Code awareness key for franchise disputes

Disputes between franchisors and franchisees can be costly, time consuming and disruptive to business. The dispute resolution procedures under the Franchising Code of Conduct recognise this, and new provisions introduced in 2010 seek to protect the franchise system during a dispute.

Disputes are often a reality of business, and franchising is no exception. With the current economic climate placing great strain on the retail sector, it is important for parties to a franchise agreement to understand that there are procedures in place that can be followed when a dispute arises. Although mediation may not be appropriate in respect of all issues arising under a franchise agreement, it is a relatively economical, and often successful way of bringing parties together to resolve their differences.

All franchise agreements entered into after 1998 must provide for a complaint handling process thatcomplies with the Franchising Code of Conduct (theCode). The Code sets out the steps that must betaken when a dispute arises between a franchisor and franchisee, and while the Code encourages franchisors and franchisees to try and resolve matters between themselves before turning to more legal avenues, this cannot always be achieved.

The following are key points to remember if you are involved in a franchise dispute:

• Mediation is provided for under the Code in the event a dispute cannot be resolved within 21 days after notification of the dispute hasbeen provided in writing. Under the Code, the Office of the Mediation Advisor is responsible for providing mediation services to parties in dispute. The Office of the Mediation Advisor can appoint a trained, commercial mediator to assist the parties in negotiating a resolution.
• If the mediation procedure under the Code is invoked, mediation is mandatory and both franchisor and franchisee must attend. Since the2010 amendments were introduced, the Code imposes a requirement on the parties to try and resolve the dispute, meaning that both parties should approach mediation in a reconciliatory manner.
• The Code, as amended in 2010, also recognises the importance of ‘business as usual’ during a dispute, and requires franchisors and franchisees going through the mediation process to refrain from taking action during the dispute. This includes taking any action in respect of the provision of services, of which might damage the reputation of the franchise system.
• Failure by a franchisor or franchisee to either attend mediation, or make a genuine attempt to resolve the dispute will be considered a breach of the Competition and Consumer Act 2010.
• Mediation may not always be appropriate inorder to resolve a franchising dispute. From instance, where urgent relief is required, such as an injunction to prevent a franchisee from doing certain things, or to enforce compliance with certain terms of a franchise agreement. The Code recognises this, and the mediation procedure set out in the Code does not affect the right of a party to a franchise agreement to issue legal proceedings.

Madgwicks has expertise in the area, and we are able to assist through the mediation and dispute resolution process, including representing parties at mediation.