Franchise disputes are unfortunately common, and when they arise the Franchising Code of Conduct (the Code) sets out clear rules about how they should be resolved. Two key pathways are mediation and arbitration. While both are forms of alternative dispute resolution (ADR), they differ significantly in cost, process, and outcome. This article unpacks the key differences and what franchisors and franchisees need to know under the current Code (see the Code here).
Mediation
Mediation is the default process under the Code. Once a party issues a written notice of dispute under section 72, the parties must attempt to resolve the matter through an ADR process — most often mediation.
How it works
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Facilitated process: An independent mediator is appointed (either by agreement or by the Ombudsman) (s 72(4)).
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Non-binding: The mediator does not make a decision. Instead, their role is to help the parties reach a commercial settlement.
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Timing: Mediations are usually convened within weeks of referral and are often completed in a single day.
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Client involvement: Attendance is mandatory (s 74(3)), but a party may be represented by someone with authority to settle (s 75).
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Costs: The parties share the mediator’s fees equally (s 77) and each bears their own legal and preparation costs.
Advantages -
Quick and cost-effective.
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Preserves relationships where ongoing dealings are expected.
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Keeps control of the outcome with the parties.
Limitations -
Settlement is voluntary — if one side will not compromise, the dispute remains unresolved.
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May simply delay progression to litigation or arbitration.
Arbitration
Arbitration is a more formal process that can only occur with the written agreement of both parties (s 79). It is sometimes proposed as an alternative to mediation.
How it works
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Appointment: The Ombudsman appoints an arbitrator within 14 days of request (s 80(2)–(4)).
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Binding decision: The arbitrator determines the dispute and issues a final, binding outcome. This has the same effect as a court judgment and can be enforced accordingly.
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Procedure: The arbitrator decides how the matter is run (in-person, virtual, or on the papers) (s 80(5)). It generally involves pleadings, evidence, and a hearing.
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Client involvement: More extensive than mediation. You will need to give instructions, provide evidence, and may need to give oral testimony. Counsel is often engaged to prepare and run the arbitration.
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Duration: Arbitrations typically take several months from commencement to determination, allowing for evidence gathering and hearings. While usually faster than court litigation, it is much longer than mediation.
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Costs: Each party pays half the arbitrator’s fees (s 82) and their own legal costs. Costs can be significant depending on complexity.
Advantages -
Produces a binding decision, avoiding the uncertainty of settlement negotiations.
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Generally faster and more flexible than court proceedings.
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Confidential, with obligations under s 83 protecting the process.
Limitations -
More expensive and time-consuming than mediation.
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Outcome is imposed, not negotiated — one party will lose.
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Limited appeal rights.
Strategic Considerations
Legal issues in franchise disputes can often be complex. Questions around quantification of damages, alleged breaches of the Code, or obligations under statutory duties may require a detailed legal framework and careful submissions. Arbitration, by its nature, may not always provide the scope for those issues to be fully ventilated. It may therefore be more suitable for factually disputed but legally straightforward matters, whereas disputes involving layered contractual and statutory issues may be better managed through mediation (with potential escalation to litigation if unresolved).
Mediation, as the Code’s preferred process, applies commercial pressure and preserves flexibility. Arbitration, while offering finality, may be best reserved for narrower disputes where the facts are in contention but the legal framework is relatively clear.
Conclusion
Mediation and arbitration are very different tools for resolving franchise disputes. Mediation is quicker, less costly, and keeps the outcome in the parties’ hands. Arbitration is slower and more expensive, but delivers finality through a binding decision. Franchisors and franchisees should carefully weigh the commercial and legal implications of each option. In many cases, mediation will be the appropriate first step, but arbitration may offer a pathway to certainty in legally simple but factually contested disputes. Your franchise lawyer will be able to guide you through the Code requirements, and help determine the most appropriate path forward to resolve any franchise dispute.