Franchise Dispute Services

Dispute Resolution

Misleading Conduct

Franchise Termination

Restraint of Trade

Franchise Code Breach

 

FRANCHISE DISPUTE RESOLUTION

Disputes can be avoidable.

Your approach to the resolution of a franchise dispute may depend on many factors, both financial and non-financial.

In any franchise dispute the franchisor and the franchisee must comply with the dispute resolution procedures set out in the Franchising Code of Conduct (the Franchising Code) and the Franchise Agreement.

Under the dispute resolution procedures set out in the Franchising Code, the complainant must tell the respondent in writing:

(a) the nature of the dispute;

(b) what outcome the complainant wants; and

(c) what action the complainant thinks will resolve the dispute.

The parties should then try to agree how to resolve the dispute, but if they cannot agree within 3 weeks either party may refer the matter to mediation.

If the parties cannot agree on who should be the mediator, either party may ask the mediation adviser to appoint a mediator.

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.

MISLEADING CONDUCT

The Canadian Code provides that a person must not, in trade or commerce, engage in misleading conduct or conduct which is likely to mislead or deceive.

Conduct is “misleading or deceptive” if it induces or it is capable of inducing error.

In the franchising sector, misleading or deceptive conduct complaints generally involve the allegation that a misleading or deceptive representation by the franchisor induced the franchisee to enter into the franchise agreement.

Specific areas of complaint include representations about:

the current and future turnover of the franchise business;
the current and future profitability of the franchise business;
the level of current and future expenses of the franchise business;
the likelihood of the success of the franchise business.
Representations as to the future (such as the future turnover of the franchise business) are a category of misleading and deceptive conduct.

If a representation is made by a franchisor as to a future matter (such as the future profitability of the business), the franchisor will need to show that there were reasonable grounds for making the representation. If the franchisor cannot show that there were reasonable grounds for making the representation the representation may be deemed to be misleading or deceptive

FRANCHISE TERMINATION

If a franchisor has not validly terminated the franchise agreement, a franchisee may take action against the franchisor, including seeking a Court order that the franchise has not been terminated, or alternatively seeking damages for any loss that the franchisee suffers as a result of the invalid termination.

FRANCHISING CODE BREACHES

Franchisors and franchisees must both comply with the terms of the Franchising Code.

There are a number of areas which are covered by the Franchising Code including:

  • good faith;
  • disclosure;
  • franchise agreements;
  • termination;
  • marketing funds; and
  • dispute resolution.

One of the most common areas of franchisee dispute is disclosure.

The disclosure document includes information such as:

  • details of all the current franchisees in the franchise system,
  • details of the franchisees that have left the system in the last three years,
  • details of any relevant legal action that is being taken against the franchisor,
  • the financial and business details of the franchisor.
  • marketing fund details, and
  • details of the costs and fees required to commence and operate the franchise.