Help & FAQs
The rights to end the franchise relationship, to sell your franchised business, or to pass your franchised business on to a beneficiary are determined by the terms of your franchise agreement and the Franchising Code of Conduct (the Code).
Ending the Franchise Relationship
Under the terms of the Code and on the basis that you are not renewing or extending an existing franchise agreement, you can end your franchise agreement
- within 7 days of entering into your franchise agreement, or
- within 7 days of making a payment under your franchise agreement (the cooling off right).
Apart from a cooling off right it is rare to see a franchise agreement which allows you to end the franchise agreement early without paying an exit fee or other money to the franchisor.
However, you can also end the franchise agreement early if your franchisor has breached an essential or fundamental obligation under the agreement.
You should have someone check the provisions of your franchise agreement and advise you
- what rights you have if you want to end the franchise agreement early.
- if you will have to pay any money to the franchisor if you want to end the franchise agreement early.
If you do not have any right to end your franchise agreement early you should speak to your franchisor and ask what the franchisor's policy is in these circumstances.
If you are happy with what the franchisor represents is their policy you should ask your franchisor to put this in writing.
If there might be a substantial amount of money payable to the franchisor if you end the franchise agreement early, you should ask your franchisor to change these provisions in the franchise agreement.
If your franchisor is unwilling to change these provisions, you should make any decision to enter into the franchise agreement with detailed information of:
- the circumstances in which you may be required to pay an amount of money to the franchisor on ending the franchise agreement early,
- the maximum amount of money (including damages) that you may be required to pay if you end the franchise agreement early.
Selling your Franchise Business
The sale of your franchised business will be determined by the provisions of your franchise agreement. Most franchise agreements contain provisions which will allow you to either sell the franchised business back to the franchisor or to sell the franchised business to a third party approved by your franchisor (your franchisor will want to know that anyone taking on the franchised business is a suitable franchisee).
Your franchisor will also normally have the first option to purchase your franchised business either at market value or on the terms and conditions set out in your franchise agreement.
If you sell your franchise business to a third party it is likely that you will have to pay a transfer fee to your franchisor. You should be aware of the amount of the transfer fee before you set the sale price for your franchised business.
It is important that your clearly understand the terms of your franchise agreement which affect the sale of your franchised business before you enter into the franchise agreement.
If you sell the franchised business you will also normally be subject to restrictions such as confidentiality and restraint of trade. These restrictions are designed to protect the franchisor’s goodwill. Again it is important that you clearly understand the proposed restrictions before you enter into the franchise agreement.
Contact us and we will set out any steps that need to be taken to end the franchise relationship, or to sell the franchised business.
There are 5 main disadvantages to buying a franchise.
Cost and Fees
Buying a franchise is not cheap, there is usually an up front franchise fee on top of the cost of the premsises, equipment and inventory.
You need to be aware of the ongoing fees. In addition to the initial franchise fees ongoing fees are payable by you to the franchisor.
You also need to be aware that some franchisors will require you to refurbish franchisee stores to keep up with a changing image or theme. These possible refurbishments can cost in excess of $150,000.00
Lack of Independence
The controls and limitations imposed by the franchisor can include limitations on products, pricing, employees, policies, territory, marketing, working hours and other areas deemed critically important to the success of the franchisor and the franchised business as a whole.
There is little freedom of scope for you to be creative; almost every aspect of operating the business will be regulated.
Your ability to sell or transfer the franchise business is likely to be limited. Most franchised systems have some restrictions or obligations regarding the sale or transfer of a franchised business.
Guilt by Association
If a franchisor or other franchisees are receiving bad press or suffering from poor public perception then you will ultimately suffer.
While there are many excellent franchisors in Australia, not all franchise systems are soundly based or well run.
You should conduct comprehensive research on the franchisor and only enter into franchise systems which have a time tested and solid reputation within the industry.
Limited Growth Potential
Unlike in stand alone businesses the growth potential of a franchised venture is limited.
Franchisors will almost always impose territorial limits on you which dictate where you can operate. There are often harsh penalties if you step over this mark.
