Buying a franchise: planning ahead for dispute resolution

Joining a franchise network is built on trust, but disagreements can still arise. Whether the issue concerns inadequate support, a disputed invoice or differing interpretations of an obligation, the contract should provide a workable route to resolution. Before buying a franchise in France, examine the dispute resolution clauses as carefully as the financial commitments. They may determine where, how and at what cost you can defend your rights.

1. Identify the required steps if a disagreement arises

Start by finding all the provisions covering complaints, conciliation, mediation, arbitration and the court with jurisdiction. These may be spread across the contract and its annexes. Then establish the order in which they apply: must you first give notice of the dispute, meet a network representative and then attempt mediation before taking legal action?

In France, franchise agreements are governed, among other things, by general contract law and commercial law. Pre-contractual disclosure is regulated by Articles L. 330-3 and R. 330-1 of the French Commercial Code, under the framework known as the ‘Doubin Law’. Where the relevant conditions are met, the pre-contractual disclosure document and draft agreement must be provided at least twenty days before the agreement is signed or any advance payment is made.

Use this period to have the dispute resolution process reviewed. It does not provide a general right to withdraw after signing.

Prepare a checklist covering:

• who should receive the initial complaint and in what form;
• the mandatory steps and their deadlines;
• who is responsible for appointing the mediator or arbitrator;
• where the proceedings will take place and how costs will be shared;
• the options for taking urgent action.

If any stages of the procedure are unclear, seek written clarification before committing.

2. Make the amicable settlement stage workable

Mediation allows the parties to seek an agreement with the help of an independent third party. The mediator does not decide the dispute: their role is to facilitate discussion. This approach can preserve the business relationship, particularly where the disagreement concerns an operational problem that can be put right.

However, check that the clause does not turn the search for agreement into an indefinite wait. Ask for a deadline for arranging the first meeting and a rule establishing when the attempt is considered unsuccessful. Also clarify how the third party will be chosen if the parties cannot agree on whom to appoint.

Someone within the network may help facilitate an initial discussion, but their involvement is not the same as independent mediation. Ask what authority they have to propose a solution and bind the franchisor to it.

Depending on its wording, a mandatory prior conciliation clause may make a court claim inadmissible if that step has not been followed. Have its effect checked. Nor should you assume that simply submitting a complaint suspends the limitation period for bringing a claim: the effect on these time limits depends on the process used and the applicable legal conditions.

Finally, the franchisee is acting here in a business capacity. This contractual mediation should not be confused with consumer mediation, which is intended for customers acting as consumers.

3. Compare court proceedings and arbitration without assumptions

A clause specifying a distant court may create additional travel and logistical burdens. Under French law, a clause departing from the usual rules on territorial jurisdiction is valid only if, among other requirements, all parties entered into the agreement in their capacity as traders and the clause is displayed very prominently in the agreement entered into by the party against whom it is invoked, in accordance with Article 48 of the French Code of Civil Procedure.

Do not therefore assume that the clause will apply in every case simply because it appears in the contract. Have its applicability to your circumstances checked.

Arbitration is different: one or more arbitrators issue an award that determines the dispute. It is not merely assisted negotiation. Examine the arbitration rules referred to in the contract, the number of arbitrators, how they are appointed, and the location and language of the proceedings.

Ask for an estimate of the arbitrators’ fees, administrative charges and advance payments required. Add your own legal adviser’s fees. Arbitration should not be assumed to be cheaper or faster than court proceedings; the avenues for challenging the outcome also differ.

4. Protect your ability to act before signing

Put a practical scenario to your lawyer: a promised service is not being delivered, but the invoices keep arriving. What notice should you send? What evidence should you keep? What remedies remain available if urgent action is needed?

Have it made clear that the amicable settlement stage does not prevent you from seeking urgent or protective measures available under the law. Also check that the requirements for initiating proceedings and the time limits are balanced between franchisor and franchisee.

Keep the signed contract, its annexes, correspondence and evidence of how contractual obligations have been fulfilled. If a disagreement arises, do not unilaterally stop making payments without legal advice: doing so could create a further breach of contract.

Key takeaway: before signing, you should be able to explain clearly the first step to take, the likely cost of the process and the route available in an emergency. Any significant uncertainty should be resolved in writing.