Franchise Arbitration and Mediation

Franchise Arbitration

Franchise arbitration involves a dispute under a franchise or related agreement, or where the parties to a franchise agreement have otherwise agreed to resolve their dispute by arbitration. Many franchise agreements require that all disputes between the parties be resolved by arbitration.

Franchise disputes often arise when franchises are purchased, sold, renewed, and terminated.

Disputes sometimes come up before entering into the franchise agreement about deposits and pre-sale agreements.

Disputes can also arise during the franchise relationship. A franchisor may have to deal with a franchisee’s operational non-compliance with the requirements of the franchise agreement, territorial and location rights, advertising, support, bad faith conduct, or allegations of misrepresentations by a franchisee.

After a franchise relationship ends, a franchisee may be in violation of a non-competition restriction and other post-termination obligations in the franchise agreement, and possibly allege that the non-competition restrictions are not enforceable.

Types of Franchise Disputes that Can Benefit from Representation by a Franchise Litigation Lawyer

Parties would be wise to retain the services of a franchise litigation lawyer with experience in franchise arbitration when involved in complex franchise arbitration cases, including any of the following:

• Franchise rescission disputes about alleged disclosure failures in the franchise disclosure document (FDD);
• Compliance with operational and payment obligations (for example, operational non-compliance, underreporting of sales, failure to pay royalties, etc.);
• Injunction applications (for example, applications to enforce non-competition restrictions against a former franchisee);
• Exclusive territory disputes (for example, disputes about the franchisor’s right to set up a competing location inside a territory);
• Misrepresentation and bad-faith conduct claims;
• Renewal disputes about the franchisee’s right to renew or compliance with renewal conditions, and
• Lease takeover and lease renewal disputes.

The Franchise Arbitration Process

Franchise arbitration is a private legal proceeding that is governed by provincial or federal arbitration statutes (depending on the jurisdiction of the company involved) and by the terms of the parties’ arbitration agreement.

In a franchise arbitration, a neutral private arbitrator is selected by both parties, or otherwise appointed by a method set out in the arbitration agreement (or in the applicable arbitration statute). The arbitrator will set the procedure for the arbitration case from start to finish. Depending on the terms of the arbitration agreement between the parties, the arbitrator’s decision is normally final and binding just like a judge’s decision in court.

Arbitration and court litigation involve significantly different procedures and rules. They do, however, share overall broad elements of the adversarial system – how disputes are presented, heard and determined.

Like a court case, an arbitration involves these fundamental phases:

• internal investigation and evaluation by each side and their lawyer of the key facts, evidence and legal issues in the dispute;
• commencing the arbitration process or responding to the claim;
• discovery of documents (and potentially witness examination/questioning);
• potential pre-hearing motions or applications to determine procedural disputes (such as disputes about steps, timetables, production of documents, etc.), and
• the full hearing of the arbitration.

What Law Works Brings to The Table

Law Works has the expertise and proven track record in representing franchisors in Ontario and other provinces.

We have deep and wide-ranging experience representing parties to franchise disputes in mediations, litigation, arbitrations and appeals. We vigorously protect our clients’ rights and are savvy advisors around the boardroom table in all areas of franchise disputes.

Our principal and founder, Ben Hanuka, has over two decades of experience as a franchise litigator. We have represented franchisors going back to even before franchise legislation was enacted in Ontario (the Arthur Wishart Act (Franchise Disclosure), 2000), and before modern legislation was enacted in other provinces where franchises are regulated (British Columbia, Alberta, Manitoba, New Brunswick, and PEI).

Scope and Cost of Arbitrating a Franchise Dispute

The scope and cost of a franchise arbitration dispute can vary significantly depending on the following factors:

• the complexity and importance of the facts, evidence, and legal issues in the dispute;
• the amounts in dispute;
• the complexity of the proceeding;
• if there are related proceedings;
• the number of procedural steps that have to be taken or that the opposing party takes;
• any party’s denial of or refusal to admit anything that should have been admitted;
• the conduct of any party that tends to shorten or lengthen unnecessarily the duration of the proceeding, and
• any other relevant factor that can affect the legal fees or overall costs of the arbitration.

The following is a general outline of the scope of possible steps that may be involved in a franchise arbitration case. It is provided solely for informational purposes as a general rough outline of what to expect when pursuing or defending a franchise dispute through arbitration.

