FranchiseCanada SeptemberOctober 2017

FranchiseCanada September | October 2017 107

Every franchisee hopes to

develop a successful, profit-

able, independent business

following a unique and proven

system operating under an estab-

lished brand name. Every franchisor

hopes that it has chosen qualified

and energetic franchisees to operate

successful businesses for a lengthy

period of time. Neither party expects

to have a dispute with the other

which may result in litigation.

However, hope is not reality when

it comes to a breakdown of the fran-

chise relationship. Unfortunately,

franchise disputes are on the rise for

a number of reasons, and franchi-

sees in particular should be aware

that there are viable alternatives to

litigation before the courts when it

comes to resolving disputes. Among

the most commonly utilized alterna-

tive dispute resolution methodolo-

gies are mediation and arbitration.

Prospective franchisees should have

a basic understanding of how these

programs work and why they can be

advantageous in avoiding litigation.

Litigation is time consuming,

expensive, disruptive, and unpre-

dictable. The court process is sub-

ject to long delays, has a negative

effect on franchise relationships,

exposes the franchise system to risk

for both franchisors and franchi-

sees, and can result in undesirable

press and social media.

Mediation can be mandated in

a franchise agreement or another

ancillary document like an opera-

tions manual. It is often a pre-con-

dition to commencing litigation or

arbitration. Some provinces require

mediation before cases can be set

down for trial. But most importantly,

mediation can be voluntarily agreed

to by the parties at any time.

Mediation is not binding and does

not result in a decision. However, it

has a high success rate and often

results in a negotiated solution. It

is a confidential non-binding pro-

cess that can preserve an existing

relationship. All parties participate

in the process, and the cost is very

minimal compared to litigation.

Mediation can be utilized at any

stage – a claim need not to have been

filed or served.

Mediation takes place before an

independent facilitator chosen by

the parties. An experienced media-

tor can assist the parties in craft-

ing a solution which can include

tax advantages, a structured set-

tlement, remain confidential, and

contain speak well provisions. It is

highly recommended that the par-

ties select a mediator with franchise

experience and understanding – a

franchise legal expert, a respected

former judge, or an experienced gen-

eral commercial mediator.

Mediation follows a structured

process. Lawyers are not required,

but are usually present. It is essen-

tial that client decision makers

attend and be prepared, informed,

and have authority to settle. The

mediator will conduct the process

in an open forum, but will also meet

in private caucuses with the parties.

The mediator will help the parties

analyze the issues, determine their

goals and options, and if a settle-

ment is reached, ensure that the par-

ties sign the minutes of settlement

before adjourning the mediation.

Arbitration is a more formal pro-

cedure conducted under specific

arbitration legislation and pursuant

to an arbitration agreement between

the parties. It is conducted like a

trial, but with less formality, and the

arbitrator is often given significant

discretion on procedural issues and

the ability to issue a full range of

orders and decisions.

Arbitration has a number of

advantages over judicial proceed-

ings. It is conducted in a private and

confidential forum. The parties can

select an arbitrator with specific

expertise (e.g., in franchising). Arbi-

tration is cost effective, relatively

quick, and conducted efficiently. The

parties have the ability to exclude

certain matters or issues, and to

choose effective and practical arbi-

tration rules. The parties can deter-

mine the grounds of appeal, but

most arbitration decisions are final

and binding, with limited grounds of

appeal, and are confidential and not

available to the public.

An arbitration agreement can be

contained in a separate document

or as part of a franchise agreement.

The agreement will usually address

the scope of the arbitration, qualifi-

cations of the arbitrator, the number

of arbitrators, rules and procedures

for the hearing, the location, time

frames, exchange of documents,

available remedies, interim awards,

jurisdiction issues, limitations on lia-

bility and damages, final monetary

award options, costs and expenses,

and whether the arbitrator will give

a written or oral decision.

There are a number of alternate

dispute organizations which have

As a prospective franchisee, what should I know about mediation and

arbitration before I get started?

ASK A LEGAL EXPERT

A

Frank Zaid

Franchise Mediator, Arbitrator, and

Ombudsman

Frank Zaid FRANlegal Support

Services

[email protected]

416-322-8300

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