To ensure disputes are managed fairly and consistently in Australia, the Franchising Code of Conduct (the Code) provides a statutory framework for the management of any disputes which may arise. An update to the Code, which came into effect on 1 April 2025, brings changes to the rules governing disclosure, good faith conduct, termination rights as well as how disputes are resolved.
This article explains how the dispute resolution proceeds under the new Code to provide guidance to franchisors and franchisees about what to do should a disagreement arise.
The Code: Purpose and Changes
In Australia, the Code is a mandatory industry code and is prescribed under the Competition and Consumer Act 2010 (Cth) (CCA). The Code applies to all franchisors and franchisees and aims to:
· improve the standard of conduct across franchising networks;
· address any power imbalances;
· require detailed disclosures of network information before franchisees enter into an agreement;
· provide a framework for and access to alternative dispute resolution processes; and
· promote good faith conduct.
The updated Code, which was effective from 1 April 2025, is a redesign of the previous version and is not a complete overhaul. The updated Code incorporates a number of changes (including the use of sections instead of clauses), including how disputes are handled and measures to encourage good faith conduct in resolving disagreements. Some of the updated provisions are already in force while others, such as those in relation to disclosure and compensation, came into force on 1 November 2025 but may not apply to existing franchise agreements until they are renewed. For a comprehensive overview and further context regarding the recent amendments to the Code, please refer to our earlier publication.
Franchising Disputes
A franchising dispute can arise in many different forms, but some of the most common issues are:
· contractual issues with allegations of a breach of the franchise agreement;
· disagreements over operational decisions, fees or territorial rights;
· issues with early termination or contested renewals; or
· issues with disclosure or compliance obligations including claims for misleading and deceptive conduct.
Some disputes which may arise do not fall under the Code’s framework. For example, lease disputes or Fair Work issues which will follow the relevant state statutory pathway.
Importantly, the Code mandates that parties must act in good faith in all franchising dealings, including disputes. Section 18 of the Code requires that each party to a franchise agreement act in good faith and a franchisor is prohibited from entering into a franchise agreement that attempts to limit or exclude this obligation.
Dispute Resolution Framework Under the Code
The Code provides a process for resolving disputes. Section 69 of the Code requires that a franchise agreement must provide a complaint handling process that reflects the dispute resolution process which is in line with the Code. Ultimately, the Code provides a statutory fallback if internal mechanisms are absent, inadequate or have been exhausted without success.
Internal Dispute Resolution
The first step when a dispute arises is to follow the dispute resolution process which should be included in the specific franchise agreement. The internal process will usually include a process for:
· how disputes are formally notified;
· timelines for response to a notice of dispute;
· steps for negotiation or escalation; and
· referral to mediation or other alternative dispute resolution process.
If the internal process prescribed by the franchise agreement meets or exceeds the standards set by the Code, then parties will ordinarily be expected to use it first.
Dispute Resolution under the Code
The Code sets out how both the franchisor and franchisee should deal with complaints and disputes that may arise. Importantly, the Code requires that the parties act in good faith, as the dispute resolution process is designed to be an efficient and inexpensive way to resolve a dispute.
1. Notice of Dispute
The first step under the Code is for the party wishing to raise a dispute to issue a written notice of dispute. Pursuant to section 72(1) of the Code, the notice of dispute must provide written notice of:
· the nature of the dispute;
· what outcome the complainant wants; and
· what action the complainant thinks will resolve the dispute.
Once the notice has been issued, the Code requires that the parties attempt to resolve the dispute in good faith.
2. Alternative Dispute Resolution
If the dispute remains unresolved 21 days after the notice is issued, either party may refer the dispute to a form of alternative dispute resolution (ADR). Most commonly, this means referring the dispute to mediation to be run by a qualified mediator or conciliation.
If the parties cannot agree on who should be the ADR practitioner (i.e. Mediator), then either party may request the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) to appoint one on their behalf. The ASBFEO must appoint a practitioner within 14 days of the request.
The Code prescribes a process for ADR following the appointment of a practitioner which includes that:
· the ADR process must be conducted in Australia but can be by means of virtual attendance; and
· each party to the dispute must attend or have a representative attend on their behalf that is capable of entering into a binding agreement. Technically, a franchisor can refuse to attend mediation, but the Code provides the ASBFEO with the power to publicise that refusal which can ultimately harm the franchisor’s reputation. For this reason, franchisors may be unlikely to refuse to participate in a mediation.
While ADR is important and is often the first step in franchising disputes, it is important to receive specialised legal advice to determine whether it is the most suitable option in your specific circumstances:
· within 28 days of the ADR process commencing, the practitioner is to notify the ASBFEO of that fact;
· unless otherwise agreed, the parties to the dispute are to share the costs of ADR equally including the ADR practitioner’s costs; and
· the parties must try to resolve the dispute (which is outlined above and defined in section 71 of the Code). In other words, the parties must make good faith attempts to resolve the issues in dispute and simply attending the ADR process would be insufficient.
If 30 days elapse since the ADR process began and the dispute remains unresolved, the ADR practitioner may terminate the process. A party to the dispute may also given written notice of a request, along with reasons, to terminate the ADR process. Once terminated, the ADR practitioner is required to issue a certificate which is to be given to the parties and the ASBFEO.
Importantly, under section 78 of the updated Code, the ASBFEO is given the power to publicise a franchisor’s refusal to engage with or withdrawal from the ADR process. This change encourages franchisors to actively participate in the ADR process to resolve the dispute to avoid any reputational damage.
Finally, it should be noted that the ASBFEO does not make binding outcomes or decisions on franchising disputes
3. Multiple Franchises
Pursuant to section 73 of the Code, if two (2) or more franchisees have similar disputes under their franchise agreement then they may agree to resolve their disputes in the same way. The franchisees may discuss their disputes with each other for the purpose of deciding whether to resolve in the same manner, despite any confidentiality terms contained in their franchise agreement.
In accordance with subsection 6, the ADR practitioner is empowered to continue with the process and require the franchisor’s attendance even if the franchisor does not agree that the issues should be dealt with jointly.
4. Arbitration
If mediation or conciliation does not resolve the dispute and/or the parties agree, then the dispute may proceed to arbitration pursuant to section 79 of the Code. Arbitration differs from mediation or conciliation in that:
· the arbitrator makes a binding determination; and
· the outcome is enforceable.
Arbitration under the Code is voluntary and cannot be imposed unilaterally. It can also be terminated by joint request by the parties. The Code specifies that parties subject to an arbitration must split the costs associated with the conduct of the arbitration unless otherwise agreed. However, parties are separately responsible to cover their own costs of attending the arbitration (including preparation etc) unless agreed otherwise.
5. Litigation
In some cases, parties may proceed straight to litigation, particularly where urgent relief is sought or where the dispute relates to issues outside the Code’s framework. Section 68 of the Code clarifies that the provisions in relation to ADR do not affect the right of a party to bring legal proceedings pursuant to a franchise agreement or otherwise. In other circumstances, the parties may proceed to litigation if the ADR process has been unsuccessful and no resolution has been reached.
While ADR is a significant component and is often the first step in franchising disputes, it is important to receive specialised legal advice to determine whether it is the most suitable option in the circumstances. Samantha Cobcroft, Associate, and the Watson Webb team are experienced in assisting franchisors, franchisees and related stakeholders, regardless of the stage or nature of the dispute.
.png)
.jpeg)
