While dispute resolution clauses may be straightforward for domestic franchise agreements as a result of the Franchising Code, dispute resolution clauses can be one of the most neglected provisions in international master franchise agreements.
These clauses are frequently addressed at the end of contractual negotiations and sometimes receive little substantive consideration. This can mean that the opportunity is missed for parties to agree on the most appropriate dispute resolution procedures to be adopted for the myriad of disputes, large or small, which may arise under the contract. A carefully thought out dispute resolution clause can pay dividends down the line, with disputes being resolved swiftly and effectively at a lower cost whilst maintaining the valuable commercial relationships between the parties.
There are many options available to parties when faced with disputes under commercial contracts, some disputes may be amenable to alternate forms of dispute resolution such as negotiation, mediation or expert determination. Other disputes may demand a more formal dispute resolution process by court proceedings or arbitration (often in a neutral jurisdiction).
Most leading arbitration institutions have changed their rules in recent years and arbitration laws have changed in many jurisdictions, as well as court processes and jurisdictional requirements. These changes mean that the dispute resolution paths adopted in the past may no longer be appropriate for future disputes.
Consequently, the need for franchisors to review their standard dispute resolution provisions and their dispute resolution policies and protocols when dealing with international parties has heightened. Key considerations in any such review include the form, composition, venue, jurisdiction and procedures to be adopted in the dispute resolution process as well as the governing law of the process. It is important to consider the enforceability of a decision made in another Australian jurisdiction or in the country in which the other party to the contract has assets.
While international agreements and commercial contracts generally involve these considerations, there is significantly less flexibility when dealing with domestic franchise agreements and domestic master franchise agreements. The Franchising Code governs the dispute resolution process in some detail, regulating the initial attempts to resolve disputes, the appointment of a mediator and the terms that will govern the compulsory mediation in Australia. This process was amended when the Franchising Code changed on 1 January 2015. It is important that franchisors are aware of this process as it is compulsory, and failure to comply with it can result in significant fines (amongst other consequences).