Franchise Dispute Resolution

We have acted in many franchise disputes between franchisors and franchisees involving many different types of franchised businesses.
There are many causes of disputes between franchisor and franchisees and disputes arise at different times in the relationship between the franchisor and the franchisee.

Disputes may arise during the franchise term, on termination of the franchise agreement by the franchisor because the franchisor believes the franchisee has breached the franchise agreement, or at the time of renewal of a franchisee agreement for a further term.

There are a number of features of franchising or terms in franchise agreements that may lead to disputes between franchisors and franchisees. These disputes may arise because of underlying risks in the franchise relationship or franchise agreement or the conduct of the parties.

Reasons for franchise disputes raised by franchisees are numerous. The following causes of franchise disputes are some of the kinds of disputes that we have seen repeated from time to time:

  • The franchisor requires the franchisee to undertake unexpected capital expenditure;
  • Franchise Agreement that require franchisees to purchase approved products or services or purchase products or services from approved suppliers at prices that are higher than from alternative sources;
  • Lack of support provided to franchisees;
  • Termination of the franchise agreement by the franchisor for minor breaches by the franchisee;
  • The Franchisor imposing fees or increasing existing fees under the Franchise Agreement;
  • The Franchisor requiring franchisees to undertake additional training at the Franchisee’s expense;
  • The franchisor setting up a franchisor operated business close to the franchisee’s franchise business;
  • The franchisor requiring the franchisee to use a point of sale system or business management system that has problems that are not fixed by the franchisor;
  • The franchisor requiring the franchisee to give discounts to customers, honour loyalty cards or be involved in promotional activities at the cost of the franchisee;
  • Unilateral changes to franchise agreements by the franchisor;
  • Substantial change in the franchise business model imposed on franchisees.

Many disputes raised by franchisees arise from an alleged failure by franchisors to comply with the Franchising Code of Conduct or from conduct in breach of the Australian Consumer Law. Franchisors and Franchisees have an obligation to act in good faith pursuant to the Franchising Code of Conduct. The Australian Consumer Law prohibits conduct that is unconscionable and conduct that is misleading or deceptive or likely to mislead or deceive.

There are also many reasons franchisors find themselves in disputes with franchisees.
The following are some of the kinds of franchise disputes that may arise from the conduct of franchisees:

  • franchisees not meeting minimum performance standards;
  • franchisees not recording all their sales information;
  • franchisees not following the uniform procedures required by the franchise;
  • franchisees setting up a separate business during the franchise term in breach of the restraint of trade during or after the termination of the
  • franchise;
  • franchisees using the client information or confidential information of the franchisor;
  • Non-payment of franchisee fees;
  • Abandonment of the franchise during the franchise term.

There are many reasons for franchise disputes and these are only some of them.

The good news is that most franchise disputes never end up in court. Some franchise disputes are resolved informally by direct negotiation between the parties themselves, or through their legal representatives. Many other franchise disputes are resolved by mediation through the mediation process available to franchisors and franchisees by the Franchising Code of Conduct.

Many other franchise disputes are resolved by mediation through the mediation process available to franchisors and franchisees by the Franchising Code of Conduct.

We have acted in many franchise mediations in the last few years before mediators appointed by the Franchising Mediation Adviser. When acting for a party in a franchise mediation we assist you in the whole process including preparing a detailed notice of dispute that sets out your legal claims and rights, applying on your behalf for the appointment of the mediator, seeking to informally resolve the dispute before the mediation and, if the dispute cannot be resolved before the mediation, preparing for and attending the mediation.

If the matter is resolved at the mediation we act for you in the preparation of documents recording the terms of settlement. If necessary, we act for you after the mediation, in further settlement negotiations. Many franchise disputes do not settle at mediation, but if enough momentum is achieved towards settlement at the mediation further post-mediation negotiations may lead to settlement agreement.

Unfortunately, not all matters settle in court proceedings and on occasions parties need to act urgently in Court to vindicate or protect their legal rights. We have over 25 years’ experience in commercial litigation and many of court actions in which we have acted have involved a franchise dispute between a franchisor and franchisee.

Franchising, including franchise dispute resolution, is increasingly a specialised area of law. If you find yourself in a franchise dispute and you need the assistance of a specialist franchise dispute lawyer, please do not hesitate to contact us.

Need an experienced Lawyer?