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The Fundamental Aspects of the Franchise Agreement: Part 11

Written by : Joseph Adler
2009-02-16

Resolution of Disputes

Many franchise agreements include specific clauses dealing with alternative dispute resolution procedures, such as mediation or arbitration. One approach is to require that the parties first exhaust these alternative procedures before suing the other party in court. Another approach is to require that the franchisee and franchisor settle all disputes through mediation or arbitration.

This type of arbitration clause would typically specify that the arbitration is final and binding and that neither party has the right to appeal the decision of the arbitrator. The franchise agreement should also specify the rules that will apply to the arbitration, how the arbitrator or panel of arbitrators will be selected and the jurisdiction of the arbitration. The logic behind these alternative dispute resolution processes is that they allow the parties to select an arbitrator or mediator who is familiar with the unique aspects of franchising and has experience in dealing with franchise disputes.

Despite the fact that mediation and arbitration have been recognized more generally as a viable alternative to litigation, it remains relatively uncommon for a franchise agreement to impose mandatory and binding mediation or arbitration. This is due, in part, to the fact that arbitration has generally proven to be no less costly than traditional litigation and, in many cases, can prevent a franchisor from obtaining injunctive relief in order to enforce its rights upon termination of the franchise agreement.

CONCLUSION

We have set out above a discussion of certain key contractual terms and issues raised by the unique aspects of the franchise relationship. A well-drafted franchise agreement is key to ensuring a strong franchise system and a mutually beneficial and productive
franchisor/franchisee relationship. This paper highlights many of the drafting issues unique to the franchise relationship.

More than simple drafting skills and an understanding of the franchisor’s business operations and objectives are required in order to prepare franchise agreements and related documents that address issues specific to franchising. Legal counsel must be well versed in many aspects of commercial law and must keep apprised of developments in the common law relating to or affecting the franchise relationship in order to effectively advise franchise clients. It is incumbent on all franchise counsel to keep pace with the continuing evolution of franchise law and the impact of these changes on franchise agreements and related documents.

Joseph Adler is a partner with the law firm of Hoffer Adler LLP in Toronto, Ontario. He can be reached at 416-977-3444 and at jadler@hofferadler.com.
Andraya Frith is a senior associate of Osler, Hoskin & Harcourt LLP in Toronto, Ontario. She can be reached at 416- 862-4718 and at afrith@osler.com.
2004 Joseph Adler and Andraya Frith
NOTE: This paper is intended to provide our general comments on the law. It is not intended to be a comprehensive review nor is it intended to provide legal advice. Readers should not act on information in the paper without seeking specific legal advice on the particular matter.

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