Restrictive franchise agreements
Franchise agreements tend to be to the advantage of the franchisor.
Franchise agreements can contain heavy penalties if you breach certain clauses, including the ability for the franchisor to terminate the franchisee and to seek monetary compensation from you.
You should always seek your own legal advice before you enter into a franchise agreement no matter how reputable the franchisor is.
Read more about the advantages of buying a franchise.
A disclosure document is a prescribed document which contains information from the franchisor to help you to make a reasonably informed decision about the franchise.
There is a legal requirement under the Franchising Code of Conduct (the Code) for an Australian franchisor to give you a disclosure document at least 14 days before you enter into a franchise agreement.
A disclosure document will need to contain the following information to comply with Code.
Franchisors details and business experiences
Franchisors must provide details of the business including business experience, business names, business associates and a statement that the business is solvent.
The Franchisor must provide all details, if there are any, of any present litigation and any litigation which was commenced in the past. The relevant litigation is generally for matters including fraud, dishonesty and any breach of franchise.
The disclosure document must contain details of all existing franchisees, this allows a potential franchisee to contact and existing franchisee with any questions they may have regarding the franchise business.
The franchisor must describe and list its intellectual property and outline the conditions which restrict the use of the intellectual property by Franchisees. The franchisor also must provide any details of a licence agreement regarding the intellectual property.
The franchisor must provide details of any statements relating to the exclusivity of any territorial boundaries.
The franchisor must provide you with a history of the territory or site in which it is proposed that you operate your business. Th history is to provided in a separate document to be included with the disclosure document.
Goods and Services
The disclosure document must contain information regarding the conditions which will be imposed on a franchisee regarding information about the supply of goods and services.
Fees and Payments
The disclosure document will provide details to you regarding the requirement and specifics of any franchisee payments to the franchisor. This information must include items such as marketing fees, advertising fees or other financial obligations requiring contributions.
Obligation of Franchisor
These include the franchisors obligations, contained in the franchise agreement, before and after the franchisee opens their business. Any obligation contained in the franchise agreement which relates to the nature of training to be provided by the Franchisor must also be outlined.
Obligations of the Franchisee
The expected obligations on the franchisee, which are contained in the franchise agreement, must also be disclosed. These obligations must include site selection, acquisition, training before and during the operation of the business, expected standards, warranties, customer service, insurance, marketing, required indemnities, records and reports and inspections and audits.
The disclosure document must contain all details of documents related to the franchise agreement, such as a lease for premises of the franchised business, a hire purchase agreement, a security agreement or a confidentiality agreement which you will be obligated to sign.
To comply with the Code the disclosure document must be accompanied by a copy of the proposed franchise agreement and a copy of the Code itself.
Read more about the Franchising Code of Conduct
A franchisor can end the franchise agreement early in a number of circumstances.
Breach by franchisee
A franchisor can end your franchise agreement early if you have not followed your franchise agreement (called a "breach" of the franchise agreement) and you do not start to follow your franchise agreement when requested or do what the franchisor requests that you do to fix (called "remedy") the breach.
In this circumstance the franchisor must provide you with the following:
- specific details of the breach and how it can be remedied,
- reasonable time to remedy the breach (normally 30 days),
- reasonable notice that the franchisor intends to terminate the franchise agreement if the breach is not remedied.
If you receive a notice from the franchisor advising you that you have breached the franchise agreement you should get some legal assistance as soon as possible. If the franchisor ends the franchise agreement early you may not only lose your franchise business, you may also have to pay the franchisor money.
No breach by franchisee
A franchise agreement usually contains terms which allow the franchisor to end the franchise agreement early without a breach by the franchisee.
The types of things covered by this are
- if you do not satisfactorily complete training within a certain period,
- if you are required to enter a lease and you have not done so within a certain period,
- if you are required to fit out a retail premises and you have not done so within a certain period ,
- if you have not obtained the required insurances or licenses to operate within a certain period.
You should make sure you are aware of the circumstances in which the franchisor can end the franchise agreement early without breach.
A franchisor must give you reasonable notice of the termination of franchise agreement and the reasons for it. What is reasonable notice will depend on the circumstances.
