Mediation can be an effective way of more informally resolving a dispute. By involving an independent third party in the proceedings, i.e. the mediator, it can be easier to make each party realize the merit of the other party’s opposing views. Then the mediator can help negotiate a reasoned solution to the problem.
For franchisors, another advantage of mediation is it leads to settlements that are not subject to disclosure requirements under franchise legislation in Canada. What this means is if a franchisor encounters disputes with its franchisees, but these disputes are successfully resolved through mediation, then the franchisor does not need to mention them in its franchise disclosure document, which is shared with prospective franchisees.
As mentioned, mediation can assist in maintaining a positive relationship between the parties after the dispute has been resolved. It is not appropriate for all circumstances, however, such as when the parties are dealing with complex legal issues or when the franchisor’s intellectual property (IP) is the subject of the dispute.
Mediation does not need to be specified in the franchise agreement or disclosure document. At any time, the franchisor and the franchisee can simply agree to seek the assistance of a mediator.
It is important to keep in mind, though, not all mediations end with a successful resolution of a problem. They can also lead to arbitration or going to court for the ultimate resolution of the dispute.
With arbitration, as mentioned, the proceedings are much more formal. And in many ways, they are similar to court proceedings.
The procedure of arbitration is adversarial in nature. As the matter at issue will be resolved with an award being made by the arbitrator, there is typically a ‘winner’ and a ‘loser.’
Arbitration is often thought of as a good way to resolve disputes because it is assumed to be faster and cheaper than going to court, but this is not always the case. There are numerous examples of arbitration becoming extremely complex and involving greater costs and taking more time than if the matter had gone to court.
Further, because arbitration is essentially an adversarial procedure, some parties may not favour it as an appropriate method for ADR, especially when they intend to continue their business relationship and need to work together. They may instead choose mediation or another informal ADR process, where the decision is not ‘forced’ upon them because the procedure is not mandatory, and the results will then be considered more agreeable to both sides.
It is quite common to see franchise agreements and disclosure documents with arbitration clauses. One reason is arbitration is seen as a less public way to resolve disputes than going to court. Franchisors do not typically want to have their ‘dirty laundry’ aired in public; a clause requiring arbitration is a good way to limit exposure of any disputes with their franchisees.
There will always be a range of opinions on the value and the appropriateness of each form of ADR. For that matter, many franchise agreements and disclosure documents address multiple forms of ADR, while many others will not contain any such provisions at all.
There is no right or wrong answer to the question of what ADR provisions should be included in the franchisor’s documentation, but it is certainly important for all parties to consider ADR and decide what they think will work best in the event there is a dispute.
Peter Snell is a partner and franchise lawyer at the Vancouver offices of Gowling WLG (Canada) LLP. For more information, contact him via e-mail at email@example.com.