Avoid The Courts! Mediate

The British Franchise Association has been promoting its mediation services for some time with little or no success. There have been very few mediations involving franchisors and franchisees under the BFA scheme.

This is surprising because mediation is a relatively cheap and fast way of resolving disputes. It may seem odd that as a lawyer, I should be so mad keen on mediation, but I am, because I have seen it working.

One of my clients had been having an 'interesting' time with its franchisees because the franchisor's business has grown quickly and, the demands on its franchisees has also substantially increased. No longer did the franchisor want people able to operate small businesses - rather it was looking for experienced business executives able to run and operate large businesses. Some franchisees had found this a struggle. At the same time the franchisor recognised that in this particular market sector technology was going to become the main differentiator and this imposed very substantial burdens on franchisees in terms of taking on, adapting and paying for expensive technology. As a result of these changes, the franchisor had sought to change its franchise agreements to reflect the way that the franchisor wished to operate its business.

The process of changing franchise agreements was difficult but all but one of its franchisees accepted the change. This franchisee was the franchisor's most 'difficult' franchisee - all franchisors have a franchisee where the file of correspondence and complaints is significantly larger than that of any other franchisee. This particular franchisee felt he had been hard done by, because he hadn't received a bonus entitlement set out in his old franchise agreement and hadn't received any bonus entitlement under the revised agreement because he hadn't entered into the new agreement.

It doesn't matter the rights and wrongs - both parties were determined that they were in the right and the dispute was souring the relationship between them. The particular franchisee, whilst difficult, was also an important and successful franchisee.

The dispute had rumbled on for some time with a considerable number of letters being written between solicitors. The BFA had been involved but had decided that it would not require the franchisor to participate in arbitration.

The franchisee's solicitors tenaciously indicated that they would pursue their claim, but enquired whether the franchisor would participate in mediation. I wouldn't be giving away any trade secrets when I indicated that the franchisor wasn't keen. It feared that this would involve it in further expense and that some sort of settlement would be imposed on them. I explained that that wasn't how mediation worked. Mediation was not like arbitration or litigation where someone decided who was right and who was wrong. A mediator had no power to do this. There would be no settlement if one or both of the party's didn't want to settle it.

The franchisee's solicitors pointed out that under new litigation rules if one of the parties refused mediation, then even if they won the litigation/arbitration, the courts would not necessarily award them their legal costs. The usual principle is that the losing party pays between 60-70% of the winning parties costs. This is a big incentive and increasingly whatever franchisors may think about mediation, they will be obliged to participate if, for no other reason, than to ensure that they can recover their costs when successful in litigation.

A mediator was agreed between the parties - one of the better known mediators in the UK, who had a very successful record in resolving disputes. My client reluctantly agreed but had no confidence that the mediator would be able to resolve the dispute because they were simply not going to 'give in'.

We met on a summer's day in London. The day didn't start well because the representative for the franchisor had slipped in the shower that morning, broken a finger and had to go to casualty in Manchester and so, proceedings began a couple of hours late. The first meeting was a meeting of both parties where both put their views and their case. We seemed a long way apart, but it emerged that at one stage in the twelve months before the mediation, my clients had offered to resolve the dispute, but the franchisee had not taken up the offer.

Whilst things had undoubtedly moved on in the subsequent twelve months, it wasn't clear to anyone why, if an offer was attractive to the franchisor twelve months previously, it couldn't be equally attractive now, obviously with some modification because of the changed circumstances. This became the basis of discussions and negotiations.

After the preliminary meeting we went off to our separate rooms and the mediator tirelessly took messages, comments, concerns and issues between the parties. On occasions the parties would meet together without their lawyers, sometimes all of us would meet. Slowly we edged closer and closer together until finally we had a deal. The mediator was adamant that we wouldn't leave until a settlement agreement had been produced and signed. We were all tired but it was agreed that this is what we would do.

I don't know whether either the franchisor or the franchisee thought that it was a good deal, but at least it was a deal and the parties could stop wasting money on lawyers and could concentrate on making their trading relationship a success.

Three months on the franchisor was in no doubt that notwithstanding its misgivings and notwithstanding the fact that it had attended the settlement without seriously thinking that a settlement would emerge, a settlement was produced to everyone's satisfaction.

I think that the message is clear - mediation really does work. It gets you thinking about how to resolve a dispute in a wholly different way to establishing who is right and who is wrong. It needs to be used more and more in franchising.