What dispute resolution procedures are available to franchisors and franchisees? Are there any advantages to out of court procedures such as arbitration, in particular if the franchise agreement is subject to a foreign governing law?

Franchise & Licensing

Angola Small Flag Angola

In terms of dispute resolution procedures and without prejudice to the rules on international jurisdiction of the Angolan Courts, article 63 of Law 18/03 foresees that parties are free choose the competent courts for the settlement of the disputes arising from their contracts. Parties may also choose arbitration as the relevant dispute resolution mean, but in that case, the contract should foresee the applicable law to the proceedings, the nature of the disputes which can be settled, the arbitration court chosen, and the place of arbitration.

There are indeed some advantages that could be pointed out for choosing international arbitration, namely if the franchise agreement is subject to a foreign governing law; in theory, a foreign arbitration would be more favourable to accept a foreign governing law on the merits, but this needs to be assessed on a case by case basis. We further note that Angola has ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, so in theory foreign arbitral awards are now automatically enforceable in Angola, without being necessary to ensure its prior recognition and review as before.

Canada Small Flag Canada

Each province and territory has its own courts, as well as courts that have national jurisdiction. Canada has four levels of court:

• provincial and territorial (lower) courts;

• provincial and territorial superior courts;

• provincial and territorial courts of appeal and the Federal Court of Appeal (which hear appeals from the superior and lower courts); and

• the Supreme Court of Canada (which hears appeals from each appellate level court).
In addition to the court system, the following alternative dispute resolution processes are available in Canada:

• negotiation – the parties attempt to resolve the dispute without the intervention of an independent third party;

• mediation – an independent third party assists the parties with arriving at a mutually agreeable resolution; and

• arbitration – an independent arbitrator makes a final decision based on evidence and arguments submitted by the parties.

The main advantages of arbitration can include the more timely resolution of disputes, more flexible procedure, and confidentiality (including the avoidance of publicity). Inclusion of a mandatory arbitration provision in a franchise agreement might also be effective for those franchisors wishing to avoid class action proceedings since class-wide arbitration is not available in Canada. The main disadvantage of arbitration is that the costs of the arbitrator must be paid for by the parties to the dispute.

Franchise agreements may be governed by foreign law. As stated above, however, each provincial franchise statute contains a provision stipulating that any provision in a franchise agreement that purports to restrict the application of that province’s law to any claim that arises under the statute is void. In addition, such legislation similarly restricts any choice of dispute resolution venue to the respective province, again, in so far as it relates to claims arising under the franchise legislation, meaning that most out-of-court proceedings are limited to the province in question as well.

Chile Small Flag Chile

Franchisor and franchisee shall bring their dispute for resolution by local civil courts unless the franchise agreement provides for arbitration. Litigation at local civil courts is less expensive than arbitration but is time-consuming, as it often takes years to obtain a final, not subject to recourses decision. Additionally, civil court judges are less familiar with franchising agreements and with disputes that typically arise from a franchisor-franchisee relationship. The foregoing favours arbitration as a dispute resolution method.

The choice of foreign arbitration would be acceptable. Notwithstanding the foregoing, although Chile is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, it could take up to two years or more to enforce a foreign arbitration award in Chile. Once a foreign award is obtained, all orders, correspondence, evidence and other materials in the arbitration case will have to be translated into Spanish and submitted to the Chilean Supreme Court, which will assign an officer of the court to review all the procedural formalities of the award and determine preliminarily if the award is suitable for enforcement in Chile (exequatur proceedings). If the award passes the Supreme Court officer’s review, the Supreme Court itself will review the award and, if satisfied that the award meets all the pertinent requirements under Chilean law and international conventions to which Chile is a signatory, issue an order for enforcement by the competent lower court. The non-enforcing party may raise defenses at any stage during the recognition process, which will of course delay or hinder enforcement.

Because of the difficulty with enforcing a foreign arbitration award, an alternative may be to hold the arbitration in Chile using one of three different Chilean mediation and arbitration centers (the Santiago Chamber of Commerce, the Chilean American Chamber of Commerce and the National Arbitration Centre), the Arbitration and Mediation Center of the Santiago Chamber of Commerce being the oldest and most experienced of the three centers. The use of a Chilean arbitration procedure, if a speed and quick enforcement is valued over what may be a more controllable and/or reliable result in a foreign jurisdiction proceeding, is recommended.