This general outline is provided subject to the following conditions:

1. This scope is general. It is not specific to any particular case. It is intended to provide a general sense of what steps and effort may possibly be involved in a case. Therefore, it is not intended to be read or relied on as legal advice.
2. Any particular case may include some or all of the steps listed below, or additional steps not listed below.
3. Each legal case is unique and will have its own circumstances. Each case will result in different fees and overall costs, depending on many factors, including those listed above.
4. This general scope is subject to change without notice.

Notices – Claim and Response

Scope of pleadings:

• 1 to 3 days principal, associate lawyer and litigation clerk.

Key activities include:

• Analysis of key facts in the dispute (initial analysis, to be refined as more evidence becomes available).
• Analysis of additional facts about key events to draft either a statement of claim or a statement of defense (for fulsome cases).
• Drafting statement of claim or statement of defence.
• Initial correspondence with opposing counsel about procedure (for summary proceedings)
• Guidance on structuring the arbitration process.

Discovery (as agreed between the parties’ lawyers and the arbitrator, or otherwise imposed by the arbitrator)

The following is a fulsome set of discovery steps. The discovery phase in an arbitration proceeding will vary widely based on the nature of the case, the parties’ agreement on how to most effectively streamline the discovery phase and the arbitrator’s order.

As a result, some or all of these steps may be significantly different, possibly more limited, depending on the arbitration case.
There are usually three to four phases in discovery.

Discovery Phase 1: Planning and Preparation

Scope of Phase 1:

• ½ day to 1 ½ days principal or associate lawyer
• 3 days litigation clerk.

Key activities include:

• Preparing Documentary Productions – compiling and producing all evidence in the clients’ possession control or within their power relevant to any issue in the case (and providing to opposing counsel).
• Preparing Discovery Plan.
• Analyzing the other party’s Documentary Productions for deficiencies.
• Communications with the other parties about scope of Documentary Productions of each side.

Discovery Phase 2: Witness Examination/Questioning

Scope of Phase 2:

• 4 to 5 days principal or associate lawyer
• Plus time by litigation clerk.

Key activities include:

• Preparing for and conducting witness examinations/questioning plus preparation and discussions.
• Preparing clients for, and attending, their witness examinations/questioning plus preparations and discussions.
• This can include disbursements for court reporter charges at addition cost for attendance at the examination/questioning or preparation of transcripts of witness examinations/questioning.

Discovery Phase 3: Answering Undertakings Given at Witness Examination/Questioning

Scope of Phase 3:

• ½ day to 1 ½ day principal (and associate lawyer where needed)
• 1 ½ days to 3 days litigation clerk.

Key activities include:

• Answering undertakings given at examinations/questioning for discovery to provide further evidence.
• Reviewing the other side’s answers to undertakings.
• Dealing with refusals given by each side at examinations for discovery.

Discovery Phase 4 (if applicable): Resolving Disputes About Documentary Productions or Refusals

Scope of Phase 4:

• 1 to 4 days
• Principal or associate lawyer and litigation clerk.

Key activities include:

• Disputes about scope of Documentary Productions and refusals given at examinations/questioning for discovery.

Mediation

Scope of mediation:

• 1 ½ to 3 days principal (and associate lawyer where needed)
• ½ day to 2 days litigation clerk.

Key activities include:

• Preparing mediation brief and attending one day mediation session.
• Meditator’s fees are charged at additional cost.

Note: mediation can take place at any time in the arbitration process, typically after the Discovery phases.

Motion/Application/Case Conferences

Key activities include:

• These can take place at any point in the arbitration process.
• Case conferences are with opposing counsel and arbitrator.
• Standard motion/application/application: 1-5 days*
• Injunction motions or motions for summary judgement: 7 to 20 days*

* This includes time for preparing for and attending witness examinations/questioning which can be significant.

Arbitration Hearing – this scope is for a 10-day hearing

Scope of a hearing:

• Preparation and trial attendance:
• 19 days to 25 days principal and associate lawyer
• 6 to 10 days litigation clerk.

Key activities include:

• Preparing all evidence and exhibits for the arbitration hearing, lining up witnesses, and preparing legal arguments and submissions.
• Preparing for arbitration hearing.
• Preparing opening submissions, witness examinations, closing submissions.
• Attending arbitration hearing.

Arbitrator’s fees (which are additional) are split between the two sides and tend to be significant, based on the arbitrator’s hourly rate and the length of all steps in the arbitration, in addition the arbitrator’s time to review documents and prepare reasons.