New Zealand franchise law

The relationship between franchisor and franchisee is a very personal thing. It is a bit like a partnership. In fact it is often compared with the most personal of partnerships. Encouragingly however the statistics for survival are much better with franchises.

The chances of getting it right are much enhanced by both parties having a clear understanding at the outset about what they are getting into, and ensuring that their expectations are matched. Prospective franchisees need to carefully research the opportunity before they commit. They should also be realistic about whether the industry sector they are going to work in is suited to their personality and lifestyle. Franchisors need to be really focussed on their choices during the franchisee recruitment process. From time to time there are disagreements, and when they arise there is a much better chance of preserving the relationship if the resolution process is designed with that in mind.

In Australia the law requires all franchise agreements to include a mediation clause (obliging franchisor and franchisee to attempt to resolve disputes by mediation, before they go to Court). In New Zealand we have no franchise law requiring this, however many of the well known franchise systems are members of the Franchise Association of New Zealand ("FANZ"). FANZ prescribes a Code for its members, requiring their franchise agreements to contain a mediation clause.

Mediation is a voluntary process where a mediator (who acts as a facilitator – like a referee and not a judge) assists the parties to voluntarily agree their differences. The agreement is committed to writing, and is legally binding. A mediated agreement is often a more or less equal concession by each party, at best a "win/win", enabling both to move on (hopefully still together). This compares with a "win/lose" result (where one side wins and one side loses), typical of an arbitration or legal proceedings.

However where the relationship has irretrievably broken down, the most sensible solution is a negotiated exit. Clearly this will need to suit the needs and limitations of both parties. Mediation is also the best forum to negotiate this.

Mediations are private, less costly and usually completed much more quickly than going to Court.

The franchise industry, worldwide, is now embracing this process for dispute resolution because it is not adversarial and is designed to keep relationships intact. Franchisees who find themselves in a franchise dispute which they are unable to resolve should check their Franchise Agreement. If it contains a mediation clause (and even if it doesn't) mediation is usually the best way forward. A franchise lawyer, or the FANZ office can help select a suitable mediator and advise how to get mediation under way.

Chris Bradley - Miller Bradley Lawyers



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