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Hoffer Adler LLP’s Legal Insight Series - Mediation and Arbitration Provisions in Franchise Agreements

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April 1, 2019

Part 3: Is Your Dispute Captured by Your Mediation/Arbitration Provision?

This is the third installment in Hoffer Adler LLP’s continuing Legal Insight Series focusing on mediation and arbitration provisions in franchise agreements. For Part 1 of this Series, click here; for Part 2, click here.

In this article, we consider the following question:

Is Your Dispute Captured by Your Mediation/Arbitration Provision?

As we discussed in our previous entries in this Legal Insight Series, it is not uncommon for franchise agreements to contain provisions requiring the parties to mediate or arbitrate their disputes.

A well-drafted mediation/arbitration provision will set out what kind of disputes are to be mediated or arbitrated (instead of being litigated) with a level of detail that is at once (i) sufficient enough that it minimizes the likelihood that the parties will disagree about whether a future dispute is captured by the provision; but (ii) general enough that the provision can be applied to the wide, and sometimes unanticipated, variety of disputes that are capable of arising.

Language typically found in a mediation or arbitration provisions within franchise agreements might stipulate that a dispute should be referred to mediation or arbitration if that dispute is “in relation to any matter whatsoever” in the franchise agreement, or “any dispute arising out of or relating to” the franchise agreement.

Ontario courts have shown an inclination to interpret such broad language as reflecting an intention by the parties to submit most disputes to arbitration or mediation. In the case of arbitrations (as opposed to mediations), that interpretation is consistent with a legislative policy that favours arbitration over litigation, where the parties have so agreed.

Where the mediation or arbitration provision in the franchise agreement contains such broad language, contractual disputes such as those regarding the remedy of rescission, or the payment/non-payment of royalties, or renewals/extensions of the franchise agreement are examples of disputes that would likely need to be arbitrated or mediated.

By contrast, disputes that fall outside of the four corners of the agreement might need to be litigated. Examples include the enforcement of intellectual property rights, or disputes in which one of the parties seeks to restrain the other from doing something (injunctive relief), or disputes regarding the enforcement of non-competition provisions. Indeed, many mediation or arbitration provisions specifically exempt those kind of disputes from the requirement to mediate or arbitrate.

When a dispute arises between the franchisee and the franchisor, it is not unusual for the parties to disagree about whether that dispute is captured by the applicable mediation or arbitration provision. In the case of arbitrations, that dispute is often left to the arbitrator itself to resolve first, and not the court. This is again in keeping with the legislative policy of favouring arbitrations over litigation where the parties have expressed a contractual intention to do so. We will have more to say about what happens when the parties disagree about the scope of the mediation or arbitration provision itself in our next installment in this Hoffer Adler LLP Legal Insight Series.

If you are a franchisor or a franchisee involved in a dispute with the other party, you should carefully review the language of the mediation or arbitration provisions contained in your franchise agreement to see whether that dispute must be resolved through mediation, arbitration, or litigation before the courts. If you have any questions or concerns about any such arbitration or mediation provisions, please contact Hoffer Adler LLP for a consultation.