Franchise disputes: where can you enforce your rights?

Joining a franchise network means entering a long-term business relationship, but it is still worth checking in advance how a serious disagreement would be resolved. Even a clear contractual promise offers little protection if enforcing it is disproportionately expensive or difficult. Before buying a franchise, look not only at the rights you will have, but also at where, in which language and through what procedure you can enforce them.

1. Distinguish between governing law and the forum for disputes

Governing law and dispute resolution clauses often appear next to each other towards the end of an agreement. They address two separate questions: the first determines which country’s law governs the agreement, while the second determines which court or tribunal can hear a dispute.

Even if you operate your business in Hungary, an international agreement may specify foreign law or require disputes to be heard by a foreign court. The validity and effect of these clauses cannot be established simply by looking at where the business operates. Nor does a choice of law mean that all mandatory Hungarian or EU rules can be set aside.

Hungary has no standalone, comprehensive franchise act, but the relationship is not unregulated. Sections 6:376–6:381 of Act V of 2013, the Hungarian Civil Code, govern franchise agreements. Where Hungarian law applies, the general rules on contracts also apply, including duties to cooperate and provide information. The relevant procedural rules must also be considered when pursuing a claim through the courts.

There is no standard franchise disclosure document with prescribed content that all franchisors must provide, nor is there a general franchise-specific waiting period. Ask for the dispute resolution terms well in advance: the day you sign should not be the first time you see them.

2. Identify exactly who can decide a dispute

Check whether the draft agreement specifies a court or arbitration. Arbitration is not simply a negotiation process: a tribunal acting under the parties’ agreement can issue a binding decision. It should not be confused with mediation, which aims to help the parties reach an agreement.

Prepare a short list of questions for your lawyer’s review:

• Exactly which court or arbitral institution does the clause name?
• Is its jurisdiction exclusive, or can you bring a claim elsewhere?
• Which disputes does the clause cover: only fee payments, or all contractual claims?
• In which language will proceedings take place, and where will you need to attend in person?
• Which procedural rules apply, and what options are available to appeal or challenge a decision?

If there is an arbitration clause, ask your lawyer to check the seat of arbitration, the number of arbitrators and how they are appointed. The options for challenging an award may differ from those available in court proceedings; do not assume you can challenge it in the same way as an ordinary court judgment.

Vague wording is a risk in itself. If the agreement merely refers to “international arbitration”, ask for clarification. A dispute over which court or tribunal has jurisdiction can itself consume time and money.

3. Calculate the practical burden of enforcing a claim

A favourable contractual right offers real protection only if you can realistically enforce it. Proceedings abroad may involve the cost of local legal representation, translation, interpreting and travel. For arbitration, you should also examine institutional fees and arbitrators’ fees.

Do not assume that winning will automatically mean recovering everything you have spent. Responsibility for costs may depend on the procedural rules, the decision and whether the money can actually be recovered from the other party.

Ask for an initial cost estimate for two realistic scenarios: a small disputed fee claim and a more substantial claim arising from a failure to fulfil contractual obligations. You do not need a precise litigation budget, but you do need to understand which claims might become uneconomic to pursue in the specified forum.

If the franchisor or the company providing security is based abroad, discuss enforcement of any judgment or award with your lawyer too. Winning a case is not the same as receiving the money. The location of the liable party’s assets matters, as do any further steps needed to enforce the decision.

Review the related documents together. If the franchise agreement, a separate services agreement and a parent company guarantee specify different forums, a single problem could lead to several parallel proceedings.

4. Ask for a workable negotiation process before signing

A good dispute resolution clause does not necessarily start with litigation. A process requiring a written complaint, discussions between senior representatives and then, if necessary, mediation can be useful. However, it should have clear deadlines and a designated person responsible on each side.

Specify what information a complaint must contain to trigger discussions, who must respond and when the process is deemed unsuccessful. A commitment to “seek an amicable resolution” with no deadline offers little practical help if your losses are mounting in the meantime.

Do not assume that negotiations automatically pause all legal deadlines. Have their effect on limitation periods and other deadlines for bringing claims checked separately. There should also be suitable provision for situations where urgent legal protection is needed and you cannot wait for the full negotiation process to run its course.

Practical takeaway: before signing, summarise the governing law, the court or tribunal with jurisdiction, the language of proceedings, likely costs and the deadline for negotiations on a single page. If any of these points is unclear, seek clarification and an independent legal review first.