© Copyright Acquisition International 2024 - All Rights Reserved.

Article Image - Advantages of Arbitration as a Method of Resolving Franchising Disputes
Posted 23rd May 2016

Advantages of Arbitration as a Method of Resolving Franchising Disputes

In our last article in AI magazine (February edition) we talked about the impact of disputes in the franchising context and how to minimise the risk of claims being made against you.

Mouse Scroll AnimationScroll to keep reading

Let us help promote your business to a wider following.

Advantages of Arbitration as a Method of Resolving Franchising Disputes
Image

Advantages of Arbitration as a Method of Resolving Franchising Disputes

In our last article in AI magazine (February edition) we talked about the impact of disputes in the franchising context and how to minimise the risk of claims being made against you. In this article, we focus on clauses to include in your franchise agreement to best protect both parties should a dispute arise. In particular, we consider arbitration as a method of dispute resolution which has seen a rise in popularity in relatively recent years.

It is never in an organisation’s business plan to become involved in a dispute and, particularly at the outset of a relationship, there tends to be a feeling of optimism about the business going forward. However, when entering into new contracts (either as franchisee or franchisor) it is important to consider how matters might unfold should you become embroiled in a dispute. This is particularly important in the context of international contracts involving parties from different jurisdictions with different legal systems and possibly cultures.

The majority of commercial contracts will include a ‘Dispute Resolution’ clause as a matter of course. It should set out how, who, where, which law and when a dispute will be managed. It is worth thinking carefully about each of these considerations before making a decision on each. For example:

• How would the parties like to approach any dispute? It might be sensible to have a procedure for doing so before they resort to court action. For example, it is common for a contract to provide for a face to face meeting between the account managers first to discuss the dispute, followed by a meeting between more senior people from both parties if the initial meeting does not resolve matters. Alternatively, you may prefer to provide for mediation of the dispute, either with the assistance of an independent mediator or with a relevant trade body such as the British Franchise Association.

• Who would the parties like to resolve their dispute? Ultimately this comes down to a choice between the courts through ordinary litigation or an arbitral tribunal through the process of arbitration. This is discussed in more detail below.

• Where would the parties like to resolve their dispute? Where the contract is between parties in different countries this is particularly important. It is usual for parties to choose either a country in which one of them is domiciled to resolve the dispute, or alternatively a “neutral” country with which neither of them have a particular connection. If the parties opt for arbitration this decision has particular importance because the “seat” or venue of the arbitration has implications on the law applied to the process of the arbitration. • Which law would the parties like to apply to both the contract and any dispute? Again this is important for internationally contracting parties. • When should a dispute be resolved? Local laws often impose statutory time limits for bringing a claim. For example, under English law a claim for breach of contract must be brought within 6 years of the breach occurring. However, it also allows the parties to agree to vary that time limit and it may be worth stating that any claims must be brought within a shorter period (e.g. 1 year) so as to reduce uncertainty in the event a dispute arises.

• Are there any other issues important to the parties? For example, they may wish to limit liability under the contract to give certainty as to the level of claim that may be made, or to exclude certain types of claim (for example claims for consequential loss or loss of profit).

Litigation or arbitration?

Increasingly more parties are opting to include arbitration clauses in their contracts as a way of resolving disputes. To understand why, below we explain each process and the advantages and disadvantages involved in picking one over the other.

Litigation is the process of resolving disputes through the court system. In England and Wales there are multiple levels of courts presided over by highly experienced judges, dealing with different levels and types of claims.

Arbitration uses a similar process to the courts, but the parties choose the arbitrator(s) (the equivalent of the judge in the courts) and the arbitration is usually conducted under a set of rules published by an arbitral body (for example the International Chamber of Commerce (“ICC”) or the London Court of International Arbitration (“LCIA”)). When picking an arbitrator, it is tempting to choose someone who has sector knowledge relevant to the dispute. However, more important is the arbitrator’s understanding of the legal process and the law that the parties have chosen to apply to the contract. This is because the opportunities to appeal an arbitrator’s decision are very limited, which makes the choice of arbitrator a key decision.

Arbitration is considered to be an attractive alternative to litigation for a number of reasons:

• Enforceability – the enforceability of a court judgment in a foreign country depends on whether the countries concerned have entered into an agreement allowing reciprocal enforcement of each other’s judgments. The rules on this are complex and can lead to uncertain outcomes for parties. In contrast an arbitral award can, in principle, be enforced in any of the 156 countries that have signed up to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

• Neutrality – the parties can choose where the arbitration takes place, which is helpful if there is concern about the independence of courts local to one party. However, choosing the location of the arbitration has implications on the law applicable to the process of the arbitration, and therefore legal advice should be sought on this.

• Flexibility – the parties can agree how the arbitration will work including who the arbitrator(s) should be and what procedural rules should apply. In practice the procedure followed is not dissimilar to court proceedings, although the parties can often agree a significantly speedier process than could be provided by the courts. 

• Confidentiality – unlike court proceedings, arbitration is confidential. This is particularly important in the franchising context where protecting the reputation of the brand, and the integrity of the network, is key to the continued success of the business. It also has great advantages if information considered to be confidential is relevant to the dispute; parties can exchange such information without the threat of it being in the public domain.

