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MEDIATION AND ARBITRATION OF FRANCHISE LEGAL DISPUTES
By Steven H. Goldman, partner of Goldman Hine LLP
(www.goldmanhine.com)
Canadian Franchise Association (“CFA”), Franchise Legal Day, January 27, 2016
(Toronto)
NOTE: This paper is not legal advice.
Page 2 of 14
WHAT IS MEDIATION?
Mediation is best defined as a negotiation assisted by a neutral third party called a mediator. As
well, in contrast to litigation or arbitration, the resolution of a dispute through mediation is
completely voluntary and, by definition, acceptable to both parties.
The mediator’s role is to help those involved in a particular dispute clarify their business
interests, overcome obstacles to communication, and fashion an efficient and realistic resolution
to the matter. Mediation is typically initiated in one of three ways:
a. It may be agreed to by the parties to a dispute at any time on their own initiative;
b. It can be required pursuant to a clause or provision in a franchise agreement; or
c. It can be imposed by the court either pursuant to the rules of procedure or by court
order.
Although both arbitration and mediation are known as alternative forms of dispute resolution, in
contrast to arbitration, the mediation process is non-binding and flexible, and the procedure
followed for a given mediation is often fact specific.
In light of the above, many franchisors and franchisees are recognizing the benefits of mediation
as a way to minimize legal costs, risks and preserve valued business relationships. As there is no
consequence for failure to reach a mediated settlement, the benefits of mediation far outweigh
any disadvantages. Mediation is much less expensive than arbitration and/or litigation. There are
no witnesses, no discovery, no expert fees and none of the other costs associated with arbitration
or litigation. Moreover, mediations are typically one or two day events and parties can much
more quickly ascertain whether a resolution to the dispute is achievable.
a. Mandatory Mediation in the Ontario Court System
Pursuant to Rule 24.1 of the Ontario Rules of Civil Procedure, a program of mandatory
mediation in case managed cases in various areas of Ontario, including Ottawa–Carleton, the
City of Toronto and County of Essex, has been established. There are certain actions which are
exempted from this Rule, including actions placed on the Commercial List in the Toronto
Region, and actions certified as class proceedings under the Class Proceedings Act, 20021. For
all other actions in Ontario, Rule 24.1.09 stipulates that a mediation session shall take place
within 180 days after the first defence has been filed, unless the court orders otherwise.
Assuming that the court has not ordered otherwise, and pursuant to Rule 24.1.11, all parties to
the action and their lawyers are required to attend the mediation session. A party who requires
another person’s approval before agreeing to a settlement shall, before the mediation session,
arrange to have ready telephone access to the other person throughout the session, whether
placed during or after business hours.
1 S.O., 1992, c. 6
Page 3 of 14
Pursuant to Rule 24.1.14, all communications at a mediation session, including the mediator’s
notes and records, are deemed to be ‘without prejudice’ settlement discussions and remain
confidential even in the event that the mediation is unsuccessful.
b. Canadian Franchise Association Ombudsman Program
The Canadian Franchise Association (“CFA”) Code of Ethics states that:
7. A franchisor and its franchisees should make reasonable efforts to resolve complaints,
grievances and disputes with each other through fair and reasonable direct
communication, and where reasonably appropriate under the circumstances,
mediation or other alternative dispute resolution mechanisms.
To that end, the CFA has developed a Franchise Ombudsman program for both franchisors and
franchisees consisting of a neutral, independent Ombudsman who is available at no charge to
provide informal, confidential assistance to help with the resolution of concerns and complaints.
The mandate of the CFA Ombudsman is to facilitate the resolution of franchise complaints and
problems by discussing the issues, facilitating possible solutions, and where appropriate,
suggesting and referring alternative methods of dispute resolution for unresolved complaints and
problems.
All conversations and communications are kept strictly confidential. The Ombudsman’s role is
not to take sides or provide legal advice, but rather to use his or her knowledge of the many
business issues involved in the franchise relationship and provide a forum to resolve disputes
between those parties quickly, privately and confidentially.
The CFA hopes that the Ombudsman's services can help resolve problems as early as possible, in
an amicable and expeditious fashion. To that end, the Ombudsman service is funded by
sponsorship donations made by the Franchise Community and supported by the CFA. The
Ombudsman service is an informal service which is typically provided over the phone2.
