Key Takeaways
- Australia’s new Franchising Code of Conduct (commenced 1 April 2025 under the Competition and Consumer (Industry Codes – Franchising) Regulations 2024 (Cth)) imposes the most extensive franchisee protections in Australian history, franchisors now face civil penalties up to $10 million per breach. Franchisees owed unpaid fees or royalty refunds can also seek advice from our debt recovery lawyers Brisbane.
- Franchisors must provide a disclosure document, a copy of the Code, and the draft franchise agreement at least 14 days before signing, failure triggers franchisee rescission rights.
- All parties must act in good faith, this is an express obligation under the Code, and courts have applied it to prevent franchisors from terminating agreements opportunistically.
- Franchise disputes in Queensland must follow a mandatory internal dispute resolution process before escalating to mediation under the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), courts can dismiss proceedings commenced prematurely.
- Franchisee insolvency during a franchise dispute creates a legal minefield, s 440D Corporations Act 2001 (Cth) moratoriums may freeze franchisor termination rights during voluntary administration.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances before taking any action in relation to a franchise agreement dispute.
Franchise Agreement Disputes in Queensland: A Practical Guide for Franchisees and Franchisors
Franchise disputes are among the most complex legal conflicts — our commercial litigation lawyers handle these disputes and commercially damaging legal conflicts a Queensland business can face. The franchise relationship involves an inherent power imbalance, a corporate franchisor with national infrastructure versus a local franchisee who has invested their savings in a branded business model. When that relationship breaks down, the legal consequences can be severe for both sides.
Australia’s franchise regulatory landscape changed fundamentally on 1 April 2025, when the new Competition and Consumer (Industry Codes – Franchising) Regulations 2024 (Cth) took effect. The new Code introduced the most significant franchisee protections in the history of Australian franchising, and created new legal exposure for franchisors who fail to comply. This guide explains how franchise disputes arise, how the new Code changes the legal landscape, and what both franchisees and franchisors must do when a dispute escalates.
What Is a Franchise Agreement Under Australian Law?
A franchise agreement is a contract under which a franchisor grants a franchisee the right to operate a business using the franchisor’s brand, business system, and intellectual property, in exchange for fees and compliance with the franchisor’s standards.
The legal framework governing franchise agreements in Queensland is primarily federal:
- The Competition and Consumer (Industry Codes – Franchising) Regulations 2024 (Cth), the new mandatory Code, commenced 1 April 2025
- The Competition and Consumer Act 2010 (Cth), parent legislation, gives the ACCC enforcement powers including civil penalties up to $10 million per contravention for corporations
- Australian Consumer Law (ACL), unfair contract terms provisions apply to franchise agreements as standard form contracts
- Corporations Act 2001 (Cth), relevant where the franchisee or franchisor is a company facing insolvency
State law also applies to specific issues, including property leases, employment entitlements, and building permits, that commonly intersect with franchise disputes in Queensland.
The New Code: Key Changes That Affect Every Franchise Dispute
The 2024 Regulations represent a fundamental shift in the franchise regulatory balance. Understanding these changes is essential before assessing any dispute.
1. Mandatory Disclosure. Strict Timing and Content Requirements
Franchisors must provide a prospective franchisee with:
- A disclosure document (complying with Schedule 1 of the Regulations)
- A copy of the Code
- The draft franchise agreement in the form it will be executed
These documents must be provided at least 14 days before the agreement is signed. Failure to provide compliant disclosure gives the franchisee grounds to rescind the agreement and, in serious cases, triggers civil penalty proceedings by the ACCC.
The new Code also requires a short information statement on the key risks and rewards of franchising to be provided as soon as practicable after a prospective franchisee applies or expresses interest. This low-threshold trigger means franchisors must be careful about informal discussions that could constitute an “expression of interest.”
2. Capital Expenditure Controls
One of the most significant new protections: franchisors cannot require franchisees to undertake significant capital expenditure during the term unless the expenditure was disclosed in the disclosure document, agreed to by the franchisee, or required for legislative compliance. This directly addresses the practice of franchisors imposing costly fit-out upgrades mid-term, a common source of franchise disputes before 2025.
3. Good Faith. Express Obligation, Enforceable Duty
The good faith obligation is not new, but the 2024 Code makes it express and enforceable at all stages of the franchise relationship: entering, operating, and exiting. Courts have increasingly found breaches where franchisors:
- Used termination rights as a pretext for recapturing a profitable territory
- Refused to provide reasonable assistance during the transition period
- Failed to engage genuinely in dispute resolution processes
In Queensland, good faith claims in franchise disputes are litigated in the Federal Court or Queensland Supreme Court depending on the amount in dispute and the relief sought.
