Dispute resolution for franchisors and franchisees

Peter Stewart

Assisted by Emily Lucas

The changes to the Franchising Code of Conduct (the Code) has seen more onerous good faith obligations for both franchisors and franchisees. To ensure that both parties comply with such obligations, the Code now requires franchisors and franchisees to attempt to resolve disputes prior to terminating the agreement on foot. These are the most frequently asked questions my clients ask me when a dispute occurs:

I have a dispute with my Franchisor/Franchisee – Where do I start?

The first step in the franchise dispute resolution process involves the concerned party writing to the other party and outlining the following:

  1. The nature of the dispute
  2. The desired outcome from the dispute
  3. What actions or conduct will remedy the dispute. 

I wrote to the other party but we haven’t resolved the issue – Where to from here?

In the event that parties can’t resolve the dispute within 21 days, either party has rights in relation to the dispute resolution mechanism contained in the franchise agreement and/or the Code, and may proceed to appoint a mediator to the matter. 

We can’t agree on which mediator to appoint – Is there an independent mediator?

In circumstances where the parties are unable to agree on a mediator to appoint, parties are required to refer the matter to the Mediation Adviser as per the Code. The current Mediation Adviser is The Office of the Franchising Mediation Adviser (OFMA).

The matter has been referred to a mediator – Do I have to attend? 

Yes, once the matter is referred to a mediator both parties are required to attend. Failing to attend such discussions will attract a severe penalty and may be considered conduct that is not in good faith. The parties must genuinely try to rectify the issues and provide possible solutions to the dispute in question.

If mediation fails to rectify the dispute, can I still take legal action against the franchisor/franchisee?

Attending mediation doesn’t waive either party’s rights in respect of commencing legal proceedings. Whilst not always effective, mediation is usually recommended to achieve a commercial solution to the dispute. 

What are the costs of attending mediation?

The Code states that each party must share the costs of mediation unless the parties can come to cost arrangement. Mediation costs are subject to:

1.    The respective mediators costs
2.    Venue hire
3.     Materials that both parties agree to (valuations, expert reports etc).

Each party is required to pay for their own costs involved with attending the mediation. Whilst a mediation is typically more cost-effective than commencing legal proceedings, it can still be costly. It is important to seek legal advice with respect of your franchise to ensure that you’re satisfying all obligations of the Code with respect to disputes. If you have received a dispute notice or wish to serve one, contact our franchising expert: