by Rudolf A. Kotek
A franchise relationship has high potential for disputes. A Franchisor has business relationships with sources, in some networks hundreds of Franchisees of a network entered into their relationships with the Franchisor at different times and with differing expectations and goals. The Franchisor must operate its business for the benefit of its owners and its Franchisees and steer its network in what it determines to be the right direction.
Some Franchisees are likely to disagree with the balance the Franchisor chooses between its owners and its Franchisees or with the direction that the Franchisor charts for the network.
Therefore, it is essential that a franchise network develop effective dispute resolution procedures may include any combination; an ombudsman; internal dispute resolution procedures involving participation by neutral Franchisees and members of the Franchisor’s management; and third party, non-binding mediation. These are all non-binding methods used to resolve a dispute without resort to some form of binding dispute resolution like litigation or arbitration. Non-binding dispute resolution methods are generally effective in resolving disputes, but will not always produce a mutually satisfactory resolution.
A Franchisor should consider arbitration as the method of binding dispute resolution instead of relying on litigation. Though arbitration is not without problems and costs, it is, on balance, a faster and less costly method than litigation of resolving a dispute that cannot be otherwise resolved. Cases in Philippine Courts can easily take five years or longer. The accelerated resolution and lower cost of arbitrated dispute results from the elimination of most discoveries and various techniques commonly used in litigation to narrow the issues to be resolved. Cost is further reduced and a final result achieved more quickly because an arbitrator’s decision may only be appealed in limited circumstances.
However, inability to narrow the issues in dispute and learn by pretrial discovery the other side’s theories and factual support, and the limited scope for appeal of an arbitrator’s decision, is viewed by some as a significant disadvantage of arbitration. Nevertheless, if a franchised network’s formally decided disputes are projected over an extended period, and assuming that the Franchisor’s management has the good sense to informally resolve disputes in which the Franchisee’s claims or position is reasonable or the facts do not strongly support the Franchisor’s claims or position, arbitration is likely to prove an effective dispute resolution method from the respective of cost and minimizing the strain of disputes on the franchise relationships.
Rudolf Kotik is the founder of RK Franchise Consultancy Inc, which developed more than 350 Filipino Companies into Franchise Systems, with address at G/F Minnesota Mansion, 267 Ermin Garcia Street, Cubao, Quezon City. Tel. 9122946, 9122973, email: rk@rkfranchise.com; websites: www.rkfranchise.com, www.franchise.ph.