The Franchising Code of Conduct sets out specific circumstances in which the franchisor is not required to provide you with reasonable notice before terminating the franchise agreement.
The franchisor may immediately terminate the franchise agreement for any of the following reasons:
- you no longer holds a licence or lease that is required to maintain the franchise business,
- you become bankrupt or insolvent,
- you voluntarily abandon the franchise agreement or business,
- you are convicted with a seirous offence,
- you operate the business in a manner which endangers public health and safety,
- you are fraudulent in connection with the operation of the franchise business.
Contact us if want some advice about your franchisor's rights to end the franchise agreement early, or if your franchisor is attempting to end the franchise relationship.
There are 5 main advantages to buying a franchise:
Brand Name Recognition
Well established franchisors provide you with an identity and a system which has proven to be effective and has a market impact:
- you may be protected from market conditions, by the experience of the franchisor and the strength of a well established brand.
- you may gain an established recognition from customers who identify your company or service.
- a well established franchise offers you the ability to get customers in the door from day one with almost no extra expenditure.
You may gain the advantage of national advertising campaigns that are included in an upfront franchise fee or an ongoing monthly fee payable to the franchisor.
The advertising fee paid by to the franchisor is usually relatively small compared with the frequency and scope of advertising campaigns conducted by the franchisor.
National advertising campaigns would be out of reach for a small business.
Support and Training
Well established franchisors will train you in everything from technology, to accounting, to standing behind the counter and taking money.
Training makes the franchise model a much less riskier venture than buying a stand alone business or starting a business from scratch:
- franchisors are generally willing to help you to ensure the success of the franchisee.
- you have the opportunity for support from other, more experienced, franchisees.
A franchisor is more likely to be in touch with the market trends that trigger changes necessary to keep up with changing times:
- a well established and proven system is more likely to be able to withstand stormy economic conditions than a newly formed business.
- the impact of any failed efforts are greatly reduced compared to a single business owner.
- you have better negotiating power as a member of a recognised and proven brand.
- you have the ability to tap into the bulk purchasing power and negotiating capacity made available by the franchisor.
If you are thinking of entering into a franchise agreement we can provide you with advice about the franchise agreement and the franchise system.
Read more about our franchise experience.
A Franchise Agreement is a document which sets out what is required by the Franchisor and Franchisee in any situation which may arise during the course of the franchise relationship.
Some of the main terms that are commonly found in a Franchise Agreement include:
Rights granted to the Franchisee
The franchisee is normally granted the right to use the Franchisor's name, trademark and system within a certain defined territory.
These terms set out what is required by the Franchisor, for example
- what training is to be provided,
- what advertising and promotion is to be undertaken,
- what support is to be provided.
You should be clear about the actual obligations of the Franchisor, before you enter into the franchise agreement. If a Franchisor has said that it will do something in addition to the obligations set out in the Franchise Agreement you should request that the Franchise Agreement be changed to reflect this.
These terms set out what is required by the Franchisee, for example
- the services to be provided,
- the methods to be used,
- the manuals to be followed,
- the standards to be maintained, and
- the way that the business is to be promoted.
Franchise Agreements often refer to obligations or methods set out in the operations manual. You should request a copy of the operations manual before you enter into the Franchise Agreement so that you are comfortable that you will be able to do what the Franchisor requires.
These set out initial and ongoing fees, such as licence fees royalties, communication fees and advertising contributions.
You should read these provisions carefully and ensure that you are aware of all payments that you are required to make to the Franchisor. If the Franchise Agreement does not accurately reflect what you understand that you are required to pay to the Franchisor you should request that the Franchise Agreement be changed to reflect your understanding. You should also ask the Franchisor how your fees are spent and in particular how the Franchisor uses your advertising contribution.
Term and Termination
These terms deal with
- how long the franchise relationship will last,
- how it will come to an end,
- whether the agreement can be renewed by the franchisee, and
- what happens on termination.
Typically a franchise agreement will have a term of 5 years. You should ensure that you are aware of all of the requirements for the renewal of the term of the Franchise Agreement. If the Franchise Agreement contains a specific notice period you should diarise the notice period at your earliest opportunity.