4. Return on Investment Obligation (from 1 November 2025)
All franchise agreements entered into, renewed, or extended on or after 1 November 2025 must give franchisees a reasonable opportunity to make a return on any investment required by the franchisor during the term. This is an enforceable contractual obligation, not just an aspiration. Franchisors who structure agreements that structurally prevent franchisees from recovering their investment face legal exposure under both the Code and the ACL’s unfair contract terms provisions.
Common Causes of Franchise Disputes in Queensland
| Dispute Type | Legal Basis | Common Outcome |
|---|---|---|
| Failure to disclose material information | Code Part 2; ACL s 18 misleading conduct | Rescission, damages, ACCC referral |
| Franchisor termination, alleged breach | Code good faith obligation; ACL unfair contract terms | Injunction to restrain termination; damages |
| Territory encroachment / competing outlets | Franchise agreement terms; Code disclosure obligations | Injunction; damages for lost revenue |
| Unreasonable capital expenditure demands | Code Part 2 Div 4 (from 1 Apr 2025) | Refusal to pay; ACCC complaint; damages |
| Franchise renewal refusal | Code Part 3; common law | Negotiation; buy-out dispute; litigation |
| Franchisee insolvency | Corporations Act 2001 (Cth); Code Part 4 | VA/liquidation intersection; termination rights frozen |
| Post-term restraint of trade | Franchise agreement; non-compete ban (from 2027) | Injunction or court refusal to enforce |
Mandatory Dispute Resolution Under the Code
Before commencing court proceedings, parties to a franchise dispute must follow the Code’s dispute resolution process. This is not optional, courts will dismiss or stay premature proceedings. The mandatory process is:
- Notice of dispute: The aggrieved party gives written notice specifying the nature of the dispute and the outcome sought.
- Good faith negotiation: Both parties must genuinely attempt to resolve the dispute within the timeframe agreed or within a reasonable time.
- Mediation: If internal negotiation fails, either party may refer the dispute to mediation through the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), the designated mediation service under the Code. Mediation is low-cost and often effective for commercial franchise disputes.
- Litigation: If mediation fails, parties may proceed to court. In Queensland, most franchise litigation runs in the Federal Court of Australia (Brisbane registry) or the Supreme Court of Queensland.
The ASBFEO mediation process is the critical middle step. Experienced franchise dispute lawyers prepare clients for mediation strategically, because the outcome of a 1-day mediation can determine whether a dispute costs $50,000 or $500,000.
Injunctive Relief in Franchise Disputes
Urgent injunctive relief is frequently sought in franchise disputes, particularly to restrain wrongful termination or territory encroachment. To obtain an interlocutory injunction in Queensland, a franchisee must satisfy the test from Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57:
- There is a serious question to be tried, a genuine legal issue on the merits
- The balance of convenience favours granting the injunction, the harm from not granting it outweighs the harm from granting it
- The franchisee can provide an undertaking as to damages, compensating the franchisor if the injunction later proves unjustified
Courts have granted urgent injunctions to restrain franchisor terminations where a franchisee has demonstrated arguable grounds of good faith breach or code non-compliance. Time is critical, an injunction application must typically be filed within days of the termination notice.
Franchisee Insolvency and the Franchise Agreement
Where a franchisee company enters voluntary administration or liquidation, the franchise relationship enters complex legal territory:
- s 440D moratorium: During voluntary administration, the franchisor cannot terminate the franchise agreement without the administrator’s consent or leave of the court, even where a breach existed before administration. This protects the franchisee’s business as a going concern.
- s 471B moratorium: Similar protection applies in liquidation, stays on enforcement.
- Personal guarantee: If the franchisee director has guaranteed the franchise agreement obligations, the franchisor can pursue the director personally, the moratorium does not protect individual guarantors.
- Ipso facto clauses: The Corporations Act 2017 reforms (now fully in force) void clauses that automatically terminate a contract merely because the counterparty enters insolvency, franchisors cannot use insolvency alone as a termination trigger.
What Franchisees Should Do When a Dispute Arises
- Do not respond to a termination notice without legal advice. Many franchise termination notices contain defects, factual errors, Code non-compliance, or lack of proper breach opportunity, that can be challenged. A response without advice can inadvertently waive rights.
- Preserve all communications. Emails, text messages, and meeting notes are the evidentiary foundation of every franchise dispute.