TYPES OF MEDIATION:
There are two general types of mediation which are practiced in Ontario: facilitative and
evaluative.
a. Facilitative Mediation
Facilitative mediation is based upon the more classical theory of mediation of a neutral, impartial
third party assisting in a compromised settlement. In facilitative mediation the mediator
2 You can contact the Ombudsman toll free at 1-866-443-8255 or in the Toronto area call 416-928-1697, or write to
CFA Ombudsman, 5863 Leslie St., Suite 505, Toronto, ON M2H 1J8
Page 4 of 14
structures a process to assist the parties in reaching a mutually agreeable resolution. The
mediator asks questions, validates and normalizes the parties' points of view, searches for
interests underneath the positions taken by parties and assists the parties in finding, and
analyzing, options for resolution. The facilitative mediator does not make recommendations to
the parties as to the strength or value of the parties’ cases, give his or her own advice or opinion
as to the outcome of the dispute, or predict how a court would rule in the dispute. The mediator
is in charge of the process, while the parties are in charge of the outcome.
Facilitative mediators want to ensure that parties come to agreements based on information and
understanding. They may hold joint sessions with all parties present so that the parties can hear
each other's points of view, but more frequently spend the majority of the time practicing
“shuttle diplomacy” or “caucusing” with the parties separately. Each mediator may have their
own style of conducting the mediation process. Facilitative mediators want the parties to the
dispute to be the major influence in making decisions regarding the dispute rather than legal
counsel.
b. Evaluative Mediation
Evaluative mediation is a process modeled on settlement conferences held by judges. An
evaluative mediator assists the parties in reaching resolution by pointing out the weaknesses of
their cases, and predicting what a judge or jury would be likely to do. An evaluative mediator
might make formal or informal recommendations to the parties as to the outcome of the issues.
Evaluative mediators are primarily concerned with the legal rights of the parties rather than
needs and interests, and mediate outcomes based on legal concepts of fairness. Evaluative
mediators meet most often caucusing in separate meetings with the parties and their legal
counsel. They help the parties and their lawyers evaluate their legal position as well as the costs
versus the benefits of pursuing more formal legal proceedings. The evaluative mediator
structures the process, and directly influences the outcome of mediation.
While the parties (particularly the decision makers) are or should always be present in the
mediation, the mediator may meet with the counsel alone as well as with the parties and their
counsel. Generally, in evaluative mediation the mediator has substantive industry expertise or
legal expertise in the particular area of the dispute. Due to the fact that evaluative mediation
originated from the court process, and because of their comfort level with settlement
conferences, most evaluative mediators are former judges, or lawyers with a particular expertise
in the area of business or law being the subject of the dispute.
c. Pros and Cons of Facilitative vs. Evaluative Mediation
There are pros and cons to both the facilitative and evaluative styles of mediation. While some
parties prefer the validation of their positions and interests that they receive from facilitative
mediation, others are more interested in the bottom line. Facilitative mediation is an excellent
resource for diffusing emotional responses and addressing the underlying issues driving a
dispute. Facilitative mediation also leaves more control in the hands of the parties, as they are in
charge of the outcome and take a more active role in setting the parameters of settlement.
Page 5 of 14
However, where a dispute concerns the interpretation of a franchise agreement or the provisions
of the Wishart Act, trademark dispute, or dispute arising out of any strictly legal analysis, which
may on its face be a clear obligation i.e. the payment of royalty fees, the entitlement to rescission
rights under the Wishart Act, etc., the facilitative approach may not provide the legal ‘bottom
line’ that many parties are seeking.
Accordingly, supporters of evaluative mediation say that parties simply want an answer to their
dispute if they can’t reach agreement, and want to know whether that answer is fair. Evaluative
mediation offers a clear sense from the mediator as to the strengths and weaknesses of parties’
positions and whether the outcome is legally fair as a result. However, the mediator in an
evaluative mediation is largely in control of the outcome and parameters for a ‘fair’ settlement.
Accordingly, detractors of evaluative mediation worry whether the evaluative mediator is correct
in his or her evaluation of the case and whether too much emphasis is placed on the mediator’s
analysis as to the likely outcome of the dispute.
