Guide to Franchise Disputes

If you are experiencing problems with your franchise relationship you are not alone. 

The Franchising Australia 2008 Survey reports that 17% of franchisors have been involved in a ‘substantial dispute’ with a franchisee over the previous 12-month period.  A ‘substantial dispute’ is defined as a dispute, which the franchisor referred to an external adviser for action.[1]

There are various reported statistics about the level of disputes between franchisors and franchisees throughout the franchise industry as a whole.  Reports vary from 2% to 6%.  With an estimated 71 400 franchised businesses operating,[2] there are probably some where between 1,428 and 4,284 substantial franchise disputes each year.  

What avenues are available for franchise dispute resolution?

Every franchise agreement entered into after 1 October 1998 is required to include mandatory dispute resolution procedures, which comply with clause 29 of the Trade Practices (Industry Codes -Franchising) Regulations 1998 know as the Franchising Code of Conduct (Code).

Clause 29 provides that the party initiating the process (complainant) must tell the other party (respondent) in writing;

1. the nature of the dispute; and
2. what outcome the complainant wants; and
3. what action the complainant thinks will settle the dispute.

If the parties cannot reach a resolution within 3 weeks, either party may refer the matter for mediation.

What is mediation?

Mediation is a meeting between the parties, facilitated by a mediator.  The mediator cannot take sides, is not able to provide advice like a lawyer or make a decision like a judge.  The mediator is responsible for facilitating discussion between the parties to enable them to negotiate their own solution.  The solution will not be a win for either party but will be a solution that enables each party to move forward in a way they can live with. Mediation allows the parties to find commercially viable solutions that may not be achieved through the Courts.  Not only does mediation enable a range of commercial solutions to be explored it is usually much faster and cheaper than court action.

Does mediation resolve disputes?

Around 75% of mediations conducted through the Office of the Mediation Adviser (OMA) result in a binding settlement that both parties are prepared to live with.

The OMA is responsible for appointing mediators to franchise disputes.

What if the mediation doesn’t resolve the dispute?

If the mediation does not resolve the dispute the next step is generally to commence Court proceedings. The Trade Practices Act 1998 (TPA) regulates conduct in trade and commerce and provides various remedies where a person or company breaches its provisions.  Failure to comply with the Code, which regulates franchise relationships, is a direct breach of the TPA.  Every case is different and it is important to look at the facts of each case to decide whether Court action is suitable on a case-by-case basis. 

Are there some matters, which are not suitable for mediation?

There are some matters which are not suitable for mediation, it may be the matter is too urgent to wait for the mediation process to occur and it is necessary to apply for a Court to intervene, it may be the other party is not prepared to mediate (which is a breach of the code) and the only way to find a solution is to approach the Courts.

Sarah Walters, MCW Lawyers

[1] Professor Lorelle Frazer, Dr. Scott Weaven, Mr Owen Wright,  Franchising Australia 2008 Survey, p40

[2] ibid, p2