Legal Update: Civil Dispute Resolution Act 2011

October 12th, 2011

The Civil Dispute Resolution Act 2011 received its royal assent on 12 April 2011. It applies to certain civil matters brought before the Federal Court of Australia and Federal Magistrates Court. The purpose of this legislation is to compel the parties to take genuine steps to resolve disputes before certain civil proceedings are initiated.

Effective from 13 October 2011, the Act specifies a requirement for a genuine steps statement to be filed at the time an applicant institutes a civil proceeding (section 6). Similarly, a respondent who is given a copy of the genuine steps statement filed by the applicant must also file a genuine steps statement (section 7). Section 15 – 17 of the Act sets out proceedings that are excluded from the obligations to provide statements.

Examples of genuine steps defined by the Act includes:

  • Communication of issues that are in dispute with the other party with a view to resolve the dispute;
  • Appropriate responses provided to such communication;
  • Providing relevant information and documents to the other party to promote better understanding of issues involved and how the dispute might be resolved;
  • Considering alternative dispute resolution processes.

The Act states that a failure to file a genuine steps statement does not invalidate the application initiating the proceedings but the Court in its discretion to award costs, may take into account whether:

  • such a statement is filed; and
  • whether the party took genuine steps to resolve dispute.

As the Federal Court of Australia deals with cases in relation to consumer protection and restrictive trade practices of the Competition and Consumer Act 2010, this legislation is may affect franchising dispute resolution.

Your lawyers have an obligation to advise you of such requirement and also assist you to comply with the requirement (section 9). If a legal practitioner is ordered to bear costs personally due to failure to comply with section 9, he or she must not recover the costs from you.

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Issue of construction: The right to grant sub-master franchises is different to the right to sell franchises under contract

October 11th, 2011

In Australian Maintenance and Cleaning Pty Ltd v AMC Commercial Cleaning NSW Pty Ltd [2011] NSWCA 103, the full Court of Appeal in New South Wales dealt with issues concerning contractual interpretation and found that:

  1. Clause 7.5 of the Master Franchise Agreement (“MFA”) which entitles the Master Franchisee to grant franchises to provide cleaning services, does not extend to a right to Master Franchisee to grant a “Sub-Master Franchise Agreements”, which is a type of franchise analogous to a master franchise;
  2. that the right to sell franchise is different from the right to grant the franchise to sell franchises;
  3. that the franchisor’s obligation under the MFA was to give consent to the Master Franchisee to grant franchises to provide cleaning services.
  4. That the Operations Manual introduced in 2009 did not create or impose an additional obligation upon the Franchisor to consent to “SubMaster Franchise Agreement”
  5. That the Franchisor was therefore not bound to, not “unreasonably withhold its consent” to grant SubMaster Franchise Agreement.

Whether the introduction of an Operations Manual effectively amended Clause 7.5 of the MFA

Clause 17 incorporated the terms and contents of the Manual into the terms of the MFA. The clause also provided for amendments from time to time for certain purposes and that a breach of the terms constituted a breach of the MFA.

The 2009 Operations Manual contained, inter alia, a reference to “Submaster Franchisees” and the fees owed by the Submaster Franchisees to the State Master Franchisee and the Franchisor.

The Court at first instance found that the reference to fees in the Manual altered the MFA, in that it conferred upon the master franchisee a right to enter into a Submaster Franchise Agreement in that the granting of a submaster became an acceptable type of franchise governed by clause 7.5 of the MFA and that the Franchisor could not unreasonably withhold its consent to grant such agreement.

The Court of Appeal overruled the decision and found that the Manual did not amend or alter the meaning of Clause 7.5. The Court though acknowledged that two sub master franchises were previously granted by the Franchisor to the State Master Franchisee, said that the agreements were reached through agreement outside of the MFA which was not inconsistent with the MFA.

The Court held that the reference in the Manual did not impose a contractual obligation to the Franchisor to give its consent to grant the Sub-Master Franchise Agreement. The Court held that the reference to fees were specifications that the Franchisor would require to be paid in the event it consented to further Sub-Master Franchisees. Ultimately it was still up to the Franchisor to decide if a Sub-Master franchisee should be granted.

What can we learn from this?

  • That parties should consider the consequence of any documents introduced subsequent to the agreement purporting to alter or vary any obligations under the agreement.
  • That parties should consider formalising any variation of the agreement.
  • That parties should ensure that any documents which forms part of the contract should be clear and consistent with the main contract.

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