• Finality – it is generally much more difficult to appeal an arbitral award than a court judgment. Whether it can be challenged is governed by the law of the seat, but in England there are very limited grounds on which an arbitration award can be appealed. This can be either an advantage or disadvantage of arbitration, depending on whose favour any award is made, but parties on the whole, value the certainty of the arbitral process and the knowledge that once the award is delivered the process is at an end.

Arbitration is not suitable for every dispute. Where there are multiple parties, dispute problems can be caused if there are not identical or complementary arbitration clauses in each of the relevant agreements. Further, arbitration can be an expensive process, because parties have to meet the arbitrator’s fees and pay for facilities such as room hire. It is therefore not a suitable process for small disputes (although it is worth noting that court fees have increased significantly with a court fee of £10,000 payable to start a claim of £200,000 or more).

The decisions made about dispute resolution when negotiating a contract are some of the most important parties can make. They can give one party a significant advantage over another if a dispute ever arises, and the repercussions of making the wrong decision could be costly in both time and money. It is therefore worth investing time and thought into the worst case scenario of a dispute right at the beginning of a relationship, to put you on the best possible footing. Stevens & Bolton LLP is one of the UK’s leading national law firms with 37 partners and over 200 staff, and recently won the award for ‘National/ Regional Law Firm of the Year’ at the Legal Business Awards 2016. We advise a number of the top 100 and other UK FTSE companies, as well as many other substantial international groups. The franchising team, headed up by Nicola Broadhurst, has a broad range of experience in commercial agreements, competition law, intellectual property issues and dispute resolution, including international arbitration. The dispute resolution group has also been shortlisted for ‘Litigation Team of the Year’ at the Solicitors Journal Awards 2016. For further information, contact Nicola, Sarah or Catherine or go to www.stevens-bolton.com

Categories: Innovation


You Might Also Like
Read Full PostRead - Eye Icon
Working From Home Can Slash Payback Periods for EV Drivers
Finance
10/11/2022Working From Home Can Slash Payback Periods for EV Drivers

According to insight from the Office for National Statistics (ONS), more than 38% of the UK workforce now enjoy either a part-hybrid or totally remote role. While sceptics have suggested that this trend will begin to fall in-line with retreating COVID-19 cases

Read Full PostRead - Eye Icon
Government Creates New Business to Save Up to £105 Million in IT Costs
Strategy
20/03/2015Government Creates New Business to Save Up to £105 Million in IT Costs

A new joint venture business has been created to host government computer servers.Crown Hosting Data Centres is a new joint venture between the government and the SME Ark Data Centres Limited, and will provide public bodies with a physical space to host their

Read Full PostRead - Eye Icon
Best of the Best in Finance
Finance
01/11/2016Best of the Best in Finance

Best of the Best in Finance - Drayton J. Carter & Co.

Read Full PostRead - Eye Icon
Most Innovative Law Firm Germany
Legal
04/05/2016Most Innovative Law Firm Germany

SGT Rechtsanwaelte primarily advises corporates and high-net worth-clients on their legal affairs and acts as an external legal department for companies who do not have their own legal desk.

Read Full PostRead - Eye Icon
Charterhouse’s Acquisition of Stake in Comexposium
M&A
14/05/2015Charterhouse’s Acquisition of Stake in Comexposium

Charterhouse's Acquisition of Stake in Comexposium

Read Full PostRead - Eye Icon
Turning a Struggling Brand into a Triumph: the ABC to Success
Strategy
06/01/2022Turning a Struggling Brand into a Triumph: the ABC to Success

Instability throughout the retail sector came to the fore during the pandemic as established brands struggled to overcome their outdated business models. However, the challenges faced by these brands began the well before the pandemic as market fluctuations ca

Read Full PostRead - Eye Icon
Supporting Risk Takers
Finance
15/08/2023Supporting Risk Takers

With a passion for providing its expertise to organisations of all sizes around the world, TaxCoach is a trusted consultancy firm that offers a variety of financial services to help clients succeed in their endeavours.

Read Full PostRead - Eye Icon
The World Leader  in Ozone Generators
Finance
02/11/2016The World Leader in Ozone Generators

BiOzone Corporation is a world-leading manufacturer of ozone generators and ozone water treatment process trains, designed to meet a wide range of water and air pollution oxidation needs.

Read Full PostRead - Eye Icon
Customer Satisfaction at Core of the Business
Innovation
07/05/2019Customer Satisfaction at Core of the Business

Leading the market with innovative solutions, SSC is the first SAP partner in Paraguay with certified one solution for Point of Sales – ‘PVOne’. We profile Software & Services Consulting SRL (SSC)’s Katherine Colombino as the recipient of AI’s Female



Our Trusted Brands

Acquisition International is a flagship brand of AI Global Media. AI Global Media is a B2B enterprise and are committed to creating engaging content allowing businesses to market their services to a larger global audience. We have 14 unique brands, each of which serves a specific industry or region. Each brand covers the latest news in its sector and publishes a digital magazine and newsletter which is read by a global audience.

Arrow