- Serve a dispute notice under the Code immediately. Starting the mandatory dispute resolution clock is a strategic move, it buys time and puts the franchisor on notice that litigation is a real prospect.
- Obtain a written legal opinion on your disclosure document. If the disclosure document was defective, rescission may be available, even years after signing.
- Consider urgent injunctive relief. If the franchisor is attempting immediate termination, an urgent application to the Federal Court or Supreme Court may be necessary within 24-48 hours.
What Franchisors Should Do When a Dispute Arises
- Audit your disclosure document and Code compliance before issuing any notice. A technically defective termination notice can expose the franchisor to Code penalties and give the franchisee a rescission right.
- Ensure the breach notice complies with the Code. The Code requires a specific process for breach notices, including a reasonable opportunity to remedy, before termination is triggered.
- Engage genuinely in mediation. Courts have found breach of good faith where franchisors refused to participate meaningfully in dispute resolution. ASBFEO mediation is faster and cheaper than litigation.
- Take advice on insolvency risk before terminating. If the franchisee is insolvent or near-insolvent, terminating without understanding the moratorium rules can expose the franchisor to administrator proceedings.
The Non-Compete Ban and Franchise Restraints (2027)
From 2027, Australia’s proposed non-compete ban will prohibit post-term non-compete clauses for workers earning below a specified threshold. While franchise restraints on franchisees (as business operators, not employees) may be separately analysed, franchisors with employee restraints in their franchise system, including key person clauses and management non-solicitation provisions, should be reviewing their agreements now. The law is moving fast.
Frequently Asked Questions
Can a franchisee exit a franchise agreement early in Queensland?
Early exit depends on the franchise agreement terms and the Code. Franchisees may exit early if the franchisor has materially breached the agreement or the Code, including through defective disclosure, failure to act in good faith, or imposing undisclosed capital expenditure. Without a valid breach, early exit typically requires negotiating a deed of release with the franchisor. Walk-away without agreement can trigger damages claims for the balance of the franchise term. Obtain legal advice before taking any step toward exit.
What penalties can the ACCC impose on a franchisor for Code breaches?
Under the Competition and Consumer Act 2010 (Cth), civil penalties for Code contraventions can reach $10 million per contravention for corporations, or three times the benefit obtained, or 10% of annual turnover (whichever is greatest). The ACCC can also seek injunctions, disqualification of officers, and adverse publicity orders. Franchisors who fail to provide compliant disclosure documents or who engage in misleading conduct face the greatest penalty exposure.
Is ASBFEO mediation binding in a franchise dispute?
ASBFEO mediation is a facilitated negotiation, the mediator does not impose a decision. Any settlement reached in mediation is binding only if the parties sign a binding heads of agreement or deed of settlement at the conclusion of the session. If mediation fails to resolve the dispute, either party may proceed to litigation in the Federal Court or Supreme Court of Queensland. Mediation is confidential and without prejudice, statements made in mediation cannot be used as evidence in subsequent court proceedings.
Can a franchisor terminate a franchise agreement immediately for a serious breach?
Under the new 2024 Code, franchisors have enhanced rights to terminate immediately for “serious breaches”, defined to include fraud, endangerment to health or safety, and voluntary abandonment. For most other breaches, the Code requires a breach notice specifying the breach and a reasonable opportunity to remedy before termination is triggered. Immediate termination for a non-serious breach without following the Code process is itself a Code breach, and can expose the franchisor to damages and penalty proceedings.
What should I do if I received a franchise termination notice in Queensland?
Act immediately. A franchise termination notice triggers a short window for legal response, often 14 to 28 days before termination takes effect, and sometimes less. Steps include: (1) obtain urgent legal advice on the validity of the notice; (2) do not accept or comply with the notice without advice; (3) preserve all communications; (4) consider whether an urgent injunction is needed to restrain the termination; (5) check whether the franchisor has followed the Code’s breach notice procedure. Call Boss Lawyers on 1300 267 711 for urgent advice.
Mark Harley is the Principal Solicitor at Boss Lawyers, a boutique commercial litigation and insolvency law firm in Brisbane. Mark regularly acts for franchisees and franchisors in commercial disputes, and advises on contract enforcement, injunctive relief, and insolvency intersections. Boss Lawyers is recognised by Doyle’s Guide 2026 as a leading commercial litigation firm in Queensland. Contact Boss Lawyers on 1300 267 711 or via bosslawyers.com.au/contact.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances before taking any action in relation to a franchise agreement dispute.
