Arbitration in Franchise Disputes

Arbitration is an alternative form of dispute resolution (‘ADR’) where parties with a disagreement present their case to a neutral third party known as an arbitrator, who then determines an outcome to resolve a dispute.

A decision made by an arbitrator is legally binding on all parties and enforceable in Court, unless all parties agree that the arbitrator’s decision will not be legally binding .

Since 2010, all of Australia's states and territories have been governed by Commercial Arbitration Acts, a scheme of legislation which have created a uniform framework for commercial arbitration in Australia. This ensures consistency in the processes and outcomes of arbitrations across the country.  

Arbitration between countries is also regulated in Australia by the International Arbitration Act 1974 (Cth) .

Arbitration is a popular method for resolving commercial disputes, as it is efficient, impartial and enforceable . There are many professional arbitrators in Australia, and its arbitration industry is independent and sophisticated .

Franchising Under the Code

In the franchising industry, arbitrations are governed by the Franchising Code of Conduct (‘the Code’).

Any party with a dispute (called ‘the complainant’) must provide written notice to the other party (called ‘the respondent’) setting out the nature of the dispute, what outcome the complainant wants and what action they think will resolve the dispute. The parties must then try to agree on how to resolve the dispute. Arbitration is one of the methods that they can choose.

The parties may agree in writing to resolve a dispute (in part or in whole) by arbitration. This agreement can be included in the franchise agreement between the parties, or it can be made separately.

The arbitration procedure is set out in section 80 of the Code.

First, an arbitrator must be appointed. The parties to the dispute must apply to the Australian Small Business and Family Enterprise Ombudsman (‘the Ombudsman’) to appoint an arbitrator to the dispute. The Ombudsman is an independent advocate and advisor for small business owners and franchisees.

The parties may agree on a particular arbitrator to resolve a dispute, and if they so request, the Ombudsman must appoint that arbitrator.

In any event, the Ombudsman must appoint an arbitrator within 14 days of the application, unless they think that the dispute is without merit or has previously been the subject of another arbitration. The Ombudsman must provide the details of the arbitrator they appoint to the parties in writing.

Once appointed, the arbitrator must decide how the arbitration will be conducted. This can be by telephone or by meeting, whether in person or by means of virtual attendance technologies like Zoom. They must also determine the time, place and starting date of the arbitration. Allowing the neutral arbitrator to make these decisions ensures that the parties are meeting on equal grounds.

The arbitration must take place in Australia.

The arbitrator must notify the Ombudsman that the arbitration has commenced within 14 business days after the commencement.

Each party, or a representative of each party with authority to enter into an agreement to settle the dispute, must attend the arbitration. This could be a company director or an authorised agent, for instance. Any party that does not attend the arbitration may receive a fine of up to 600 penalty units, or $198,000.

If the dispute is resolved, the arbitrator must put the terms of the resolution in writing and deliver a copy of the terms to each party to the dispute within 14 days. They must also notify the Ombudsman that the dispute has been resolved.

The arbitrator must terminate the arbitration at any time if jointly requested by all parties involved in the dispute to do so. In this event, they must issue a certificate stating the nature of the dispute, that the arbitration was terminated and the dispute was not resolved. This certificate must be issued to all parties and the Ombudsman.

Each party to a dispute subject to arbitration must pay half of all reasonable costs (if any) associated with the conduct of the arbitration, unless all parties agree otherwise.

However, parties must pay their own costs of attending the arbitration, unless all parties agree otherwise.

Other Forms of Dispute Resolution

Arbitration is not the only form of dispute resolution that can be used in place of or before litigation. The Code also suggests the use of mediation and conciliation. If disputing parties are unable to agree on how to resolve a dispute within 21 days, either party can refer the matter to an ADR practitioner, who would be a conciliator or a mediator, to resolve it. If the parties cannot agree on who should be the ADR practitioner, any party may request that the Ombudsman select one themselves.

Mediation

A mediator acts as a neutral third party who guides parties to provide their perspectives and reach a mutually accessible agreement by themselves. A mediator facilitates communication, assists the parties to identify their needs and interests and uses creative problem-solving techniques to enable the parties to reach their own agreement.

Conciliation

Conciliation is a similarly flexible and informal way of resolving complaints. However, a conciliator takes a more active role in discussions, offering advice about the subject matter of the dispute and making recommendations for the parties to consider. This enables both parties to understand the complaint, clarify the most important issues, and explore ways to resolve the complaint.

There are also multiple party mediations and conciliations, where franchisees who have similar disputes with the same franchisor try to resolve their disputes together. Franchisees are able to discuss their disputes with each other, even if they have confidentiality obligations in their franchise agreements, provided that their franchise agreement was entered into, extended or renewed from 1 July 2021.

Unlike arbitrators, neither mediators nor conciliators impose a solution on either party. If the parties are unable to reach an agreement by the conclusion of the mediation or conciliation, the dispute remains unresolved.

However, ADRs are still effective alternatives to litigation. They are cheaper, quicker, more informal, empowering to participants and confidential . They can lead to more flexible outcomes, including apologies, changes to policies or practices, staff training, reinstatement of an agreement or payment of compensation.

Takeaways

Arbitration is a useful Alternative Dispute Resolution ('ADR') process that allows parties to solve a dispute without going through the expensive, time consuming process of litigation.

An arbitrator is able to facilitate the exchange of ideas between parties and then determine a legally binding outcome beneficial, to the extent possible, to both parties.

Arbitration for franchise disputes is governed by the Franchising Code of Conduct, with the process set out under section 80.

Other ADR processes provided for under the code include mediation and conciliation, which provide even more flexibility for parties to resolve a dispute themselves.

Are You Up to Date?

As of 14 November 2025, all franchisors are required to disclose on the Franchise Disclosure Registry whether their franchise agreements include arbitration.

About Haarsma Lawyers

At Haarsma Lawyers, we've been guiding our clients through franchise disputes of all kinds for over 40 years.

Whether you've been accused of breaching your franchise agreement or you're looking to challenge another party's non-compliance, we'll be here to listen, advise you, and passionately advocate for you to resolve disputes of any size.

To make the most of our experience and expertise, contact Haarsma Lawyers.