DAMAGE CONTROL

How you can resolve your franchising dispute.

Dispute resolution tips from the ACCC

It is not uncommon for a franchisor and a franchisee to sometimes disagree, and if the issue is serious enough, this can result in a dispute. In franchising, as in life more generally, it is often better to reach a mutually agreeable compromise than pursue a dispute to the bitter end. Dispute resolution processes under the Franchising Code of Conduct are framed with this in mind.

Some common issues franchisees may face include a lack of training or support, disputes about rights within franchised territories and a lack of disclosure regarding sourcing of products or required future expenditure.

Some examples of issues that may cause disputes in relation to territories include: • misunderstandings or lack of clarity about the boundaries of a franchisee’s territory

• misunderstandings about limitations on exclusivity within a franchisee’s territory.

A drawn out dispute may not only disrupt the running and profitability of the business but can sometimes cause significant damage to working relationships. Good business relations between franchisors and franchisees are vital for the sustainability of a franchised business and a franchise network, so it is important for both parties to resolve disputes efficiently and in good faith.

Under the Franchising Code of Conduct, franchise agreements must contain a dispute resolution procedure that complies with the code. Parties may commence the dispute resolution process as per the terms of the franchise agreement or under the code.

STEPS TO RESOLVE A DISPUTE

Where a franchisee is seeking a resolution to a dispute and in the interest of maintaining good relations, it may be helpful for the franchisee to approach the franchisor informally to discuss their concerns before commencing a dispute resolution process. If such discussions don’t resolve the issue, it may be necessary to initiate a formal dispute resolution process.

To initiate a formal dispute resolution process, either the franchisor or the franchisee must inform the other party in writing, detailing the nature of the dispute, the outcome being sought and a suggested course of action to settle the dispute. The code then allows the parties a minimum of three weeks to reach an agreement.

The code requires the parties to negotiate in good faith. This means both parties should be honest and genuinely try to achieve a resolution.

With the right attitude and genuine intentions to resolve the dispute, parties will generally find dispute resolution processes can be a meaningful way to resolve disputes. Parties who communicate in good faith are more likely to reach a solution suitable for both parties.

MEDIATION

If the parties cannot agree on how to resolve the dispute within three weeks, either the franchisee or the franchisor may arrange mediation. The Australian

Good business relations between franchisors and franchisees are vital for the sustainability of a franchised business and a franchise network, so it is important for both parties to resolve disputes efficiently and in

good faith.

Small Business and Family Enterprise Ombudsman (ASBFEO) can provide access to mediation services.

If the franchisee and franchisor cannot agree on the mediator, they can ask the ASBFEO to arrange for the Franchising Mediation Adviser to appoint a mediator within 14 days of a request to do so. It is mandatory for the parties to attend mediation and to attempt to resolve the matter in good faith.

An early mediation date is likely to prevent the dispute from escalating.

The mediation must be conducted in Australia. Any requirement in a franchise agreement for mediation to be conducted outside the state or territory in which the franchisee is located is not allowed.

The parties must approach the resolution of the dispute in a reconciliatory manner. It is important to remember that both parties must pay for their own costs in attending mediation and unless they agree otherwise, they are equally liable for other costs of mediation. These can include the cost of the mediator, cost of room hire and the costs of any additional input (e.g. expert reports) which may be necessary.

Once the mediation has commenced, if a dispute remains unresolved for 30 days the mediator may terminate the process, unless satisfied that a resolution of the dispute is imminent. Alternatively, either party may request that the mediator terminate the mediation.

IF MEDIATION FAILS

Where mediation fails and the dispute remains unresolved, parties can nonetheless continue negotiations. Alternatively, either party has the right to initiate legal proceedings, even if a mediation is still in progress. However, escalating a dispute to the courts needs to be carefully considered and legal advice should be sought, as litigation can often be a costly and lengthy process.

THE ROLE OF THE ACCC

The ACCC does not generally get involved in individual disputes. If you believe a potential breach of the code has occurred, you may contact the ACCC to seek further information or make a report.

In deciding whether enforcement action is warranted, the ACCC focuses on those circumstances that will, or have the potential to, harm the competitive process or result in widespread consumer or small business detriment. The ACCC’s 2019 compliance and enforcement priorities outlines the principles we adopt to achieve compliance with the Competition and Consumer Act 2010, our compliance and enforcement functions, strategies and tools, including business and consumer education, and working closely with stakeholders and other agencies.

You can find more information about resolving franchising disputes, the Franchising Code and what we can and can’t do for small businesses on the ACCC website.

Also sign up to our Franchising Information Network to receive updates on the latest news and events relevant to the franchising sector. The information in this article is for guidance purposes only and does not constitute or substitute for legal advice. When considering a franchise opportunity, seek advice from a lawyer, accountant and business advisor with franchising expertise.