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.

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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

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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

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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.

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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;

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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.

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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

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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

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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)

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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.

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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.

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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;

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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.

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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.