Franchises have become a very popular form of small business amongst small business owners over the past 20 years in Australia because they are seen as “safe” when compared to starting from scratch. Like any commercial relationship however, things do not always run smoothly and, from time to time, franchisees and franchisors fall into dispute over things such as:
- Interpretation of terms of the franchise agreement;
- Payment of royalties and other fees from the franchisee to the franchisor;
- The provision of support from the franchisor to the franchisee; and
- The franchisee’s right to operate businesses outside the franchise either during the term of the franchise or thereafter.
Our team of franchise dispute lawyers in Cairns have extensive experience in acting for both franchisors and franchisees in disputes of all types affecting franchisors and franchisees. In this article we share some of our Lawyers tips in relation to disputes of this nature and outline the best practice guide for both franchisors and franchisees.
In almost every case, provided both sides of a dispute are acting reasonably, it is possible to negotiate an outcome with the legal advice of a Lawyer. Whilst parties may not necessarily always accept one another’s position, they will ordinarily accept that their interests are better served by reaching a compromise of the relevant positions rather than finding themselves in a full-blown dispute or litigation matter. This can often be done with legal advice and assistance from an experienced Lawyer.
If you are going to commence negotiations, experience has shown your interests are best served by doing some preparation work beforehand and, if possible, providing the other side with an email outlining your position, including:
- The matters in dispute;
- Your position in respect of the matters in dispute;
- The justification of your position; and
- The outcome you seek.
In many cases, the areas party fall into dispute is over the meaning, effect, and operation of provisions of either a franchise agreement or an ancillary agreement to the franchise agreement such as a property licence or sub-lease. In the experience of our team of Cairns franchise dispute lawyers, both franchisors and franchisees have placed themselves at significant disadvantages in subsequent disputes and litigation by making an ill-informed statement or taking ill-informed or ill-considered actions without properly understanding their rights and obligations under the relevant contractual agreements between themselves and the other party.
Before any action is taken (particularly unilateral action) or before any positions are articulated in respect of a dispute, it is critical that a party has taken proper legal advice on their rights and obligations so as to ensure their conduct and/or communications are not taken to be a breach of the agreement or, worse still, a repudiation of same.
Consider avenues other than litigation
In the ordinary course, if a dispute cannot be resolved by negotiation, parties will find themselves in the litigation process and having to apply to the Court to resolve the dispute according to the Law. Before this process is undertaken in earnest, we encourage clients to consider other avenues available to them, such as:
- Is it possible for the franchise business to be sold to the franchisor?
- Is the use of an insolvency instrument appropriate?
- Can the business be sold to a third party thereby bringing the dispute to an end?
All of the above steps are well worth considering if the alternative is engaging in a lengthy and expensive litigation process.
If litigation is necessary, act decisively
Oftentimes, the forum in which litigation is commenced can have a significant bearing upon the end result of the legal proceedings. It is very much the case that there is value in a “home ground advantage”, particularly in cases of litigation. In the event there is a dispute between a franchisee and franchisor, the choice of forum for the litigation (meaning the Court in which the litigation is commenced) can be significant and have a bearing on the outcome of the dispute.
In circumstances where it becomes apparent that litigation is unavoidable, we strongly encourage our clients (be they franchisees or franchisors) to ensure they commence the proceedings first in a forum of their choosing to best secure themselves for the future conduct of the litigation.
If you find yourself the subject of a franchise dispute, please contact our team of Cairns franchise dispute lawyers at Preston Law. Or speak to our experienced Lawyers at Preston Law about how to avoid such legal disputes on 4052 0700.