Read more about termination of the franchise relationship.
- restrictions on suppliers
- prohibitions on the use of confidential information
- prohibitions against operating a competing business, and
- prohibitions on the recruitment of employees after termination.
You should make sure that you understand these provisions and take legal advice on whether the restrictions are enforceable. For example, the Franchise Agreement may attempt to restrict you from doing things after the franchise relationship has ended that the Franchisor is unable at law to restrict you from doing.
A franchise agreement must set out a procedure for resolving disputes which complies with the dispute resolution procedure set out in the Franchising Code of Conduct.
Read more about dispute resolution.
These terms set out the method by which you may sell the franchise business. Some franchise systems allow you to sell the franchise business to a third party (with the approval of the Franchisor), while other franchise systems write in buy back or right of first refusal clauses.
If you sell your franchise business to a third party it is likely that you will have to pay a transfer fee to your Franchisor. You should be aware of the amount of the transfer fee before you set the sale price for your franchised business.
It is important that your clearly understand the terms of your franchise agreement which affect the sale of your franchised business before you enter into the franchise agreement.
If you are thinking of entering into a franchise agreement, contact us and let us help you to understand your rights, your obligations and the consequences of entering into the franchise arrangement.
One of the most important considerations that you need to contemplate when buying a franchise or signing a franchise agreement is the term of the franchise agreement:
- your franchise agreement will set out how long it runs for,
- you may be able to extend or renew the term or length of your franchise agreement.
- if your agreement includes an option to renew or extend, it will usually set out the time frames when you should discuss your intentions with the franchisor. You should make sure you clearly understand any time frames for renewal set out in your franchise agreement and diarise any important dates.
- if you do not comply exactly with the terms for renewal set out in your franchise agreement, you may not be able to extend or renew your franchise agreement.
- options to renew your franchise agreement are usually tied into your behaviour. If you have breached your agreement or you owe money to the Franchisor, the Franchisor may not renew your franchise agreement.
- there may be a renewal fee payable on the renewal of your franchise agreement. If there is a renewal fee payable you should include this figure in your budget forecasts.
- if your franchise business is conducted from premises which require a lease, the length of your franchise agreement may be affected by the length of the lease.
- if you are the leasee, your franchise agreement should contain provisions about what is to happen if your lease is terminated or expires before the expiration of the franchise agreement.You should check these provisions carefully.
- you should be aware that if you are left with a franchise agreement and no lease, clause 23a of the Franchising Code of Conduct provides grounds for the franchisor to terminate your franchise agreement immediately.
- your franchise agreement may contain provisions about what happens if your franchise agreement is terminated before your lease ends or expires.You should check these provsions carefully as there is the possibility that you may be left without a franchise agreement but still be bound to your lease.
- where possible you should aim for the terms of the franchise agreement to coincide with the terms of the lease.
Read more about franchise agreements.
If your franchise agreement contains a restraint of trade clause your franchisor may be able to stop you from operating a similar business after the franchise relationship ends.
When is a Restraint of Trade clause used?
Restraint of trade clauses are used in various situations:
- in the case of a franchise relationship, you may be restrained (or stopped) from
- competing with the franchisor for the purpose of protecting the franchisor’s goodwill,
- using the confidential information, trade secrets and trade connections of the franchisor.
- in the case of the sale of a business, the vendor may be restrained from competing with the purchaser for the purpose of protecting the goodwill acquired by the purchaser.
- in the case of an employment relationship, an employee may be restrained from using the confidential information, trade secrets and trade connections of the employer.
When will a Restraint of Trade clause be enforced by a Court?
A Court will consider
- how reasonable the restraint is (does it protect only what it is attempting to protect). If a restraint of trade clause is drafted too widely, or if there is another way to protect the interests of the franchisor, the clause may not be enforceable.
- the interest of all of the parties to the agreement, and
- the interest of the public.
Given the factors set out above restraint of trade clauses are sometimes unenforceable. The case study of EzyDVD v Lahrs provides an example of a restraint of trade clause which a franchisor was unable to enforce.
