Franchise Advice
T
he franchise relationship is a long-term business relationship where success for both franchisor and franchisee is interdependent. Clear and
effective communication is a key factor in that success. It is therefore all the more important to swiftly address concerns that arise during the course of this relationship, however big or small, to avoid potentially long-lasting damage to the relationship or, at worst, its ultimate termination. It will be important for franchisees to understand the dispute resolution mechanism available in the event that simple communication cannot resolve matters for the parties.
A well-drafted and ethical franchise
agreement, as promoted by the British Franchise Association (bfa) and the European Code of Ethics for Franchising, will contain a clear dispute resolution clause. This will set out how to resolve disputes on a step-by-step basis. Such steps may include some alternative dispute resolution (ADR) procedures, of
which there are many forms: • Following written notice, the parties to seek to agree a resolution within a timeframe
• Decision makers meet on a without- prejudice basis during a specified period of time
• Negotiations in good faith and are not arbitrary
• Expert opinion from an industry specialist, where the expert’s decision is binding
• A formal mediation, whether using established schemes such as the bfa mediation scheme or an informal mediation
• A formal arbitration, appointing a single arbitrator or a panel of three using nominated arbitration rules, such as the bfa arbitration scheme or an ad hoc arbitration
• Court proceedings, also known as litigation.
Some types of dispute may be excluded
from certain ADR steps. An example is where urgent interim action (known as
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an injunction) is required to protect the franchisee or franchisor in the period of time before a substantive decision can be agreed or obtained. Such claims for urgent relief are brought before the court, but, even then, do not exclude or prevent engagement in the ADR steps suggested above, which can, in certain circumstances, run in parallel. It is important, therefore, for the franchisee to know if the steps set out are obligatory and if they are to be taken in turn, consecutively or elective, or depend on the parties’ agreement to enter into them.
Franchisees should also check that the
governing law and jurisdiction, as set out in the franchise agreement and which will apply to the dispute resolution steps, are suitable for their business and where it is carried out, particularly as the applicable law and applicable jurisdiction can differ. This is particularly important, for example, for master franchisees or franchisees where the franchisor is not based in the country.
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