Unfortunately, disputes can arise during the franchise relationship. Both parties to a franchise agreement rely on the other to uphold their end of the bargain, and it’s crucial to each party’s business that the other does just that.
Part of being a successful franchisor or franchisee is knowing how to deal with a dispute when it arises. One of the tools you can use in this situation is the franchising notice of dispute. This is a letter from one party formally notifying the other to resolve an issue. We look at the elements of the Notice in closer detail and discuss when it should be used.
The Notice of Dispute
The Franchising Code of Conduct (the Code) sets out a dispute resolution process parties can follow to resolve their dispute.
The first step is issuing a Notice of Dispute under section 40 of the Code. The complainant (i.e. the party making the complaint) must notify the other party in writing:
- the nature of the dispute,
- what outcome the complainant wants, and
- what action the complainant thinks will resolve the dispute.
Issuing a notice of dispute formally notifies the other party that there is a problem that needs attention. It does not mean that you are commencing legal proceedings or taking any other action. Rather, it is a way for parties to try and resolve the issue before taking any further action.
Although there is no particular format that a notice of dispute must follow, it does need to contain all three elements set out in section 40. Otherwise, the respondent can argue the complainant did not properly notify them of the dispute under the Code.
1. Nature of the Dispute
When writing a notice of dispute, it’s important that you detail what the dispute is about. Sometimes, the notice fails to include any helpful detail on why the issue is the problem. This is because parties may view this process as a required stepping stone to attending mediation or further legal action. We encourage you, however, to think of this step as an efficient and cost saving exercise.
Ensure that you clearly explain the nature of the dispute. Try to avoid skipping details or paraphrasing because you assume the other side knows what you are talking about. Consider including a timeline of events if relevant, and identify when the issue first arose and how it’s affecting your business. Write in dot points if this helps highlight relevant factors.
If the issue relates to a possible breach of the franchisee agreement or the Code, make sure you specifically mention the clause or section that the party had breached, and explain how and when the breach occurred. Refer to any breach notice you have also issued and provide a copy with the notice of dispute.
You should approach this element as your ‘desired outcome’. It’s an opportunity to state your position on the matter and identify what solution your want to the problem. For example, consider a situation where a franchisor has failed to negotiate and renew a commercial lease under the agreement. Rather than demanding that the franchisor meet their obligation, the franchisee’s desired outcome may be to change the agreement, giving the franchisee the right to manage the lease instead of the franchisor.
3. What Action Does the Complainant Think Will Resolve the Dispute?
It’s important to specify whether both parties need to negotiate a suitable outcome or whether only the respondent must take action. Make sure the action is clear and not obscure. You can even write down a series of numbered steps to make this obvious.
When Should a Party Use a Notice of Dispute?
A party should use a notice of dispute when a dispute arises in the franchise relationship.
Notably, the dispute resolution procedure set out in the Code only applies to parties to a franchise agreement. As such, the process does not apply to disputes with an external supplier, consultant, landlord or business partner.
A party should use the notice when an issue arises that seriously affects your business and/or ability to carry on the business in compliance with your obligations under the franchise agreement and operations manual. If it’s clear that such an issue is developing, consider issuing a notice as soon as possible to avoid the dispute escalating.
Disputes often drag on with numerous heated and lengthy emails between the parties that don’t really help resolve the issue. It’s much more practical to minimise these types of exchanges and clearly set out the problem in a formal notice.
Once a party has issued a notice of dispute, the franchisor and franchisee are required to try and resolve the dispute directly between themselves.
It may be appropriate to include in your notice a request to meet the other party in person or schedule a phone call to discuss the issues mentioned, and see whether you can reach a workable resolution. Alternatively, you may want to request that the other party responds to your notice in writing by a certain date, provide responses to the issues raised, and propose solutions.
If you cannot reach a resolution through direct negotiation, each side can refer the dispute to mediation after three weeks of issuing the notice. If a party requests mediation under the Code, both the franchisor and franchisee are required to attend. Mediation is a form of out-of-court dispute resolution. It involves the parties discussing the issues in dispute and attempting to reach a resolution, with the help of a neutral third party (the Mediator) who guides the parties in their efforts to find a resolution. The Mediator doesn’t make a judgement on the matter or favour either side’s position. Lawyers often attend mediation with the parties or advise them beforehand, but a party doesn’t require representation.
Where possible, however, parties should make good faith efforts to resolve the dispute to avoid unnecessary further costs and time.
A notice of dispute is a helpful tool to address issues between a franchisor and franchisee. It’s always best to issue a notice early in the piec, before the problems escalate unnecessarily.