Our franchise lawyers have experience in both drafting and enforcing restraint of trade clauses. Contact us if you wish to have a restraint of trade clause reviewed or if your franchisor is attempting to enforce a restraint of trade clause.
The Franchising Code of Conduct is a mandatory set of rules all Australian franchised businesses must abide by.
There are 3 main areas which are covered by the Franchising Code of Conduct (the Code)
- Franchise Agreements; and
- Dispute Resolution.
The disclosure document arguably forms the foundation to compliance with the Code by franchisors. The disclosure document includes information such as:
- details of all the current franchisees in the franchise system,
- details of the frachisees that have left the system in the last three years,
- details of any relevant legal action that is being taken against the franchisor, and
- the financial and business details of the franchisor.
At least 14 days before you enters into, renew or extend a franchise agreement or you pay a non-refundable deposit in relation to a franchise agreement, a franchisor must give you:
- a copy of the Code,
- a disclosure document in the form set out in the Code,
- a franchise agreement in the form it is to be executed.
Read more about disclosure documents.
The Code requires that a franchisor provide you with certain rights in relation to franchise agreements, in particular:
- you have a 7 day cooling off period after the franchise agreement is signed, or after a franchisee has paid non refundable money to the franchisor. If you decide to exercise your cooling off rights the franchisor must give a refund of any payment the franchisee has made within 14 days. The franchisor does have the ability to deduct a reasonable amount incurred by the franchisor,
- the Franchisor is prohibited from preventing you from forming an association or from associating with other franchisees or prospective franchisees for a lawful purpose,
- the franchise agreement must not contain, or require you to sign a statement that releases the franchisor from general liability towards the franchisor,
- a franchisee agreement must not contain, or require a franchisee to sign, a waiver of any verbal or written representation made by the franchisor,
- a franchise agreement must contain a dispute resolution clause which complies with the Code.
Read more about franchise agreements.
The Code sets out a detailed procedure for resolving disputes.
Step 1- Written Notice of Dispute
The complainant, whether they are the franchisee or the franchisor, must write to the other party with details of the complaint. The code stipulates that the letter must include the following information:
- The nature of the dispute,
- The outcome the complainant wants, or the desired outcome, and
- What action the complainant believes will settle the dispute.
Step 2 - Direct negotiation between the parties
The Code mandates that before any other action is taken the parties to the complaint must endeavour to resolve the dispute between them.
Step 3- Appointment of a mediator
If the parties have tried to resolve the dispute between them and have failed, after 21 days of the written notice of dispute being given, either party may refer the matter to a mediator.
Step 4- Mediation
When mediation is required by a party, the code stipulates that before any other action is taken the parties must engage in mediation.
Read more about mediation.
This is just a brief overview of the Code and does not cover all of the Code's provisions. Should you require any advice about the Code or the effect of the Code on your business we can assist you.
Read more about the franchise law and consulting services we offer.
A franchise arrangement is generally a way of doing business in which one person (called "the Franchisor") gives another person (called "the Franchisee") the right to market and sell the Franchisor's products and services using the Franchisor's:
- brand or trademark,
- method of doing business,
- marketing and distribution system.
The Franchising Code of Conduct
In Australia franchising is regulated by the Franchising Code of Conduct (the Code).
The Code defines a franchise agreement as an agreement which includes the following 4 criteria.
- A system or marketing plan which the Franchisor creates and controls
It is likely that there is a system or marketing plan if some or all of the following apply:
- there are suggestions for retail prices to be charged for products or services
- there are products that must be produced,
- there are receipes that must be followed,
- there are specific methods for providing services,
- there are detailed advertising programs,
- there are restrictions on the sale of products.
- A brand image or trademark associated with the goods or services being provided
One of the main rights that a franchisee is given by the franchisor is the right to use the Franchisor's brand, name and logo.
- A written, oral or implied agreement between the parties which sets out each parties obligations
The agreement does not have to be in writing - it may be a verbal or partly verbal agreement or it may be implied.
- A requirement that the franchisee pays or agrees to pay to the Franchisor a fee
- royalty payments,
- up front licence fees,
- advertising payments,
- training fees, and
- payment for goods.