Denmark Small Flag Denmark

With regard to issues relating to jurisdiction, the 1968 Brussels Convention, the 2007 Lugano Convention and EU Regulation 1215/2012 apply in Denmark. This means that when entering into an agreement, the parties are free to agree on the choice of forum. Many franchise agreements refer disputes to be settled by arbitration and not by the ordinary courts. It is also possible to agree on mediation as a form of dispute resolution. With regard to jurisdiction outside the ambit of these rules, international jurisdiction of Danish courts is based on a number of provisions in the Administration of Justice Act and the starting point is that the defendant must have home court in Denmark.

The advantages of agreeing on arbitration include more freedom for the parties to structure the process with regard to seat, place, number of judges, qualification of judges (including knowledge about the law governing the agreement), the process is subject to confidentiality and in some cases the dispute will be settled faster.

Azerbaijan Small Flag Azerbaijan

Available DR methods:

  • Court disputes;
  • Mediation (effective 1 July 2020);
  • Arbitration (ad-hoc and institutional)

While effectiveness of the mediation is not clear yet, the main disadvantage of the arbitration is execution of the foreign arbitral awards. It may be only executed if it doesn’t contradict legislation of the Republic of Azerbaijan.

Egypt Small Flag Egypt

Generally, given the rule that the contract is the legislation of the contracting parties, as provided by the Egyptian Civil Code, the parties may agree on the dispute resolution method whichever they prefer i.e. either to resort to court or arbitration. However, it should be noted that the Egyptian Procedural Law indicates in Article (28) that the Egyptian courts shall jurisdiction for any cases that are filed against an Egyptian, excluding cases related to real estate located abroad. In addition, Article (30) of the same Law provides that the Egyptian Courts shall have the jurisdiction to review any cases which are filed against a foreigner who has no domicile or place of business in Egypt, if the case is related to funds or assets existing in Egypt or related to an activity that shall be established, executed or should have been executed in Egypt. Therefore, choosing to resort to the courts will be limited to the Egyptian Courts, that is why, the parties are likely to choose arbitration as a dispute resolution method. In this regard, the Egyptian Arbitration Law permits the parties to hold the arbitration either in Egypt or abroad. The Arbitration Law also refers to a notable aspect that the Egyptian Arbitration law shall apply in any of the following events: i) if the parties agreed to hold the arbitration in Egypt, or ii) if it is commercial international arbitration and the contract parties have agreed to apply the Egyptian Arbitration Law. Otherwise, if the arbitration will be conducted abroad, the parties have the freedom to apply any foreign law.

France Small Flag France

Domestic agreements are generally subject to judicial proceedings. Litigation is generally the lower cost option for dispute resolution in France.

There is a mandatory preliminary conciliation/mediation process, which applies to all commercial disputes. The initial claim must state such conciliation efforts, , otherwise they can be ordered in the absence of a sufficient showing thereof. This requirement does not apply in emergency situations, such as injunctions.

Two alternative methods of dispute resolution popular among franchisors are mediation and arbitration. Both provide the benefit of confidentiality.

Arbitration is a popular choice for commercial disputes in France. There are several specialized arbitration institutions in France, such as the International Chamber of Commerce (‘ICC’), which is headquartered in Paris. Arbitral awards made in France or sought to be enforced in France should in most cases not run into issues with enforceability. This is due to the fact that France is a signatory to the New York Convention, which requires signatory states to recognize and enforce foreign arbitral awards made in other signatory states.

Arbitration may be a viable option for cases involving foreign parties or where the contract is subject to foreign law. It allows parties more choice regarding the procedure, and is perceived as a more neutral forum for parties of different nationalities.

Mediation is also available at various organisations, including the FFF and the ICC. Mediation can be a quick and cost-effective option for appropriate disputes.

Greece Small Flag Greece

Mediation and Arbitration are the main out of court dispute resolution procedures.

The Greek Franchise Association encourages the use of a simple mediation procedure for dispute settlement between franchisors and franchisees, in which the mediator is appointed from a list of mediators accredited by the Greek Franchise Association.

Parties often opt for Arbitration. Arbitral awards, foreign or Greek, are recognized by the Greek Courts, provided that they meet the requirements set out in the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention, 1958).

The main advantage of arbitration is time efficiency. It must be noted that an arbitration clause does not preclude the parties from seeking interim measures before the Courts in cases of emergence and imminent danger.

