Reading time: 5 minutes

Franchising is a popular way to grow your business in New Zealand. The legal document that outlines the relationship between the franchisor and franchisee is called the franchise agreement. The franchise agreement will outline the rights and obligations of each party. However, it is common for a dispute to arise between the franchisor and franchisee. This article will outline how to resolve an unconscionable conduct dispute with your franchisor.

What is Unconscionable Conduct?

Unconscionable conduct is a type of conduct between two parties that is considered so unjust that it goes against conscience. This usually happens when one party has superior bargaining power. There are specific criteria that the courts look at when determining unconscionable conduct. These are:

  • bargaining power of parties;
  • the type of contract;
  • external influences; and
  • the conduct of the parties.

Currently, no legislation bars unconscionable conduct in New Zealand. Therefore, the courts look at different factors to determine whether unconscionable conduct has occurred. In New Zealand, there are laws against misleading and deceptive conduct, which capture a lot of conduct of this type, but not all. 

Unfair Contract Terms

In New Zealand, there is protection against unfair contract terms. This means that if a term is considered unfair, then the term cannot be enforced. However, this law is only enforceable if the Commerce Commission has declared that the term of the contract is unfair. Therefore, someone cannot seek a declaration from the courts without this. This means it can be a complicated process to use the court system to enforce unfair contract terms.

How to Resolve an Unconscionable Dispute?

Dispute Resolution

The best way to resolve an unconscionable dispute is through a dispute resolution process. It is a requirement that all members of the Franchising Association of New Zealand (FANZ) try to resolve the dispute through dispute resolution. FANZ is the peak body for the franchising community in New Zealand and is an excellent source of resources. 

Dispute resolution is made up of negotiation and mediation. Negotiation is the process by which two parties communicate their demands to each other and try and come to a compromise. Mediation is the same but with a third-party mediator who can facilitate discussion towards a proposed goal. The FANZ code of practice outlines the dispute resolution process:

  1. the franchisee should first set out in writing the nature of the complaint;
  2. both parties should then try to resolve the dispute through negotiation;
  3. if the parties cannot reach a solution within 21 days, then they can request a meditator; and
  4. if there is a resolution found after 45 days of mediation commencing, the parties may seek a court proceeding.

Dispute resolution is the best way to solve an unconscionable conduct dispute as it is the least costly. It also helps maintain the relationship between the two parties if the parties want to continue the franchise agreement. 

Termination

If you do not want to go down the court route, your other option may be to terminate the agreement. If your franchisor’s conduct is unconscionable, you may be entitled to terminate the agreement under the termination clause. The termination clause allows either party to terminate the agreement if they have broken a term of that agreement. This is a good backup option. However, you should be aware that you may not get your money back if you go down this route.

Sell Your Franchise

Another option is to try to sell your franchise to another party. However, you usually need your franchisor’s permission to sell your franchise. If your franchisor’s dispute is with you, then they may be willing to let you sell your franchise. This allows you to get your money back whilst still getting out of the franchise.

Key Takeaways

Even though franchising is one of the best ways to expand your business, there can be times where a dispute can arise between a franchisor and franchisee. This dispute can sometimes take the form of unconscionable conduct. This is a situation where the conduct of one party is considered so unfair it goes against good conscience. 

In New Zealand, there is no legislation barring unconscionable conduct, but the courts have developed a system for identifying it. If you do have an unconscionable conduct dispute with your franchisor, your first step should be dispute resolution to save the relationship. If this does not yield success, then you may want to think about court proceedings. However, this process can be complicated and costly. If you need any legal assistance with franchising or franchise disputes, contact LegalVision’s experienced franchise lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Do I have to go through the dispute resolution process?

You only need to go through dispute resolution if you are a member of FANZ. However, it is the best way to resolve a dispute.

Can I come to a mutual agreement with my franchisor to walk away from the franchise?

Yes, you can, but you may not get any money back. This is why selling your franchise is a much better option.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

The majority of our clients are LVConnect members. By becoming a member, you can stay ahead of legal issues while staying on top of costs. From just $119 per week, get all your contracts sorted, trade marks registered and questions answered by experienced business lawyers.

Learn more about LVConnect

Need Legal Help? Get a Free Fixed-Fee Quote

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

Our Awards
  • 2019 Top 25 Startups - LinkedIn 2019 Top 25 Startups - LinkedIn
  • 2020 Excellence in Technology & Innovation – Finalist – Australasian Law Awards 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice – Winner – Australasian Lawyer 2020 Employer of Choice Winner – Australasian Lawyer
  • 2021 Fastest Growing Law Firm - Financial Times APAC 500 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2021 Law Firm of the Year - Australasian Law Awards 2021 Law Firm of the Year - Australasian Law Awards
  • 2020 Law Firm of the Year Finalist - Australasian Law Awards 2020 Law Firm of the Year Finalist - Australasian Law Awards