A concern that many lawyers and clients have is that they do not know what style their mediator
uses before they end up in the mediator’s office. I strongly recommend that you discuss with
your proposed mediator, the type of mediation style they propose to you. You may wish, after
consulting with the opposing counsel, to agree upon the style of mediation that you wish the
mediator to conduct (or even a hybrid approach). I have often asked for a facilitative approach
for at least the first part of the day, with a more evaluative approach to be used by the mediator if
substantial progress is not being made. Accordingly, you may wish to appoint a mediator who
has flexibility in deciding upon the approach which can be tailored to the needs and desires of
the particular parties or their counsel.
ADVANTAGES OF MEDIATION IN FRANCHISE DISPUTES:
Many franchisors promote mediation by including language in their franchise agreements that
either may encourage mediation or require mediation as a prerequisite before court or arbitration
proceedings commence.
The concept and use of mediation is gaining favor in the world of franchising.
The potential advantages of mediation, whether facilitative or evaluative, in resolving franchise
disputes include its relatively low cost and the informed risk management available to the parties
in determining whether, and how, to resolve their dispute. There are also additional benefits to
mediation, including:
i. The potential for creative crafting of settlements: In mediation the parties have
much more flexibility in negotiating a resolution that addresses each of the parties’
interests or needs that may not be available in a court or arbitration forum. These
interests can include minimizing payment by being creative in how the settlement is
structured for tax purposes, the manner of payment, the protection of confidentiality,
conservation of executive time, and reducing adverse publicity;
Page 6 of 14
ii. The more favorable environment to preserve relationships: Perhaps the most
important benefit of mediation is that it helps franchisors and franchisees preserve
valued business relationships with minimal risk. Since there is no "loser" in
mediation, the parties have a rare opportunity to discuss their disputes in a privileged
setting without fear or concern that their discussions will yield a bad result. For
instance, many clients who become deposition or trial witnesses are fearful that their
testimony will result in a negative result before a judge or jury. In many instances, the
mediation process gives franchisees the desired opportunity to vent their frustrations
with the franchisor. The mediation provides a proverbial "day in court." Mediation
also affords the parties an opportunity to be heard by the opposing party, to articulate
their business concerns and to formulate proposals. In short, there is everything to
gain in mediation and nothing to lose;
iii. The ‘first peak’ at the opposing parties’ case: If mediation fails and the parties
choose to litigate or arbitrate, the mediation has minimally provided each party with a
peak at the opposing case. Although the exchange of information is confidential, the
process also affords the parties an opportunity to make an early evaluation of the
strengths and weaknesses of their own case. In this manner, the parties can obtain
some useful information about the dispute without the added expense of obtaining
that information through formal discovery in litigation or arbitration; and
iv. The high success rate: Statistics generally indicate that a very high percentage of
mediations result in settlement. In the USA for example, the CPR Institute for
Dispute Resolution has in the past reported success rates in excess of 80% for its
mediations. In order to corroborate the success of mediation in the franchise industry,
the National Franchise Mediation Program (“NFMP”), is conducting a case study on
mediation activity among franchisors and franchisees. NFMP is a non-profit
organization composed of franchisors including Cendant, Burger King and
McDonald's, trade associations including the International Franchise Association, and
franchisee-based organizations including the Asian American Hotel Owners
Association (“AAHOA”), which are committed to using mediation to resolve disputes
between franchisors and franchisees. NFMP and AAHOA have joined forces to create
a "private-label, hospitality-specific" mediation program that is designed to inspire
hotel owners to mediate their disputes with franchisors. The key elements of the
program are: the creation of a sub-panel of mediators with significant knowledge or
expertise in the area of franchise law or hospitality, AAHOA's commitment to
aggressively promote the program to its members, and the franchisor's commitment to
bring business representatives to the mediation.
a. Advantages of Mediation Even If Settlement Not Reached
Even where mediation does not result in the resolution of a particular dispute, there are still
significant advantages to participating in the mediation process. Aside from providing the parties
with a confidential, ‘without prejudice’ forum to air their differences and to be heard, mediation
also enables the parties to learn the other side’s perspective regarding the dispute. This may lay
the ground work for future settlement and will assist in preparing for trial or arbitration.
Page 7 of 14
Mediation, even where unsuccessful, may also be instrumental in providing informed risk
management. The parties gain a better understanding of the strengths and weaknesses of their
case, as well as gain a better perspective on how far the parties may be apart (which may be a lot
closer than they originally anticipated).
