Kate Matthews, partner at Boddy Matthews Solicitors, explains how to resolve disputes on a step-by-step basis.
Owning a franchise can be a fruitful business relationship where success for franchisor and franchisee is interdependent. Clear and effective communication is a key factor for that success.
It is therefore all the more important to swiftly address concerns arising during the course of this relationship, however big or small, to avoid potentially long lasting adverse damage to the relationship or at worst its ultimate early termination.
A well drafted and ethical Franchise Agreement, as promoted by the British Franchise Association (the bfa), and the European Code of Ethics for Franchising will contain a clear (Alternative) Dispute Resolution (ADR) clause. This clause will set out how to resolve disputes on a step by step basis.
How to choose? Which ADR step is best? What should I know?
Step 1: Communicate
Lack of communication may often be the root of a problem. Whilst some disputes cannot be avoided, many could be resolved through clear, open and effective communication. A cost effective solution may simply be to open that dialogue with your franchisor and together negotiate and work towards a resolution. This is often the first ADR step.
Step 2: Mediate
Mediation is a private, confidential and flexible form of ADR, facilitating the parties in reaching an agreement where possible. If the parties have agreed to mediate, discussions are carried out on a without prejudice basis. Therefore it is not binding unless the parties, with the help of a neutral third party Mediator, reach an agreement which is then recorded in writing and signed by all parties. A Mediation can include all aspects of the relationship and is not limited to the legal issues. A facilitative Mediation can with agreement become an evaluative Mediation if the parties so choose, where the Mediator can provide a solution which the
parties agree to honour. The franchise relationship can be preserved and it is cost effective. The BFA operate a mediation scheme.
Step 3: Arbitrate
Arbitration is more formal than mediation and an alternative to litigation. The parties agree to resolve their disputes through Arbitration not Court. Whilst it tends to follows a similar structure to Court proceedings, depending on the Arbitration rules applicable, it is a private process, confidential and binding. The parties choose and pay for the process and the arbitrator/s and their expertise. Arbitration is usually less expensive than litigation.
Step 4: Litigate
Litigation/Court proceedings is often the last resort. The parties follow Court Rules. An independent impartial Judge will make a binding judgment. Court fees apply but not for the Judge or venue.
So where does that leave me? Top tips!
• Avoid communication breakdown
• Seek an informal solution
• Check the ADR clause and steps
• Check the governing law and jurisdiction
• Seek a solution using ADR
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