It is important that parties understand their obligations and the procedures which apply should a dispute arise in relation to a franchised business.
Whilst the Franchising Code of Conduct (the Code)1 regulates many aspects of franchising, it is still not uncommon for disputes to arise between franchisors and franchisees. Should this happen, then the parties must consider the procedures that will apply to managing the dispute.
Under s. 34, franchise agreements must contain a complaint handling procedure which complies with the Code’s requirements regarding notification of the dispute and the process for alternative dispute resolution (ADR). For clarity, an ADR process under the Code refers to conciliation or mediation.
The party who is the complainant to the dispute may choose to either take action under the procedure set out in the franchise agreement or under the complaint handling procedure set out in Part 4, Division 3 of the Code.
Either way however, the Code requires that as part of the procedure, the complainant must first notify the other respondent party in writing about: (a) the nature of the dispute, (b) what outcome the complainant seeks to achieve, and (c) what action the complainant thinks will resolve the dispute. The parties must then, acting in good faith, try to resolve the dispute.
The Code also states that a party will be taken to be trying to resolve a dispute if it acts in a reconciliatory manner which includes doing any of the following:
Attending and participating in meetings at reasonable times;
Not taking or refusing to take action during the dispute, which has the effect of damaging the reputation of the franchise system, such as providing inferior goods, services or support; or
Making the party’s intention clear at the beginning of an ADR process as to what they are trying to achieve through the process, and observing confidentiality obligations during and after the process.
If the parties can’t agree on how to resolve the dispute within 21 days, then any party may refer the matter to an ADR practitioner to commence an ADR process under the franchise agreement or the Code. If there is disagreement about the ADR practitioner, either party may request the Australian Small Business and Family Enterprise Ombudsman (Ombudsman) to appoint an ADR practitioner, who must then appoint one within 14 days of the request.
The parties must further follow any confidentiality obligations that may apply during or after the ADR process. However, if two or more franchisees have similar disputes with the same franchisor, the Code states that they will be permitted to discuss their disputes with each other, even despite any confidentiality obligations which apply under their franchise agreements. The franchisees and franchisor may also agree to resolve their disputes in the same way.
An ADR process will often offer a cost-effective way for parties to try and resolve a dispute. Both parties will be liable to share the costs of the ADR process equally.
If you are making or facing a franchising complaint or dispute and would like further guidance or advice, please contact our franchising or disputes team for further information.
1Competition and Consumer (Industry Codes – Franchising) Regulation 2014.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.