Almost universally, franchise agreements contain a ‘dispute resolution’ clause. This will usually set out a three-stage process; starting with a face-to-face meeting between the franchisee and the franchisor. If that fails, the second stage is mediation and if that also fails the third stage is litigation.
If the parties move to mediation, it will usually be specified as being non-binding, of a minimum of eight hours and before a mediator who will be appointed by the Centre for Effective Dispute Resolution (CEDR). Obviously, if both parties agree to appoint a different mediator, they are at liberty to do so. The cost of the mediator will usually be shared equally between the parties but, if applicable, they will pay for their own legal representation.
The mediator’s role is not to judge but, acting neutrally, try to help the parties to reach an agreement. For this reason, the choice of mediator is very important. He or she should most definitely have business experience and ideally also be familiar with the franchising industry. There are not many mediators with this experience, but they do exist. It is well worth investing the time and effort to identify and appoint the right person because the possibility of successfully resolving the dispute will be greatly increased.
At the mediation, either party can be represented by their lawyer and, if the mediator agrees, any other person who is appropriate to assist in resolving the dispute. The mediation can take place at any agreed location. It could be at the office of either parties’ solicitor or at a conference centre or meeting venue. To accommodate the mediation, the facility must have at least three rooms.
The parties, any lawyers and the mediator will initially attend a joint meeting at which the mediator will explain how the mediation will be conducted. This will firstly involve the parties, starting with the claimant, setting out their position and their desired outcome. To gain clarity, the mediator may ask questions, but he or she will not interrogate, challenge or make comments. The parties will then go to separate rooms where they will be visited in turn by the mediator. These meetings will be completely confidential, and nothing that is discussed will be divulged to the other party. Very importantly, the mediator will make it clear that everything that is discussed is on a ‘without prejudice’ basis. This means that as well as being confidential, the discussions will not be made available to any subsequent legal action that may take place if the mediation fails. Most mediators will destroy any notes that they make regardless of the outcome.
The mediator will proceed to visit the parties in turn to encourage and broker a compromise. Obviously, that may sometimes not be possible, and for that reason not all mediations are successful.
If enough progress is made, the mediator will encourage negotiations and, with the parties’ consent, put forward any offers and counteroffers that they wish to make. If this is successful, a joint meeting will be reconvened at which a formal settlement agreement can be drafted and signed.
Mediation offers many benefits in resolving franchise disputes. It is confidential and much less expensive than litigation. Importantly, it allows the parties to retain control of the outcome as opposed to a court case or an arbitration that will be presided over by a judge or an arbitrator who will pass judgement. This will result in there being a winner and a loser. Many winners later state that their victory was at great cost of both time and money. Many losers later wish that they had settled out of court.
Another benefit of reaching a mediated settlement is that there is a far higher probability that the outcome will be an amicable compromise that allows the parties, if they so wish, to resume a working relationship. In a franchising situation, this is often highly desirable.
