If you are fighting with the other party to your franchise agreement, there are clear rules around how franchise dispute resolution should proceed. The Franchising Code of Conduct (the Code) sets out the steps you should take, as well as your rights and obligations. Mediation is the primary means of dispute resolution under the Code and typically applies to conduct since January 2015. If you entered into your agreement before this date, different legal obligations might apply to your dispute. This article explores the obligations that arise under the amended Code, outlining the procedures involved in franchise dispute resolution.

Franchise Dispute Resolution: To Mediate or Litigate?

Once a disagreement arises between a franchisee and a franchisor, you can take action under the terms of your franchise agreement, or as set out in Part 4, Division 3 of the Code (what we’ll refer to as the Code Procedure).

Your franchise agreement must also have an internal dispute resolution procedure that mirrors Part 4, Division 2 of the Code (what we’ll refer to as the Internal Procedure). Regardless of whether you choose to use the Code Procedure or the Internal Procedure you still have the right to commence legal proceedings (either under the Code or the terms of your franchise agreement). You can also take your disagreement to the courts or to the Australian Competition and Consumer Commission (which can investigate misconduct under the Code).

Following the Internal Procedure

If you opt for this process, there are three key steps:

1. Notify the Other Party of the Dispute

You will need to issue a dispute notice. The notice will tell the other side what the dispute is about, what is your preferred resolution, and what steps you think the other party should take to make it happen.

2. Agree on How to Reach a Resolution

If you still haven’t decided how you and the other party will reach a resolution, either of you has the right to request franchise mediation. If you cannot agree on a mediator, you can have a mediator appointed to you under the Code.

3. Attend Mediation in Australia

Both parties must attend the mediation either in person or by sending a representative. If you do not attend, you may be fined up to $54,000. You must both act in good faith to try and reach a resolution.

Following the Code Procedure

There are three steps involved in pursuing this process which closely resembles the Internal Procedure, except when it reaches the mediation stage.

1. Notify the Other Party of the Dispute

As with the Internal Procedure, this involves issuing a dispute notice. The notice will tell the other side what the dispute is about, your preferred outcome, and what steps you think the other party should take to make it happen.

2. Agree on How to Reach a Resolution

Again, just like the Internal Procedure, if you still haven’t decided on this after three weeks, either of you can request mediation. If you’re not able to agree on a mediator, you can have one appointed to you under the Code.

3. Attend Mediation in Australia

Again, both parties must attend the mediation either in person or by sending a representative on your behalf. The same fine of $54,000 will apply for non-attendance. You must both act in good faith to try and reach a resolution. Each party must pay for their respective mediation costs (which includes, for example, paying the mediator’s fees).

The mediator can end the mediation if it has been going on for 30 days and can terminate the mediation on the request of either party. If the mediator doesn’t think that you are close to reaching a resolution, he or she can end the mediation at any time after 30 days.

Key Takeaways

Resolving a franchise dispute can be frustrating – it is time-consuming and can overshadow your day-to-day business responsibilities. It is important to take any disagreements seriously and engage in the proper dispute resolution processes. That is part of your statutory obligation to act in “good faith” under the Code.

We have experienced franchise lawyers who can guide you through what can often be a confusing process. We can negotiate with the other side, and help you to achieve a timely and cost-effective solution. If you have any questions, get in touch with our franchise lawyers on 1300 544 755.

Amritha Thiyagarajan

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