If you are thinking of entering into a franchise arrangement you should seek independent legal advice so that you understand the full implications of the arrangement.
The “unfair contract terms” legislation under the Competition and Consumer Act 2010 was introduced on 1 July 2010, which reflects that:
- The Australian Consumer Law (ACL) replaces all previous Commonwealth, state and territory consumer protection legislations.
- The Schedule 2 to the Competition and Consumer Act 2010 (the Act) contains the Australian Consumer Law.
- The aspects of the ACL are further contained in the Australian Securities and Investments Commission Act 2001 (ASIC Act), to protect consumers of financial products and services.
Applicability of “unfair contract terms”
The “unfair contract terms” law applies to “consumer contracts”, which is defined as a contract for:
- the supply of goods or services; or
- the sale or grant of an interest
in land to an individual who acquires it wholly or predominantly for personal, domestic or household use or consumption.
Under the ASIC Act, a similar definition of a consumer contract applies in relation to financial products and services.
The “unfair contract terms” laws do not apply to a contract to supply goods or services or financial products or services from one business to another for business use.
When is term of consumer contract unfair?
A term of a consumer contract is unfair if:
- it causes a significant disparity in the parties’ rights and obligations, arising under the contract
- it is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term.
- it would cause detriment (whether financial or otherwise) to a party when applied or relied upon.
Definition of “unfair” terms
In deciding whether a term in a standard form consumer contract is unfair, the court will apply the three limbed test for unfairness as stated under Schedule 2, Section 24(1) and Section 12BG of the ASIC Act.
A term of a consumer contract is unfair if –
The term would cause a significant imbalance in the parties’ rights and obligations arising under the contract.
- The claimant is required to prove that, on the balance of probabilities, a term of a consumer contract would cause a significant imbalance in the parties’ rights and obligations arising under the contract.
- This would involve a factual assessment of the available evidence.
The term is not reasonably necessary to protect the legitimate interests of the party that would be advantaged by the term.
- For this test the party advantaged by the term needs to provide evidence to the court to show why it is necessary for the contract to include the term.
- In such cases evidence might include materials related to the business’s costs and structure, the need for the mitigation of risks or particular industry practices to the extent that such material is relevant.
- The meaning of legitimate interest is open to interpretation by the court.
The term would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
- Detriment is not limited to financial detriment.
- The court is allowed to consider situations where delay or distress is suffered by the consumer as a result of the unfair term.
How to determine whether a term of a standard form consumer contract is unfair?
While determining whether a term of a standard form consumer contract is unfair, a court must take into consideration:
The extent to which the term is transparent
In order to determine whether a term is transparent the court takes into consideration the following parameters:
- Whether the term is expressed in reasonably plain language?
- Whether the term is legible?
- Whether the term is presented clearly?
- Whether the term is readily available to any party affected by the term?
It is to be noted that
- A term that does not meet the transparency requirement will not necessarily be unfair.
- Transparency, on its own account, will not necessarily overcome underlying unfairness in a contract term.
The contract as a whole
The fairness of a particular contractual term cannot be considered in isolation but must be assessed in light of the contract as a whole.
When is “unfair contract terms” not applicable to standard form consumer contract terms?
The “unfair contract terms” laws do not apply to standard form consumer contract terms that:
- define the main subject matter of a consumer contract
- set the up-front price payable under the contract or
- are required, or expressly permitted, by a law of the Commonwealth or a state or territory.
Case Study: Victorian case of Director of Consumer Affairs Victoria v Craig Langley Pty Ltd & Matrix Pilates and Yoga Pty Ltd
In this case Judge Harbison stated:
“Terms of a consumer contract which have been the subject of genuine negotiation should not be lightly declared unfair. This legislation is designed to protect consumers from unfair contracts, not to allow a party to a contract who has genuinely reflected on its terms and negotiated them, to be released from a contract term from which he or she later wishes to resile.”
The following consumer contracts are excluded:
- certain shipping contracts
- contracts that are constitutions of companies, managed investment schemes or other kinds of bodies or
- contracts covered by the Insurance Contracts Act 1984.
