Buying a Franchise: Check the Dispute Resolution Procedures

Before buying a franchise in Indonesia, imagine receiving an incorrect invoice or being accused of a breach you dispute. Who should you raise your objection with, how long should you wait for a response, and how will the matter be decided? In franchising, good relationships need clear procedures to support them. Checking the dispute resolution arrangements before signing the contract helps you assess whether you can genuinely enforce your rights as a franchisee.

1. Understand the legal framework and distinguish requirements from proposals

Indonesia specifically regulates franchising through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It covers the franchise offering prospectus, franchise agreement, the parties’ rights and obligations, and the Franchise Registration Certificate, known locally as the STPW. Dispute resolution is one of the matters that must be addressed in a franchise agreement.

However, simply including a clause headed ‘Dispute Resolution’ does not guarantee a usable procedure. A statement that ‘disputes shall be resolved through mutual consultation’ does not explain what happens if those discussions fail. Check whether the contract sets out consistent stages, deadlines and a final forum for resolving disputes.

If the contract specifies arbitration, pay attention to Law No. 30 of 1999 on Arbitration and Alternative Dispute Resolution. In principle, a written arbitration agreement removes the district courts’ jurisdiction to hear disputes covered by that agreement. Choosing arbitration is therefore not a mere formality that can be ignored when a dispute arises.

Distinguish legal requirements from protections that still need to be negotiated. For example, a guarantee that access to systems will not be blocked immediately when you dispute an invoice is not an automatic right simply because you have bought a franchise. Such protection needs to be expressly written into the contract.

2. Establish a complaints process you can actually use

Ask for the draft contract and all annexes governing complaints. Work through a simple example: you receive an invoice that does not match your outlet’s transaction records. A good procedure should allow you to raise an objection without immediately entering costly legal proceedings.

Check at least these five elements:

• Recipient of notices: the job title, address and official email address of the person authorised to receive objections.
• Form of notice: whether an email is sufficient or a hard-copy letter is also required.
• When time limits start: whether they run from dispatch, receipt or a specified confirmation.
• Escalation process: when the matter moves from operational staff to someone with decision-making authority.
• Limit on discussions: when the parties may move on to mediation or the final dispute resolution forum.

Avoid procedures that depend entirely on the consent of the party you are complaining about. For example, discussions might be deemed complete only once the franchisor issues a closure letter, with no deadline for doing so. This could leave your objection unresolved indefinitely.

Propose realistic deadlines and a requirement to respond in writing. The length of those deadlines is a matter for negotiation, not a uniform requirement for every franchise. Also ensure that each party must notify the other of any change to its address for notices.

3. Assess the costs and implications of the final dispute resolution forum

The choice of forum affects costs, timing and your ability to attend proceedings. Do not stop at asking whether the forum is legally valid; also ask whether you could afford to use it when the amount in dispute is relatively small.

If the contract chooses litigation, ask for an explanation of the agreed court and the basis of its jurisdiction. If it chooses arbitration, make sure the institution, procedural rules, place of arbitration, language and process for appointing arbitrators are clearly specified. Avoid wording that appears to refer the same dispute to both the courts and arbitration without a clear division between them.

Ask a legal adviser to help estimate costs using the applicable rules or fee schedules rather than guesswork. Consider filing fees, arbitrator or mediator fees, legal representation, travel, translation and your time away from the outlet. Also check how the contract allocates costs between the parties.

Arbitral awards are final and binding; the available routes for challenging them are not the same as an appeal against a court judgment. Do not accept claims that arbitration is always cheaper or faster. Its suitability depends on the procedure, the complexity of the case and your needs.

4. Protect evidence and keep the outlet operating during a dispute

The right to raise an objection is of limited use if transaction records are held only in a system you could lose access to at any time. Before buying, ensure there are arrangements for accessing and downloading relevant outlet records while maintaining confidentiality and protecting personal data.

Negotiate how obligations will be handled while a dispute is ongoing. For example, the contract could distinguish between the undisputed portion of an invoice and the amount being challenged. Do not assume that raising an objection automatically suspends payment or allows you to stop meeting other obligations.

Also discuss notice requirements and the opportunity to remedy an alleged breach before restrictions are imposed. For urgent situations, such as safety risks, the contract can provide clear and proportionate exceptions. The aim is not to remove quality controls, but to prevent sanctions being imposed without transparency.

Keep the signed contract, annexes, correspondence, invoices and a chronology of events in an orderly manner. Test the draft clause by working through a hypothetical dispute with an independent legal adviser.

Practical step: before making any payment, make sure you can explain the objections process, its deadlines, the final dispute resolution forum and the likely costs. If any of these remain unclear, request written amendments before signing.