Most franchise agreements contain an obligation to initially use mediation to settle a dispute between the franchisee and the franchisor. Only if that fails should litigation be commenced. The reason for this is that mediation is much quicker and far less expensive than litigation. It is also the best way for the parties to reach an amicable settlement and re-establish a friendly working relationship.
A mediator’s job is to assist the parties in reaching a negotiated settlement of the dispute rather than to consider the merits of the respective cases and pass judgement. A major advantage, particularly for a franchisor, is that the mediation is private. This avoids setting precedents that could affect other franchisees or cause repercussions in other areas of the business. A major advantage for a franchisee is the cost saving. Mediator charges are a fraction of the cost of a trial that would involve two sets of legal representatives and could involve barristers.
A major advantage for both parties is that they, rather than a judge, are in control of the proceedings, with the mediator simply acting as a neutral facilitator of a negotiated settlement. A mediator’s role does not include making any recommendations. The role is simply to try to assist the parties in reaching an agreement.
Everything that is said at a mediation is on a ‘without prejudice’ basis, which means that if an agreement is not reached, anything that is said cannot and will not be used later in any subsequent legal proceedings. This enables either party to make proposals towards reaching an agreement that are not binding piecemeal. Put differently, this means that remarks and proposals of the parties are non-binding until everything has been agreed.
A mediation follows a standard format and usually takes place in a neutral location. The mediator will chair the meeting, and each party will introduce themselves. Starting with the claimant, the mediator will then ask each of them, or their legal representative if one is appointed, to explain their side of the dispute. This will include what their desired outcome is, including, if appropriate, any counterclaim by the defendant.
Either side will then adjourn to separate rooms to review their position, and the mediator will alternate between them to discuss their positions and make observations and suggestions on how a settlement could be reached. Each meeting is completely confidential, with the emphasis on control remaining with the parties and the mediator acting neutrally to make suggestions on how an agreement might be reached.
If enough movement is made, offers and counteroffers may ensue to a point at which the joint meeting is reconvened to draft a settlement agreement.
The success of a mediation is in large part dependent on the choice of mediator. It is unlikely that a mediator with experience in family conflicts or property and construction will understand the finer nuances of the franchising industry. An independent solicitor could be jointly appointed, but the same issue would arise because a lawyer, however competent, would rely on a legal background rather than an understanding of the respective positions of a franchisee or a franchisor.
Not surprisingly, there are very few trained mediators who have operated in the franchising industry as both franchisee and franchisor.