Mexico Small Flag Mexico

If a dispute were to arise under a franchise agreement which is considered to be commercial or mercantile, and if the parties decide to submit themselves to the applicable laws and courts in Mexico, an ordinary commercial or mercantile procedure may be initiated. In this case, the final resolution issued by the corresponding judge may be appealed before the local court of appeals, which final resolution may be challenged before a federal court through a constitutional procedure known as amparo if during the process specific constitutional rights were violated or if the resolution is against the principles contained in the Political Constitution of the United Mexican States.

An alternative mechanism for dispute resolution is arbitration, which may be subject to Mexican or foreign law. An award issued under the laws of a country which is part of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards shall be enforced in Mexico in the understanding that it is not against public order laws in Mexico, since Mexico is a party to the aforementioned convention.

Arbitration could be convenient since it allows the resolution of a problem to be carried out by one or more arbitrators with the required expertise and knowledge in franchising, this being a subject not necessarily known or by the courts.

A possible disadvantage of arbitration is that the costs and fees may be higher than those generated in a jurisdictional procedure, depending on the agency which administers the arbitration, its rules and the arbitrators themselves.

These dispute resolution options are independent from any administrative infringement action initiated by a franchisor against any person who violates the provisions of the IPL and its Regulations.

Lebanon Small Flag Lebanon

As indicated in the answer to question 25 above, the franchise agreement is a commercial agreement and thus the parties may refer their disputes to local courts, foreign courts or to alternative dispute resolution methods (including arbitration).

NB. In case the franchise agreement was deemed to be a commercial representation agreement, , i.e. if the case-law of the year 2009 referred to in the answer to question 19 above was successfully challenged, then the dispute can only be resolved by the local courts according to Article 5 of Law No. 34/67 which states: “Notwithstanding any agreement to the contrary, the Courts of the place where the commercial representative exercises his activity are competent to adjudicate disputes arising from the contract of commercial representation”.

China Small Flag China

Reconciliation, mediation, arbitration and litigation. Usually, most arbitration proceedings and decisions are kept completely confidential.

Peru Small Flag Peru

Parties in Peru can choose the forum to hear and resolve their dispute. They can opt in the agreement to resolve their disputes before a civil court or before arbitration. Commonly, parties choose arbitration.

Litigation before civil courts is less expensive than arbitration, but it is time-consuming, as it often takes many years to obtain a final decision.

Philippines Small Flag Philippines

Parties to a franchise agreement are free to stipulate the alternative dispute resolution procedure between them. These include arbitration, mediation, conciliation, early neutral evaluation, mini-trial, or any combination thereof.

The IP Code, however, provides that in the event the technology transfer arrangement shall provide for arbitration, the Procedure of Arbitration of the Arbitration Law of the Philippines or the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) or the Rules of Conciliation and Arbitration of the International Chamber of Commerce (ICC) shall apply and the venue of arbitration shall be the Philippines or any neutral country. For disputes particularly involving technology transfer payments, such as royalties, mediation is mandatory under IPO Rules. If it however involves the fixing of the appropriate amount or rate of royalty, the law vests the DITTB with quasi-judicial jurisdiction.

New Zealand Small Flag New Zealand

The Code of Practice sets out an excellent dispute resolution clause which is widely used in New Zealand. Mediation is the preferred mode of resolving a dispute but should that fail then arbitration is next in line. Both mediation and arbitration are private and confidential and are far faster than going through the courts.

Russia Small Flag Russia

Litigation is the most common dispute resolution procedure, especially for local franchisors and franchisees. Mediation and arbitration are also popular alternative dispute resolution mechanisms. If foreign governing law is chosen by the parties, arbitration will be certainly of advantage. Russia is a signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (hereinafter - New York Convention). Therefore, an arbitral award received from another jurisdiction that is a party to the New York Convention will be enforceable in Russia.

Norway Small Flag Norway

Available dispute resolution procedures are the ordinary courts and arbitration. The arbitration option is usually agreed in advance in the franchise agreement, but can also be agreed after a dispute has arisen. The advantages of arbitration are that disputes and settlements are kept from public access and will normally not attract publicity. Arbitration will normally be a faster process and the dispute will reach a final conclusion more swiftly than a full-fledged lawsuit for the ordinary courts, as a decision from an arbitration court can normally not be appealed. Cost wise, the choice between ordinary courts and arbitration can vary. Normally the legal fees to lawyers are greater for disputes solved by the ordinary courts due to such cases being appealed. However, this is often balanced out when comparing with costs for arbitration, since the parties have to cover the fees of the arbitrators in addition to legal fees to the lawyers.

