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Early Mediation Saves Cost

early mediation web imageThe Federal Circuit Court decision of Broad Spectrum Training Pty Ltd v Bidding Buzz Limited [2010] FCMA 932 shows the importance of seeking to mediate a dispute at the earliest possible occasion before legal proceedings are commenced.

In this case the franchisor tried to engage the franchisee in the dispute resolution (mediation) procedure provided for in the Franchising Code of Conduct (Code). The franchisee did not respond to this request and instead commenced legal proceedings.

After the franchisee commenced legal proceedings the franchisor continued to press for the franchisee to engage in mediation pursuant to the Code procedure and applied for orders that the proceeding be adjourned until the parties had engaged in mediation under the Code procedure.

There was then a dispute between the parties as to whether the mediation should be conducted in Brisbane under the Code procedure or by a Registrar of the Court in Perth pursuant to the relevant Court Rules. There were issues of costs and convenience to the parties about the location for the mediation.

In its judgment the Court made it clear that the procedures under the Court Rules with respect to mediation are general, and not specifically tailored to the circumstances of a dispute concerning a franchise agreement in the context of an alleged contravention of the Trade Practices Act 1974 (now the Competition and Consumer Act 2011). The Court favoured a mediation under the procedure specifically prescribed by the Code over the procedure prescribe under the Rules and ordered that the proceedings be adjourned pending mediation under the provisions of the Code.

early mediation quoteIt was unfortunate that the parties did not engage in mediation before legal proceedings were commenced and that even after legal proceedings were commenced disagreed on where the mediation should take place and what dispute resolution procedure should apply. It is likely that the legal costs incurred commencing proceedings, and of the contested application of the franchisor to adjourn the proceeding until after mediation, were much greater than the extra costs either party would have incurred engaging in either the Code mediation procedure or the procedure under the Court Rules

The problem caused by the franchisee commencing proceedings when it had an opportunity to first mediate the dispute is less likely to occur today in the Federal Circuit Court or Federal Court because since this case was decided the Commonwealth Government passed the Civil Dispute Resolution Act 2011 which requires parties to take genuine steps to resolve a dispute before commencing legal proceedings. However, this Act does not apply to State Courts and will not prevent parties incurring unnecessary legal costs if they argue before the Court about the mediation procedure and location of the mediation rather than spend the time and costs attending mediation.

Unless there is a need for a party to seek urgent relief to protect its legal rights it is surely in the interests of franchisors and franchisees to engage in mediation as soon as possible after they become aware of a dispute.

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