The British Franchise Association (BFA), which is the self-regulating trade body for franchising in the UK, is shortly to amend its code of ethics. The role of the fundamental principle of fair dealing that is intrinsic to the code as it currently stands is not expected to be diminished. This principle of fair dealing extends to disputes arising between franchisor and franchisee.
The BFA is currently in the process of drafting a new arbitration scheme that will govern disputes between franchisors and franchisees. The new scheme will be compulsory for all BFA members and it is anticipated that it will have to be provided for in all franchise agreements from 1 January 2018.
This new arbitration scheme should not deter a potential claimant from pursuing a complaint as the use of arbitration as a means of dispute resolution is a well used alternate dispute resolution in place of formal legal proceedings through the courts.
In many respects, arbitration is very similar to litigation through the courts. An arbitrator will be appointed by the BFA to manage the arbitration in accordance to the rules of the new scheme (which are yet to be published). It is anticipated that the new scheme will contain different ‘tracks’, enabling smaller claims to be resolved quickly and in a streamlined manner with separate rules governing larger and/or more complex claims. This approach should enable the costs incurred by parties in resolving disputes to be proportionate and reasonable compared to the value and complexity of the disputes.
The arbitrator, who is much like a judge in court proceedings, will consider the issues in dispute together with the supporting evidence and will ultimately make an award. Any award will be final and binding on the parties, which is akin to a judgement in formal court proceedings. A party in whose favour an award is made will be entitled to enforce that award in the usual way as in court proceedings. Potentially, there may be some scope to appeal an award, but this is likely to be limited.
It is not expected that this new arbitration scheme will replace the BFA’s current first instance response to dispute resolution between franchisor and franchisee by supporting the re-establishment of positive communication between the parties, potentially by way of the BFA’s independent mediation service. Indeed, the new scheme might codify the manner in which disputes are escalated, which would culminate in the commencement of arbitration.
Mediation differs from arbitration in that is a less formal way of resolving disputes but yet retains the benefits of confidentiality. Mediation is, in its basic form, an informal way of bringing the disputing parties together for the purposes of negotiation.
If mediation between the parties is not successful and the dispute remains unresolved, it is anticipated that the new arbitration scheme will come into play. It is hoped that the new arbitration scheme will provide a cost effective and binding dispute resolution process that will provide tailored redress to those in the franchise sector rather than the ‘one size fits all’ process offered by the courts.