If you are a Franchise Association of New Zealand (FANZ) member, your franchise agreement will contain an alternative dispute resolution clause. Alternative dispute resolution (ADR) is any method of resolving conflicts that do not involve going to court. What distinguishes ADR from the court system is that you and your franchisee control the process and outcome. A neutral third party can assist you in reaching the outcome or, in the case of arbitration, impose a binding decision. Ultimately, if there is an ADR clause in your franchise agreement, your process for dispute resolution should mirror these requirements. This article will explore how an ADR clause applies to your franchise agreement and consider three key aspects of such clauses.
What is An ADR Clause?
You and your franchisees should agree on an alternative dispute resolution clause when signing the franchise agreement. It should outline the steps either party should take when handling a dispute. A failure to resolve the dispute with any mandatory requirements in the clause could lead to further disputes.
Let us explore three key aspects concerning ADR clauses.
1. Negotiation
If a dispute arises between you and a franchisee, both parties need to make every effort to resolve the dispute by mutual negotiation. Negotiation is a dispute resolution process in which you and the disputing franchisee work together to reach an agreement.
Typically, only the disputing parties are involved, and both determine how the negotiation process will run. Accordingly, this means:
- there is a large amount of flexibility in negotiations; and
- it can be as fast, cheap and informal as the parties wish it to be.
However, suppose you cannot resolve the issue within 21 days of the dispute arising. In that case, either party may provide written notice to the other party seeking to resolve the dispute via mediation.
Continue reading this article below the form2. Mediation
Another quick and cheap method of resolving disputes before pursuing litigation is mediation. Mediation is where both parties negotiate a resolution with the help of a neutral third party (the mediator). You and the franchisee can agree on who the mediator will be. If, however, you cannot agree on who will be the mediator, you may apply to FANZ, who can appoint a mediator for you.
The mediation process can be informal. Importantly, the mediator does not propose the resolution or create a binding resolution that parties must follow. Rather, the mediator facilitates the dispute resolution by helping to identify the mutual interests of both parties. They can do this by:
- communicating privately with the respective parties;
- providing co-opt expert assistance;
- ensuring each party to the mediation receives an opportunity to present their side to the dispute; and
- acting fairly, in good faith and without bias to seek a resolution of the dispute.
However, suppose the dispute remains unresolved within 45 days after the referral to mediation. In that case, any party may, by written notice, take any other action it sees fit relating to the dispute.
3. Further Action
Some franchise agreements provide that if you do not resolve the dispute by mediation, the parties must arbitrate their disputes. Arbitration is similar to mediation in that a neutral third party (an arbitrator) oversees the resolution of the dispute. However, unlike mediation, the arbitrator can impose a binding decision on both parties called an award. Accordingly, both parties must put into effect whatever resolution the award outlines.
Alternatively, parties may choose to go to court if the mediation fails. Taking your dispute to court should be a last resort, as this will be the most costly and protracted process. In this instance, your case may go to trial, and a judge may decide the outcome. However, before you choose to litigate a matter, you must seek legal advice. Legal advice can help you better understand the strength of your legal position and whether you are better off seeking to resolve the dispute by other means.
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Key Takeaways
If you are a Franchise Association of New Zealand ( FANZ) member, your franchise agreement will contain an alternative dispute resolution clause. If a dispute arises, you must negotiate a resolution with your franchisee within 21 days. However, if you fail to resolve the dispute, you will likely have to seek mediation. Importantly, you should follow the dispute resolution processes as you have set it out in the franchise agreement. Failure to follow this process could potentially lead to further disputes.
If you have questions about dispute resolution clauses, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
An alternative dispute resolution clause would be something that you and your franchisees agreed on at the time of signing the franchise agreement. It should outline the steps either party should take when handling a dispute.
You should follow the ADR processes in your franchise agreement. However, there are instances where you may require immediate court relief. In this instance, you should speak with a lawyer to understand when to abide by the relevant ADR clause.
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