United States Small Flag United States

While litigation is the most traditional method to resolve contractual disputes, alternative dispute resolution mechanisms such as arbitration and mediation are becoming increasingly more common. Each mechanism has its own benefits and detriments, and there is no uniform procedure used.

By way of example, mediation of international franchise disputes is generally considered to be a cost and time efficient resolution procedure; however, it cannot provide immediate relief to an injured party. So, if a franchisor learned that its franchisee was misusing its marks or was operating in a manner that was a danger to public health or safety, mediation would not prove a useful resolution mechanism, as the mediator would be unable to issue a temporary restraining order to immediately resolve the situation as a judge would able to do in court. In addition, while parties may be able to successfully resolve their dispute through mediation, in the event they cannot, the process could just delay the foregone conclusion of litigation or arbitration, thereby serving as an inefficient use of the parties’ time and resources. Further, it should be noted that mediation is not an adjudicative process; that is, it does not actually decide or resolve a dispute. Instead, regardless of whether a party’s position has merit (and, in fact, even if it does not), the goal of mediation is for the parties to reach a settlement to avoid the time and cost of litigation. Accordingly, in the author’s opinion, it would be in the franchisor’s interest to either make mediation one sided - - that is mandatory for the franchisee to commence mediation prior to instituting an action, but not for the franchisor - - or, if mutual, including clear carve outs in the types of actions that are subject to mandatory mediation (such as misuse of the franchisor’s marks and claims subject to injunctive relief).

The use of arbitration as a mechanism for dispute resolution is increasing around the world. Arbitration is generally considered a more informal and time and cost efficient mechanism than litigation. However, in the author’s opinion, there are no real advantages to selecting arbitration over litigation and, in fact, the risks in arbitration (such as the arbitrary nature of the decision and lack of meaningful ability to appeal) far outweigh the perceived benefits (such as reduced cost and shorter timetable, neither of which is necessarily true in most commercial cases). Nevertheless, where parties do contractually agree to arbitrate disputes, it would be wise to ensure that the following issues are clearly addressed: the law that will govern the dispute; the parties’ relationship and the agreement to arbitrate itself; the venue and choice as well as the body of rules governing the arbitration; the number of arbitrators and the process for selecting such arbitrators; the language in which the proceeding will be conducted; and, a carve out for the types of actions that are not subject to arbitration (such as misuse of the franchisor’s marks and claims subject to injunctive relief).

Ultimately, parties to a contract are free to agree to whatever dispute resolution mechanism they prefer, whether litigation, arbitration, mediation, or some combination of all three.

Italy Small Flag Italy

Franchise disputes in Italy may be resolved either before the ordinary courts or by arbitration. Arbitration typically provides a speedier resolution than court proceedings but the costs could be considerably higher.

If the franchise agreement is subject to a foreign governing law, international arbitration may be an alternative. Italy is in fact party of most international conventions on commercial arbitration (for example, New York on the recognition and enforcement of foreign arbitral awards).

Alternative dispute resolutions such as mediation, are also available.

United Kingdom Small Flag United Kingdom

In England and Wales, before issuing court proceedings, the parties should follow the pre-action protocols detailed in the Civil Procedure Rules. Depending on the value, the claim will be heard in the county court or the High Court and the claimant is required to prove their case on the balance of probabilities. However, in Scotland there is no requirement to follow a pre-action protocol before raising court proceedings. Depending on the value, a claim would be held either in the local sheriff court or in the Court of Session in Edinburgh. The test of proof is the same as for England and Wales (i.e. on the balance of probabilities).

Alternative dispute resolution is encouraged as an alternative to court hearings, and the BFA operates a mediation and arbitration scheme to resolve franchising disputes. It is usual for franchise agreements to include a provision that obliges parties to go through an internal escalation procedure before commencing court proceedings.

There are no UK-specific advantages or disadvantages to arbitration. As well as the BFA arbitration service mentioned above, parties often choose arbitration before the London Court of International Arbitration. The UK is a signatory to the New York Convention on the Mutual Recognition of Arbitral Awards, and so arbitral awards can be enforced through the Convention protocols.

Where the franchise agreement is subject to a foreign law, arbitration could be the better choice to foreign court proceedings depending on whether there exists an agreement on the reciprocal enforcement of judgments between the country in which the foreign judgment is issued and the UK.

Updated: October 15, 2019