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Is Mandatory Mediation the Future for Resolving Franchise Disputes?

Updated: May 16, 2023


Mediating franchise disputes

Mediation is by far the best way to resolve a franchise dispute that cannot be settled by negotiation. It is far less expensive and time consuming and it offers both parties other benefits that are specific to their respective positions.


For a franchisor, a trial of the facts in open court carries considerable risks. An adverse decision would be damaging to the brand and set a precedent that could be followed by other franchisees. This could even result in a class action by a group of franchisees with similar issues.


For a franchisee, usually with less ability to fund a lengthy trial, the greatly reduced cost of mediation is very attractive. Similarly, the franchisee probably does not have the same ability to devote the huge amount of preparation time that is required to fight a lengthy trial.


For both parties, a mediation is much less confrontational and provides a more amicable resolution from which the parties can continue to work together, if that is what they wish to do.


During the calendar year 2019/20, there were nearly 400,000 cases received through the court system in England and Wales alone. However, the latest available figures, a report conducted in July 2018 by the Centre for Effective Dispute Resolution estimates that 12,000 civil mediations were conducted in that year. Whilst it is difficult to precisely ascertain the number of mediations versus court cases in the UK per annum, it would seem that less than 1% of court cases in England and Wales make use of mediation as a form of alternate dispute resolution (‘ADR’). These are approximate figures, but they do demonstrate the opportunity for increased mediation as a way to assist the increasing burden on the courts. Franchise disputes represent a small fraction of the total, but it is still a significant number.


For many years there has been much debate and many papers written around Alternative Dispute Resolution (ADR) schemes becoming mandatory. Included in these schemes are conciliation, arbitration, and mediation. Both mediation and conciliation potentially result in a win/win situation and allow the disputing parties to reach an agreement themselves. However, conciliation does also offer an expert opinion on the subject matter which can be used as a resolution. Arbitration is a hearing that will conclude with a judgment, potentially resulting in a win/lose situation. For this reason, almost all franchise agreements contain a clause that stipulates that mediation should be the primary method of resolving a dispute. This is mirrored by the advice of the British Franchise Association (BFA) and the International Franchise Association (IFA)


Whilst the court system currently utilises mediation, there is clearly scope and capacity for the increased use of mediation and it begs the question – should mediation, particularly in a franchising situation, be mandatory?


Although mandatory mediation has caused controversy in the UK for quite some time, the courts acknowledge that they need assistance to relieve the pressure of being underfunded and under resourced, however, the UK has failed to reach a consensus on mandatory mediation and how to make mediation mainstream.


The Civil Justice Council interim report of 2017 indicated some progress for ADR in areas such as the NHS Resolution mediation schemes, money claim online service, personal injury small claims and boundary dispute mediation through the property law association.


The report recommends three main areas of improvement, as follows:

· Awareness – education of the public on the benefits of ADR

· Availability - creation of procedures for ADR to consider affordability in various types of dispute and claim sizes; and

· Encouragement – courts are to encourage ADR as permanent practise.


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In July 2019, Her Majesty’s Courts and Tribunals Service (HMCTS) announced mandatory mediation is to be conducted for cases under £300 via online communications as an opt-out system. This is a step in the direction for mandatory mediation, but it is a softer approach with an opt-out option. This could, however, prove to be the start of implementation of the scheme for higher value and civil cases.


In 2013 family law cases in the UK achieved a 70% rate for successful settlement of voluntary mediations, a year later it was made compulsory with certain exceptions. The Family Mediation Council (FMC) is a not for profit organisation and in August 2019 carried out a survey of its mediators. They sampled 2161 mediations conducted over 6 months that had utilised the Mediation Information and Assessment Meetings (MIAM’s) process and the result showed a 70% settlement rate in whole or part agreement. This shows that even with the increase in the number of mediations they are still maintaining a high success rate (“Family Mediation: Conversations worth having”, 2020). This provides hope for the implementation of mandatory mediation in other sectors of law in the UK.


Technology will have a major impact on mediation with the introduction of Online Dispute Resolution (‘ODR’). This has the capacity to become woven into the legal system which may assist the plight of mandatory mediation. This may be a valuable practise if it decreases the costs involved for parties to attend a mediation.


Franchisee researching how franchises work

Education is also an important consideration for the future, to overcome the pre-conceptions and prejudices of the public with regards to participating in mediation. Technology could provide easier access to reach and educate the public with the benefits and understanding of using mediation as an alternate to litigation. This would help pave the way to mediation becoming mainstream. The public embracing mediation as an alternate to litigation would then have an impact upon lawyers having a greater acceptance to mediation.


With regards to small claims, a Manchester County Court has achieved a 90% rate of success in settlement with the use of telephone mediations. Whilst it may be considered an unorthodox mediation, the success rate speaks for itself, as quoted by the Mediation in civil justice: international evidence review of 2019.


With both the use of telephone and the increased use of video mediations during the COVID-19 pandemic, there would seem to be a greater argument for distance mediations, at least for certain cases, especially for franchise disputes, it is far more cost effective for both parties.

 

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