As the costs involved in mediation are much lower than the costs of proceeding to litigation or
arbitration, it assists in leveling the playing field for an economically disadvantaged party.
However, while substantially less expensive than litigation or arbitration, mediation will
generally require legal counsel’s involvement to prepare a mediation or settlement brief, discuss
settlement strategy in advance and attend at the mediation. The parties are also generally
required to share the cost of the mediator and the mediation venue.
b. When is Mediation Most Likely to be Effective in Producing Settlement?
Many franchisors and franchisees agree that some franchise disputes are not appropriate for
mediation. For instance, disputes that involve minimal dollar amounts or disputes in which an
unwavering principle is at stake are not appropriate types of disputes for mediation. Likewise,
disputes in which one party has extremely strong claims or defences can occasionally be more
efficiently resolved with motion practice in a pending litigation. Similarly, if a party desires an
opportunity to establish new case precedent or defeat existing adverse case precedent, mediation
will not assist in accomplishing that objective.
There are also certain disputes unique to franchising that many franchisors will not mediate. For
example, if a terminated franchisee is using the franchisor's trademarks without consent or
payment, the franchisor will typically seek immediate injunctive relief in court or arbitration in
order to protect its valuable intellectual property. Additionally, many franchisors prefer not to
mediate individual objections to quality assurance scores that are issued to franchisees during the
quality assurance inspection process. Many franchisors have an informal dispute process to
handle franchisees' minor disputes without submitting them to a full-blown mediation.
However the following disputes typically lend themselves to successful mediated outcomes:
i. In term franchise disputes, where the parties are going to continue to have a long-term
multi-faceted relationship going forward. In such cases, mediation preserves the
mutual interest between the parties in maintaining a positive relationship and keeping
communication open;
ii. Disputes that turn on issues of judgment rather than hard contractual issues;
iii. Where there is bona fide misunderstanding of other side’s position;
iv. Where there is a real need to maintain the confidentiality of proceedings;
v. Where the decision makers are present at the mediation with a view to trying to
resolve the issues in a reasonable manner; and
Page 8 of 14
vi. Where the parties have done their homework, understand the facts and issues, and are
willing to listen to, or understand, the risks and costs associated with not settling;
MEDIATION MECHANICS AND STRATEGY:
Regardless of whether mediation is voluntary, part of a franchise agreement or mandated by the
courts, there are certain practical and strategic considerations that should be canvassed prior to
engaging in the actual mediation process, including:
i. Initiating the mediation: While there are still parties who believe that the party who
initiates mediation is showing weakness, there is really no disadvantage to initiating
the mediation process. Quite the contrary; mediation is such a powerful forum for
settlement that parties should welcome the process being initiated, no matter which
party does the initiating. As well, even if mediation is unsuccessful the first time, it is
recommended that the mediation process be re-initiated at a later date particularly as
the parties understand the risk/benefit analysis of their case better;
ii. Selecting the mediator: The type of mediation being agreed to be conducted
(facilitative or evaluative) will determine in large part the type of mediator required.
Facilitative mediation requires a person experienced in the mediation and legal
process generally, who is respected but not necessarily an expert in the field which is
the subject of the dispute. If the parties want an evaluative mediation in a franchise
dispute then it is important that the mediator be well respected in franchising and
franchise law. Alternatively a well respected former judge, particularly one who
presided over commercial disputes, can also be very effective and generally a quick
study.
iii. Pre-mediation preparation: In the ideal world, each party would prepare for
mediation as one would for a summary trial. The goal is to gather detailed
information so as to determine the value of the dispute as objectively as possible and
present to the mediator with the evidence, and legal support, to persuade your
opponent that your valuation is on target. Thus, pre-mediation preparation often
entails research on the legal and evidentiary issues and evaluating the strength and
weaknesses of each party’s case. If experts have been retained during the course of
the dispute, each party should be provided with a copy of the expert’s report. Finally,
is important to tailor the amount of preparation to the case’s value.
iv. The goal of early mediation is to resolve the dispute before the parties incur
significant expenses. Accordingly, preparing a reasonably thorough mediation or
settlement brief setting out clearly the issues in dispute, key documents, and the
expectations of the parties is helpful. It is useful to serve these Mediation Briefs at
least 1 or 2 weeks prior to the actual mediation to provide the opposing side with
sufficient time to review and understand your position and to provide a written
response, if any. The mediator also needs sufficient time to review the materials in
Page 9 of 14
order to prepare for the mediation. There may be times where certain information is
shared only with the mediator (and is not shared with the other side);
v. Determining who should be present at the mediation: Participants in the
negotiations should include those who have the power or authority to make a
decision, know and understand the issues in dispute, have negotiating skills, have
control of their emotions, are acceptable to the parties and have demonstrated
commitment, or are willing to commit to negotiate in good faith and seeking mutually
acceptable solutions. One commentator noted that “CEOs settle more cases than vice
presidents, house counsel or other agents. Why? For one thing, they don’t need to
worry about criticism back at the office. Any lesser agent, even with explicitly
“authority”, typically must please a constituency which was not a participant in the
give and take of the mediation. That makes it hard to settle cases3.”
vi. Developing the Negotiation/Settlement Target Strategy: Before heading into the
mediation, it is helpful to develop certain settlement goals. At this stage, there is
nothing preventing either party from being creative such as, for example, whether the
dispute could be resolved by the franchisee withdrawing from the system and selling
its unit within a specified period of time. It is also helpful at this stage to determine
what the case is worth, especially if the dispute is over money. Once the parties have
a grasp on the monetary value, they can more intelligently assess merits of the
creative options for resolution. It is also important to estimate a party’s worst and best
alternative to a negotiated agreement which is sometimes referred to as WATNA
(Worst Alternative to a Negotiated Agreement), an expression of the most unpalatable
result of not reaching an agreement. This will help the party measure the value of any
offer, and BATNA (Best Alternative to a Negotiated Agreement). Measuring a
proposed agreement against a party’s BATNA will hopefully prevent that party from
accepting terms that are too unfavourable or rejecting terms that should be accepted.
Keep in mind however, that a party’s BATNA and WATNA may change as new
information is received during the course of mediation. It is also important to consider
a party’s non-monetary position and interests, their tolerance for risk and other factors
which may seem ‘irrational’. Disputes often arise because of mistakes, blame,
defensiveness, pride and ego, and canvassing these interests in advance may be the
key to a successful mediation;
vii. Setting the ground rules: Frequently, but not always, the mediator may want an
initial conference call with the parties to discuss various logistics of the actual
mediation session. These include the nature of the issues in dispute, the time and
place of the mediation, the proposed length of the mediation session, the type of
mediation statements required by the mediator and any pre-mediation issues, such as
information exchanges. The mediator may also wish to discuss which individuals will
be attending at the mediation to determine their authority to enter into a settlement. At
this stage, counsel should also consider whether to share with the mediator any
information about any personality quirks, eccentricities or irrational thinking of the
3 Tom Arnold, 20 Common Errors in Mediation Advocacy, 13 Alternatives 69 (1995)
Page 10 of 14
part of any party attending. If the information might be useful in helping the mediator
fully understand the impediments to settlement, then this information should be
shared with the mediator prior to the actual mediation.
MEDIATION PRACTICE AND PROCEDURE:
Mediation almost always begins with all parties, their counsel and the mediator meeting all
together in one room. The mediator typically ensures that the parties and their counsel all sign
the mediation agreement which ensures that all discussions and information disclosed during the
mediation is strictly confidential and cannot be used later on in court or arbitration, and that the
mediator him or herself cannot be called as a witness at court to discuss what occurred during the
mediation.
The mediator then generally explains the mediation process to everyone present. Typically the
mediator emphasizes the confidentiality of the discussions and reviews the advantages of
settlement, and the disadvantages of not settling including the enormous emotional and financial
costs of litigation. The mediator then reviews the actual process of mediation and explains that
there will be opening statements by each side followed by “caucusing”, where the parties and
their counsel will be in separate rooms visited by the mediator.
a. Opening Statements
Some mediators ask that each side makes an opening statement. Opening statements provide an
overview of the parties’ positions and are generally not longer than 15 or 20 minutes. Once the
opening statements are complete, the mediator may invite the parties to add anything else. It
should be noted however that many mediators now dispense with opening statements and go
straight into caucus mode. Otherwise, following opening statements, the parties and their legal
counsel typically break out into their respective ‘caucus’ rooms, with the mediator floating
between room to canvass the parties’ positions and interests in the hopes of facilitating
settlement.
b. Caucusing
Once the mediation is underway, each party and their counsel meet in separate rooms and are
then visited by the mediator. The mediator will seek to better understand the party’s position,
their motivations and what offer they wish to make to the other side. The mediator will typically,
if evaluative, provide his or her feedback and then take the offer to the other side. There may also
be information which the party wishes to be made known to the other side and this can also be
discussed.
