The Office of the Franchising Mediation Adviser (OFMA) is an independent office established by the Federal Government in 1998. Our primary role is to appoint mediators to disputes between franchisees and franchisors under the Franchising Code of Conduct (the Franchising Code).
When a party requests the appointment of a mediator, it is mandatory for parties to attend the mediation and try to resolve the dispute. A civil penalty for non-attendance was introduced with the new Code that commenced on 1 January 2015 – the penalty is 300 penalty units ($54,000 as of 31 July 2015).
Despite the mandatory nature of mediation and the potential civil penalty for non-attendance, our office continues to face different obstacles in getting parties to the mediation table.
This article draws from the observations and experience of our office and outlines some of the tricky issues that arise in administering the mediation process. It is helpful to keep these matters in mind if you are ever faced with a franchise dispute or need to prepare for franchise mediation.
Is there a franchise agreement?
The first important step in setting up the mediation is to determine whether there is a franchise agreement. The definition of a franchise agreement for the purposes of the Franchising Code can be found in clause 5. The dispute resolution procedures in part 4 of the Code only apply to disputes between parties to a franchise agreement.
In some cases, an agreement will be called something different, such as a license agreement, although it could still meet the requirements of a franchise agreement. It is important to know what type of agreement you have and whether it is covered by the Franchising Code.
What happens if the franchise agreement has been terminated or expired? The dispute resolution procedure still applies in relation to a dispute arising from termination (unless it was terminated under special circumstances – see clause 29). If there are outstanding obligations that exist between the parties and arise from the franchise agreement, such as a debt, we can still appoint a mediator after the franchise agreement has ended.
Has there been a valid Notice of Dispute issued?
To begin the dispute resolution process, the Franchising Code requires a complainant to tell the respondent in writing three elements: the nature of the dispute; what outcome the complainant wants; and what action the complainant thinks will resolve the dispute.
Sometimes, a party may dispute that the Notice of Dispute is valid as it is vague or unclear. We always encourage parties to communicate clearly to the other side and provide sufficient information for the person to understand the dispute and how to resolve it. Quite often, sending a Notice of Dispute will instigate a discussion between the parties that resolves the dispute.
Provided that the requirements of a Notice of Dispute have been met, our office can proceed with the mediation process. Once a mediator is appointed, he or she may provide the parties with an opportunity to exchange further information or documents.
Can I bring my lawyer to mediation?
Each party must be represented at mediation by someone who has the authority to enter an agreement to settle the dispute on behalf of the party. This usually means that the person can enter into a settlement agreement at mediation without checking with anyone else.
We had a tricky matter come through our office where the director of a franchisee provided full written and verbal authority for the store manager to attend mediation on behalf of the franchisee. The franchisor did not want to attend mediation with the store manager and disputed the authority given at every turn. The franchisor asked us how we knew the written authority was actually written by the director and how we knew the person we spoke to on the phone was really the director and not someone pretending to be her! We had no reasonable grounds to believe that the person was not really the director and therefore the mediation had to proceed with the store manager attending as the authorised representative. Amazingly, the parties ultimately reached a settlement – the miracles of mediation!
Lawyers, advisers and other support persons can only attend mediation if the parties agree. It can be helpful for both parties to have lawyers present when it comes to drafting the settlement agreement or giving perspective on general questions on the state of the law. When a party does not agree to allow the other party’s lawyer to attend, we have seen other creative solutions that enable the party to access legal advice – for example, the lawyer could attend as a silent observer, be available by telephone, or remain in a break-out room and only enter the mediation during a private caucus with the mediator.
What happens if the parties are located in different places?
The Franchising Code only requires that mediation be conducted in Australia and that the mediator may decide the place for mediation. Where would we appoint the mediator though? If parties are in different locations, our usual approach is to appoint a mediator in a third neutral location. However, the parties may agree to an alternative arrangement, such as one party travelling to the other party’s location on the basis that the travel costs are shared between them.
Our office has facilitated a number of different location arrangements with parties based all around Australia. In assessing location, we first look at where the parties to the franchise agreement are based. There was once a dispute between a franchisee and master franchisee, both based in Western Australia. However, the master franchisee gave written authority for the franchisor, based in Queensland, to attend on their behalf. Given the parties to the franchise agreement were both located in Western Australia, we appointed a mediator in Perth and the franchisor travelled from Queensland to attend.
How much does it cost and when do I have to pay?
A mediator appointed by our office can charge a fee of up to $275 per hour with preparation time capped at 3 hours. The mediator’s fees are shared equally between the parties. On average, each party pays approximately $1,200 for the mediator’s fees. In special cases, we may be able to offer a reduced rate.
Once a mediator is appointed, the parties will usually be required to pay the mediator’s estimated fees upfront. This means that each party should be prepared to pay around $1,200 prior to the mediation date. We have experienced a number of cases where one party says they are unable to afford the fees. On occasion, the mediator may agree to a flexible payment arrangement such as by instalment. One party may even agree to pay the full costs of the mediation in order to get the parties to the table.
It is important to remember that the Franchising Code not only makes it compulsory to attend mediation, but also states that the parties are equally liable for the cost of mediation (unless they agree otherwise). However, if the other party is financially distressed and cannot even afford the fees of mediation, you may have to consider the likelihood of achieving a monetary outcome at mediation.
Our experience shows that there are various procedural challenges in arranging a franchise mediation. The pre-mediation process can be just as important to the outcome of a dispute as the actual mediation itself. As a franchise party, it is useful to be bear these matters in mind when you are attempting to resolve a dispute or preparing to attend mediation.
Cecily Zhu is the Assistant Franchising Mediation Adviser and manages dispute resolution services at the OFMA. She is an accredited mediator and provides early intervention services aimed at resolving disputes quickly and informally.
Prior to joining the OFMA, Cecily worked in a law firm and with the Australian Federal Court. She is a Commerce and Law graduate having studied in Australia, the US and Denmark.
If you would like further information or have a free and confidential conversation about a problem with your franchisor or franchisee, you can contact the OFMA on:
1800 150 667
This article should be taken as general advice only. You can contact our office for more information about your specific issue or seek legal advice from a franchise solicitor.