Remedies in cases where unfair terms is applied in a consumer contract-
The court can make to redress the loss or damage suffered by non-party consumers by:
- an order declaring all or part of a contract to be void.
- an order varying a contract or arrangement as the court sees fit.
- an order refusing to enforce all or any of the terms of a contract or arrangement.
- an order directing the respondent to refund money or return property to a non party consumer
- an order directing the respondent to repair or provide parts for a product provided under a contract at their expense.
The party to a standard form consumer contract may apply to the court for a declaration that a term of the contract is an unfair term.
If a court makes a declaration that a term is unfair and a party subsequently seeks to apply or rely upon the unfair term, it is a contravention of the ACL or the ASIC Act, and the court may grant the following remedies:
- an injunction (Schedule 2, Part 5-2, Section 232 of the Act; Section 12GD of the ASIC Act)
- an order to provide redress to non party consumers (Schedule 2, Part 5-2, Section 239 of the Act; Section 12GNB of the ASIC Act)
- any other order or orders that the court thinks appropriate (Schedule 2, Part 5-2, Section 243 of the Act; Section 12GM of the ASIC Act).
Mediation is a process by which the parties to a dispute with the assistance of a mediator (a neutral third party) identify the issues in dispute, develop options around those issues, consider alternatives and endeavour to reach an agreement.
Mediation is fast becoming a genuine alternative to litigation because:
- mediation is generally quick,
- mediation is relatively inexpensive,
- mediation is private and confidential,
- mediation allows parties to have control over the outcome of the dispute,
- mediation allows for settlements that have commercial flexibility,
- mediation is less likely to destroy a business relationship.
The preliminary conference
The mediator will usually contact each party and arrange a separate preliminary conference.
The purpose of the preliminary conference is to:
- answer questions,
- explain the mediation process and the underlying principles,
- explore whether mediation is the most appropriate process for the dispute,
- discuss the mediator’s role,
- confirm who will be attending the mediation and in what capacity,
- discuss the role of any advisers who will be attending the mediation,
- exchange documentation and if required set a timetable for the exchange of documentation,
- confirm the date time and place for the mediation.
There are a number of stages in the mediation process.
Step 1 - the mediator’s opening statement
The mediator’s statement will normally cover the following issues:
- the role of the mediator in the mediation. The mediator’s role is facilitary. The mediator does not impose decisions upon the parties, but is there to assist the parties to reach an agreement.
- the procedure that the parties will follow.
- the confidentiality of the mediation process. Generally the matters discussed in mediation and the documents prepared for mediation are confidential. However there are many exceptions to this rule. Often a mediator will use the expression “mediation is confidential unless otherwise require by law”.
- the authority of the parties present at the mediation. The parties present at the mediation must have authority to settle the dispute.
- the time constraints of the partes present at the mediation. Mediations often continue into the evening. Consequently a mediator must know at the outset whether any of the parties have time constraints.
- the proposed rules of courtesy to be followed by the parties.
Step 2 - the parties’ opening statements
- each party explains its position without interruption from the other party.
- at the end of each of the party’s opening statements the mediator will normally summarise the key issues raised by the party.
Step 3 - identifying the issues and setting the agenda
The mediator will list an agenda of issues for discussion and prioritise those issues in the order that the parties wish to deal with them.
Step 4 - exploring the issues –joint sessions
The parties will discuss the issues set out in the agenda in a joint session. The mediator will use his or her skills as a facilitator to
- keep communication open between the parties
- stick to the agenda and
- find common ground between the parties.
Step 5 - private sessions if necessary
The mediator may spend time privately with each party exploring the issues and reality testing each party’s position. The mediator will not discuss the matters raised in a private session with the other party unless he is specifically authorised to do so.
Step 6 - negotiation – exploring the options for settlement
The mediator and the parties will identify and explore options for settlement.
Step 7 - agreement
The mediator will ensure that any oral agreement reached between the parties is accurately reflected in a written agreement or heads of agreement.
If you have a dispute with a franchisor contact us so that we can help you to prepare a dispute notice and can advise you about, or attend a mediation with you.