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Dispute Resolution in Franchising

By Ana on Oct 7, 2020 10:23:21 PM

Dispute resolution (also known as alternative dispute resolution or ADR) refers to a number of processes that can be used to resolve a dispute.

Dispute resolution can be facilitative, advisory or determinative.

 

Facilitative Dispute Resolution

Facilitative dispute resolution involves the dispute resolution practitioner assisting (or facilitating) the parties to resolve the dispute. An example of a facilitative dispute resolution process is mediation.

Mediation is a mandatory process under the Franchising Code of Conduct (the Franchising Code).

In mediation, the mediator assists the parties to the dispute to:

1 Identify the issues in a dispute;

2 Develop Options;

3 Consider Alternatives;

4 Try to reach an agreement.

The mediator’s role is limited to facilitating an agreement between the parties.

The Parliamentary Joint Committee on Corporations and Financial Services noted in its Fairness in Franchising Report that mediation is well suited to franchising and may achieve satisfactory resolution in up to two thirds of cases.

 

Advisory Dispute Resolution

Advisory dispute resolution involves the dispute resolution practitioner taking an advisory role in assisting the parties to resolve the dispute. An example of an advisory dispute resolution process is conciliation.

The conciliation process shares with the mediation process the fundamental principles that the parties:

1 Identify the issues in dispute;

2 Develop options;

3 Consider alternatives; and

4 Try to reach an agreement.

However, the introduction of the advisory aspect to the conciliation process allows the conciliator to provide expert knowledge and advice relevant to the dispute.

 

Determinative dispute resolution

Determinative dispute resolution involves the dispute resolution practitioner making a determination about the dispute. An example of a determinative dispute resolution process is arbitration.

The arbitrator evaluates the dispute and makes a binding determination.

Arbitration is often used as the “next step” after mediation and/or conciliation. The Franchising Code does not currently include an arbitration process.

 

The fairness in franchising report

The Parliamentary Joint Committee on Corporations and Financial Services in its Fairness in Franchising Report released in March 2019, recommended that to enhance the dispute resolution scheme for franchising, the Franchising Code be amended to include among other things:

  1. the option of binding arbitration with the capacity to award remedies, compensation, interest and costs, if mediation is unsuccessful (does not exclude court action);
  2. the capacity for a mediator or arbitrator to undertake multi-franchisee resolutions when disputes relating to similar issues arise (as determined by the mediator or the arbitrator).

 

Government response to the Fairness in Franchising Report

The Government released its response to the Fairness in Franchising Report on 20 August 2020.

In relation to Dispute Resolution the response to the Fairness in Franchising Report provides:

Issue: The Franchising Code does not provide franchisees with accessible, affordable and effective dispute resolution processes.

Principle: Where disagreements turn into disputes, there is a resolution process that is fair, timely and cost effective for both parties.

Action: The Government will strengthen the management of the dispute resolution services and organisations, including expressly allowing multi-party dispute resolution under the Franchising Code, conciliation and voluntary binding arbitration.

The Government proposes to:

  1. implement a voluntary binding arbitration model by appointing a Franchising Arbitration Adviser, utilising a model similar to that in the Dairy Industry Code.
  2. amend the Franchising Code to clarify that, if the person conducting the dispute resolution process determines it is appropriate to conduct a multi-party process, the franchisor cannot refuse to take part in that process.

 

Franchising laws amendment fairness in franchising Bill 2020

On 2 September 2020 a private Senator's bill was introduced into the parliament being the Franchising Laws Amendment (Fairness in Franchising) Bill 2020.

In order to improve dispute resolution in franchising, the Bill also seeks to introduce:

  1. multi-party dispute resolution.
  2. voluntary arbitration.

The Franchising Laws Amendment (Fairness in Franchising) Bill 2020 embodies the views of the Federal Opposition.

 

voluntary arbitration

The Federal Government has indicated that it proposes to introduce a voluntary binding arbitration model similar to the model used in the Dairy Industry Code which came into force on 1 January 2020.

Consequently, if the Franchising Code contains a similar arbitration model, a franchising dispute will not be resolved by arbitration unless:

  1. the franchise agreement contains a clause which provides for arbitation as a means for resolving disputes between the parties; or
  2. the parties agree in a document separate to the franchise agreement to use arbitration to resolve the matter.

In the short term it is unlikely that franchise agreements will contain arbitration clauses.

The arbitration model proposed by the Franchising Laws Amendment (Fairness in Franchising) Bill 2020 is slightly different in that it does not require a dispute resolution clause to be included in either the franchise agreement or any other written document, the parties can just agree to arbitrate the dispute at the relevant time.

 

Multi-franchisee dispute resolution

The Federal Government proposes to amend the Franchising Code to clarify that, if the person conducting the dispute resolution process (be it a mediator, conciliator or arbitrator) determines that it is appropriate to conduct a multi-party process (either mediation, conciliation or arbitration), the franchisor cannot refuse to take part in that process.

The intention is that the option of multi-franchisee dispute resolution may help to correct any power imbalance between the franchisor and the franchisee.

 

summary

The Franchising Code sets out a mandatory process for mediation if a franchisor and a franchisee have a dispute.

While mediation is well suited to franchising, the Federal Government proposes to include conciliation and voluntary arbitration as further dispute resolution processes in the Franchising Code.

 

 

Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.

 

 

Ana

Written by Ana