One of the beauties of mediation is its adaptability to the parties’ needs. For example, if the
parties need to exchange information before the actual mediation session they can engage the
mediator to help them agree on what needs to be exchanged.
Page 11 of 14
Another one of mediation’s substantial benefits is the opportunity to speak directly to the other
party’s decision maker or at least get some real time feedback as to what it will take to make a
deal. The mediator will typically want to elicit a series of offers from both sides. Hopefully as
the day proceeds and more information is obtained, the offers become closer. Many, if not most,
mediations take the greater part of an entire day in which to resolve most franchise disputes.
As the mediation progresses, the mediator will almost certainly gain insights into each side’s
position and personalities that either should be or should not be shared with the other side. That
information can help the mediator understand how a particular offer might be received. Similarly
the mediator might be able to help the parties better understand each other based on the
mediator’s insight into each party’s motivations.
c. Settlement and the role of drafting the settlement agreement
In the event the parties come to an agreement in principle during mediation, they need to
memorialize the agreement in writing. While a fully drafted settlement with form of release
should be prepared, at the very least, if a settlement has been reached the parties should not leave
the mediation without signed Minutes of Settlement setting out the essential terms of the parties’
agreement.
Signed Minutes of Settlement are extremely helpful in the event the parties encounter any
problem moving from Minutes of Settlement to enforcing the terms of the agreement. If this
occurs, the parties should consider re-engaging the mediator as soon as possible. Sometime the
parties may even want to add a clause in the Minutes of Settlement appointing the mediator as
arbitrator to settle any disputes regarding the documentation required to be implemented
pursuant to the Minutes of Settlement.
Page 12 of 14
ARBITRATION
Arbitration has been part of the dispute resolution landscape for a long time. It is frequently used
by parties to franchise agreements who want to craft their own private manner of resolving any
dispute between them. Arbitration is a binding legal process by which parties have, by written
agreement, submitted a dispute between them to be resolved by a neutral third party. Under
applicable arbitration legislation in all provinces in Canada, arbitration awards made by an
arbitrator properly appointed will be enforced in the same way a judgment of any Judge in the
court system can be enforced.
Arbitration is adversarial, binding, and as in any court case, usually results in a “winner” and a
“loser”. It is based on findings of fact and the legal result flowing from those facts.
While arbitration clauses are now common in franchise agreements, even when there is no
arbitration clause, arbitration agreements are sometimes negotiated after a dispute has arisen. As
well, some arbitration clauses are poorly drafted or are drafted by a lawyer who has not provided
much thought to the process. Accordingly, the parties in a dispute may wish to amend the written
arbitration clause to include some important amendments. For example, some arbitration clauses
require the appointment of 3 arbitrators. Given that arbitrator’s charge by the hour at rates that
can exceed $500, paying 3 arbitrators can result in exorbitant arbitrator costs. Unless the amounts
involved are in the multi-million-dollar range or higher, only one arbitrator is generally really
necessary. In the franchise context, absent multi-unit or class action disputes, most disputes
involve far less than $5,000,000 and the vast majority less than $1,000,000.
The arbitration process can be crafted by the parties in an agreement. Hence, if thought is given
to the process when drafting an arbitration clause, a party can ensure that a custom and cost
effective format for dispute resolution is effected. The issue of costs, the location of the
arbitration proceedings, the applicable law, the subject matter of the arbitration (which can be
limited by agreement), the ability of the arbitrator to determine issues in a summary fashion
(including the ability to have submissions in writing only), limited hearings and limited
examination, and clauses dealing with no right of appeal on issues of fact or law can be set out in
the arbitration clause.
Parties can agree that the arbitrator be chosen from a specific group of named individuals or as
one of the arbitrators listed at the ADR Chambers or upon any other party that they mutual wish
to appoint. They can also agree that a certain set of rules apply. (See point #10 below).
