The Franchising Code complaint handling procedure

The Australian Government’s Franchising Code of Conduct provides a simple 3-STEP procedure to help resolve any disputes that arise in a franchise system.

STEP 1

Go to the Notice of Dispute (click link) form provided on the Franchising Code website. Fill it in (on-line) and send it to the OTHER party to the dispute.

Under the Code, a party raising a dispute (the franchisee or franchisor) must notify the other party in writing, by sending them a Notice of the dispute.

The Notice of Dispute must state:
• the nature of the dispute
• the outcome the complainant wants
• what action the complainant thinks will settle the dispute

You can use the Notice of Dispute provided by the link above. It is a writable PDF, so you can fill it out online and then print it or save it to your computer. You then have to give it to the other party (by post, hand deliver it or by email). There is no need to send a copy to the OFMA at this stage.

The quicker you lodge the dispute with the other party, the earlier you make them aware of your problems and can begin negotiations under the Code and the sooner you can request a mediator to assist you resolve the dispute, if you need help.

STEP 2

The parties have 3 weeks to negotiate a resolution to the dispute between themselves, in good faith.

After the Notice of Dispute has been given, the parties must then try to resolve the dispute between themselves, acting in “good faith” within 3 weeks.

Under Australian common (unwritten) law, good faith requires the parties to an agreement to act reasonably and not arbitrarily or dishonestly. They must have regard to the legitimate interests of the other party. Courts have found business dealings to be not in good faith when they involve one party acting for some ulterior motive, or in a way that undermines or denies the other party the benefits of a contract.

If the dispute is not resolved within 3 weeks of the Notice being given, you can request that a mediator be appointed to facilitate the resolution of the dispute.

STEP 3

You request a mediator to facilitate your resolution by sending us an on-line Request to Appoint a Mediator (click link)
[Make sure you have all of the documents you want to send to the mediator and other parties, available and in PDF format ready to upload.]

If the parties are unable to resolve the dispute within three weeks, of the Notice of Dispute being sent, then either party can ask the Franchising Mediation Adviser to appoint a mediator. The mediator, who is independent and accredited (usually a practising lawyer or franchising business professional) will set the matter down for mediation to be conducted in the State or Territory in which the franchised business is based. (Note if the franchise agreement contains a clause requiring the mediation to take place in any other State or Territory or outside of Australia that clause is of no effect unless the franchising agreement was entered into before 1 January 2015 and contains such a clause.)

Once the mediator sets the date and time for the mediation, then the other party:

  • must attend the mediation,
  • must negotiate in good faith,
  • must pay half of the mediation fees.

The Adviser will appoint a mediator to the dispute within 14 days.

Obligation to “act in good faith”

Each party to the mediation is under an obligation to “act in good faith” within the meaning of the unwritten law from time to time. Matters to which a court may have regard, include whether the party acted honestly and not arbitrarily and whether the party cooperated to achieve the purposes of the franchise agreement. Failure to act in good faith can attract a civil fine of 300 penalty units.

Note, however, that the obligation to act in good faith does not prevent a party to a franchise agreement from acting in their own legitimate commercial interests.

Also if a franchise agreement does not give the franchisee an option to renew or extend the agreement, this does not mean that the franchisor has not acted in good faith in negotiating or giving effect to the agreement.

What is the cost of Mediation?

The Commonwealth government has set the fee that a mediator appointed under the Code can charge as: up to a maximum of $330 (inclusive of GST) per hour. As each party only pays half the fee, it makes the mediation process under the Code one of the most inexpensive dispute resolution procedures available. Plus you only pay for the time you need on an hourly basis.

The minimum charge that the mediator will make once appointed is for setting up and administering the mediation, of up to three hours, if the mediation does not proceed. If the mediation proceeds, then the mediator will only charge for the time they spend in administering and mediating the dispute. Other costs may include the cost of room hire and any additional matters like expert reports, that both parties agree are necessary for the mediation.

The mediator will require a deposit against their expected fees to be paid before commencing the mediation process. This fee is shared between the parties, who are jointly liable for the mediator’s fees, unless they agree between themselves who will be responsible.

The parties pay for their own costs (and of their advisors or lawyers) of attending the mediation.

What if the Dispute is not resolved?

The Code does not provide for the mediator to make a determination about the merits of each party’s case in the event of a failed mediation. However, the parties can organise for binding arbitration of their dispute or use litigation in the court to finally resolve the matter. The Code does not affect the right of a party to a franchise agreement to bring legal proceedings to resolve the dispute.

If after 30 days from the mediation starting, there is no resolution, either party can ask the mediator to terminate the mediation. The mediator may also decide to terminate the mediation unless satisfied that a resolution of the dispute is imminent.

If the mediation is terminated, the mediator issues a certificate to each party and the Adviser, stating:
• the names of the parties;
• the nature of the dispute;
• that the mediation has finished;
• that the dispute has not been resolved.