Franchise Arbitration Procedure

Introduction  Many franchise agreements in operation across Canada contain an arbitration clause requiring that all or certain disputes between a franchisor and franchisee be resolved by private arbitration, rather than through the court system.  Properly assessed and handled, an arbitration can be beneficial in many cases to the interests of both the franchisor and franchisee.

While many local counsel in Toronto and elsewhere view arbitration as merely a private court proceeding (from a procedural perspective), an arbitration proceeding can be fashioned in any way to meet the needs of the parties.  An arbitration proceeding does not have to be conducted in the same manner as a court proceeding.  Recognizing the very flexible nature of the arbitration process can assist the parties and their counsel to structure a procedure that best fits their needs based on the particular dispute at hand.  Custom-structuring the arbitration may result in a significantly different procedure than the court procedure under the local rules of practice in Ontario or another province in Canada.

Similar to Court Process

Sometimes, parties may wish to have a process that is as similar as possible to a court proceeding, only in an arbitration setting.  For example, they may agree to incorporate into the process all pre-trial discovery steps under the local rules of practice, such as documentary and oral discovery.  They may ask the arbitrator to apply the local rules of evidence as well as decide the case based on the available legal principles under the jurisprudence.

Specifying Procedure in the Arbitration Clause

On the other hand, parties may choose to significantly alter and streamline the litigation process from the court process.

A franchisor may specify the actual arbitration procedure in the arbitration clause.  In some instances where the type of dispute that is likely to be arbitrated is known to the parties in advance, it may make sense to specify a particular procedure in the arbitration clause.

However, incorporating rigid procedures and timelines into the arbitration agreement may be difficult and cumbersome to implement if the nature of the dispute that ultimately develops is different from the one envisioned by the drafter of the arbitration agreement.  The better practice is to give the arbitrator the ability to set the most suitable procedure for the particular dispute at hand, in light of the nature, complexity and urgency of the dispute, particularly where the nature of the dispute is not known in advance.

For instance, if the procedure in the arbitration agreement was designed for a dispute that is relatively simple or of low monetary value, the procedure will likely be inadequate should a dispute arise that is complex or that involves a high monetary value where more is at stake and greater resources and attention are intended to be devoted to the proceeding.

One of the parties to the dispute – typically the one which is least keen in seeing the results of the arbitration – may not agree to change the procedure.  If the arbitrator changes the procedure from the one provided in the arbitration agreement, the party that least favours the change may argue that by doing so the arbitrator had lost jurisdiction over the arbitration and that the arbitration decision should be set aside or stayed.

Giving Procedural Power to the Arbitrator

Giving the arbitrator the power to decide all procedural and other pre-trial matters, as well as determining the case on the merits, greatly streamlines the process.  This is only rarely available in the court system. For example, it is available in class proceedings in Ontario where a judge is assigned to manage the case from start to finish, including all interlocutory proceedings, the certification motion and all post-certification proceedings, including the trial.  It is also available in Toronto under the Commercial List, to which only certain commercial cases qualify, where a judge manages a case throughout all steps.  These court features are the exception rather than the rule.

Having the same person hear and determine all interlocutory proceedings as well as the hearing on the merits often causes the parties to be more judicious and “gun-shy” when considering whether to resort to pre-trial procedures that are less than wholly meritorious; or procedures that are, at least in part, motivated by tactical considerations such as causing delay or driving litigation costs higher.

The time that will be required to deal with all pre-trial steps can be considerably faster.  The process can be flexible and cost efficient.  First, the arbitrator will be familiar with the case and can decide any procedural issues much quicker.  Second, the arbitrator can fashion a cost efficient procedure that is suitable for the individual motion before him or her.

Customizing Format of Individual Steps

Depending on the nature of the motion, in terms of complexity, urgency and the issues at stake, the parties may agree to use different forms of materials.

A simple procedural motion may not require formal motion records, affidavits and exhibits.  Instead, written submissions in the form of letter correspondence attaching or referring to the salient materials may be sufficient.

More complex motions may require a thorough hearing with a full exchange of materials and the formality of motion records.

The mode of counsel’s submissions follows the same approach.  They may range from submissions in writing in a letter format, to more formal written submissions, coupled with a telephone conference with the arbitrator, through to personal attendance.

Witness examinations in relation to motions can follow a similar range. For simple motions, simple statements may do or even a brief attendance with a limited examination by the parties. For more complex motions, a formal cross-examination governed by the rules of evidence may be adopted.

If matters are urgent – even if the entire case has to be fully decided and disposed of on an urgent basis – the arbitration proceeding may be structured on a tight timetable.

It should of course be kept in mind that deadlines ought to be realistic and afford the parties reasonable time to prepare.

Any procedural rules or time limits must be fair and treat all parties in a fair manner that affords them an adequate opportunity to present their case.  Otherwise, the arbitration decision may be set aside or not enforced.

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