The advantages or disadvantages of arbitration are:
1. Confidentiality of the process and outcome. Arbitration hearings are held in private
settings and are attended only by the parties, witnesses called to testify and the parties’
counsel. This is in contrast to trial proceedings which are open to the public. As well,
unless the arbitral award is appealed into the court system, most of the awards are private
as well;
Page 13 of 14
2. Lack of a precedent being set. Unlike a decision of a judge in the Canadian courts in
which written reasons are set out and published (and which form a precedent for other
judges), an arbitral award is not binding upon any other arbitrator;
3. Flexibility. The arbitrator typically has more flexibility in setting the hearing process
(including limited pre-hearing discoveries and the relaxation of evidentiary rules) than a
judge in the courts who must follow the formal Rules of Civil Procedure and the laws of
evidence;
4. Problem Appointing an Arbitrator. Unless the parties specifically set out who will be
appointed as arbitrator or set out a specific process to appoint the arbitrator or set out that
the parties will use the ADR Chambers rules or AAA rules, there can sometimes be a
problem agreeing to the appointment of a suitable arbitrator(s). Nevertheless, there is
typically a process under the applicable arbitration legislation to seek the appointment of
an arbitrator by the court, although this can sometimes delay the process by a few months
and some additional costs;
5. Cost of the arbitrator him or herself (as well as the venue). This can be an added
significant expense in contrast to judges who are paid for by the government with
courtrooms being provided at no additional cost;
6. A more expeditious and timely proceeding. Arbitrators can more readily and quickly
schedule the entire hearing process with much greater flexibility than the courts;
7. Not Subject to Appeal. Generally, the decision or award of an arbitrator are not subject
to an appeal or are subject to very limited rights of appeal. This is particularly true where
the parties contractually agree that the arbitrator’s awards are not subject to appeal on any
grounds, including issues of law or findings of fact;
8. Arbitrator with Specialized Knowledge. Arbitration provides the parties with the
ability to pick an arbitrator or tribunal familiar with or expert in the legal issues being
raised. In the franchise area it is of great benefit if the arbitrator is a current or former
franchise law expert;
9. Lack of Pre-trial or Mediation Requirement. Unless the parties contractually agree to
a pre-arbitration or mediation requirement in their arbitration clause, none will be
imposed upon the parties in the arbitration process. While some counsel believe that this
may help the parties settle, this may also be considered a drawback to the process. The
parties of course can provide in their arbitration clause that either party can initiate a
mediation process or alternatively provide that the arbitrator can require the parties to
mediate (to be conducted by an independent third party mediator);
10. Setting out procedural rules in advance. The parties can set out the rules of procedure
and evidence that they wish to follow such as “Expedited Arbitration Rules”, or the Rules
set out by the ADR Chambers in Toronto or rules set out by the American Arbitration
Association (“AAA”) in the U.S.A.
Page 14 of 14
In an article written by Edna Sussman and John Wilkinson for American Bar Association
Section of Dispute Resolution called the “Benefits of Arbitration of Commercial
Disputes”, the authors quote statistics from the American Arbitration Association
(“AAA”) for the year 2008. According to the article, the median length of time from the
filing of arbitration demand to the final award in domestic commercial cases was just 7.9
months. In contrast, in 2010 the median length of time from filing through trial of civil
cases in the US District Court for the Southern District of New York was 33.2 months.
Furthermore, appeals from the lower court to disposition by the Second Circuit Court of
Appeal was 40.8 months.
CONCLUSION
In an adversarial system prone to long delays, extensive legal fees and court imposed decision
making, mediation and arbitration can offer parties alternative to resolving their contractual
disputes.
In the franchise context, mediation may provide the best hope for franchisors and franchisees to
maintain an amicable working relationship, move forward in their franchise agreements and gain
insight into the other’s position.
While mediation does not always yield a successful settlement, the process remains beneficial for
providing insight into the other parties’ case, the relative strengths and weaknesses of each side’s
position and, at the very least, moves the parties toward a range of possible resolutions. The role
of the mediator is adaptable to the particular dispute at issue and provides a more level playing
field to canvass each party’s position on a ‘without prejudice’ basis.
Through arbitration the parties have the ability to creatively create a confidential binding
resolution process that is faster, cheaper and more suited to the parties’ requirements. With some
thought when drafting an arbitration clause, parties can create a custom, cost effective and
creative dispute resolution process which can better address the needs of the parties compared to
requiring the parties to have their legal disputes decided publicly by the courts.