuing a dispute notice will evoke the formal dispute resolution procedure in the Franchising Code. In this case, the Parties must try and resolve the dispute in good faith for 21 days. Usually, this involves an exchange of communications and attendance at meetings

3. Alternative Dispute Resolution

Suppose you have written to your franchisee about the dispute but cannot agree on an outcome within 21 days. In that case, you can refer to the alternative dispute resolution process under the Franchising Code. For instance, alternative dispute resolution can include mediation or conciliation.

Mediation is when both parties try to negotiate an outcome for their dispute with the help of an impartial mediator. While the mediator facilitates the negotiation, they do not make decisions for the parties.

On the other hand, conciliation is a process where both parties try to solve their dispute with the help of an impartial conciliator. Unlike a mediator, a conciliator takes a more active role in the discussion by providing advice and recommendation.

Multi Franchisee Alternative Dispute Resolution

If two or more franchisees have similar disputes with you, they may jointly commence the dispute resolution process to resolve their franchising disputes.

When deciding whether this would be an appropriate option, the franchisees can discuss their disputes with each other. They can discuss their disputes with one another even if confidentiality obligations exist in the franchise agreement.

4. Arbitration

Arbitration is another way to resolve a franchise dispute. It is a more formal process than mediation and conciliation. Both parties ordinarily present their case to an independent arbitrator, who will ultimately decide how to resolve the dispute.

Arbitration is only voluntary under the Code. Hence, you can only undertake arbitration if both you and the franchisee agree in writing to resolve the dispute in this way. The disclosure document will outline if you and the franchisee have decided to resolve disputes by arbitration in your franchise agreement. If not, you can still agree to the franchise agreement to arbitrate your dispute.

Both parties may agree on an arbitrator. Alternatively, the Australian Small Business and Family Enterprise Ombudsman may appoint an independent arbitrator within 14 days of the request. While the arbitrator will reach a binding decision (an ‘award’), they must terminate the arbitration process if both parties request a termination.

5. Litigation

In some circumstances, an alternative dispute resolution process may not be appropriate to resolve the dispute between you and your franchisee. However, court proceedings should always be a last resort, given the costs and time that come with litigation.

Although litigation may be appropriate if you require urgent relief, for example, there may be a threat to consumer health and safety or the integrity of your intellectual property. However, the appropriateness of litigation will depend on a range of circumstances in your dispute. For this reason, you should obtain legal advice before commencing litigation.

Key Takeaways

To resolve a franchise dispute in-line with the dispute resolution provisions in the Franchising Code of Conduct, you must:

  • notify the other party in writing about the dispute;
  • try to resolve the dispute in good faith for 21 days; 
  • refer the matter to mediation or conciliation if you cannot agree on an outcome within 21 days of issuing the written notice;
  • undergo arbitration as an alternative to mediation or conciliation (if you and the franchisee agree in writing to resolve the dispute in this way); and
  • litigate the matter if no other alternative dispute resolution process is appropriate for resolving the dispute.

If you have questions about resolving a franchise dispute, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is mediation?

Mediation is when both parties try to negotiate an outcome for their dispute with the help of an impartial third party (a mediator). While the mediator facilitates the negotiation, they do not make decisions for the parties.

What is arbitration?

Arbitration is when both parties present their case to an independent third party (an arbitrator). Unlike a mediator, an arbitrator will ultimately make a decision binding on both parties involved.

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