Dispute Resolution Clauses and Complaint Procedures to Check Before Joining a Franchise in Japan

When considering a franchise, few prospective franchisees read as far as the procedures for handling disagreements. Yet the designated points of contact and courts can affect the time and cost involved in resolving a problem. Before opening your business, review the contract’s clauses on discussions, agreed court jurisdiction and arbitration as part of assessing whether the franchise network is right for you.

1. Distinguish your rights as a franchisee from the roles of advisory bodies

A franchisee is a legally independent business, not a branch of the franchisor. If you question the franchisor’s policies, you need to treat the matter as an issue between contracting parties, rather than simply an internal enquiry. Being an independent business does not, however, mean that you must accept every demand the franchisor makes.

Japan does not have a single law governing all aspects of franchise agreements. Instead, general legislation such as the Civil Code applies alongside regulations relevant to the particular business. Article 11 of the Small and Medium-sized Retail Business Promotion Act requires franchisors operating a ‘specified chain business’ under that Act to provide prospective franchisees with written disclosures and explanations before entering into a contract. Not all franchise agreements fall within its scope.

Transactions between franchisors and franchisees are also subject to the Antimonopoly Act. The Japan Fair Trade Commission’s guidelines on franchise systems under the Antimonopoly Act apply beyond the retail and food service sectors. If a franchisor uses a superior bargaining position to impose unjustifiable disadvantages, its conduct may constitute an abuse of that position. However, an unfavourable term is not automatically unlawful: the specific circumstances must be assessed.

The key distinction is that contacting a regulator about a suspected legal breach and seeking a refund or damages are separate procedures. Consulting or submitting a report to the Japan Fair Trade Commission does not, in itself, terminate the contract or secure compensation for the franchisee. Monetary claims and questions about a contract’s legal effect need to be considered through negotiation or civil proceedings.

2. Check what ‘discuss the matter first’ means in practice

A clause stating that the parties will ‘discuss any uncertainties in good faith’ does not, on its own, tell you who will respond, by when or how. Before joining, compare the contractual provisions with the franchisor’s actual arrangements for handling concerns.

Useful questions to ask the franchisor include:

• If discussions with your usual contact do not resolve the issue, who is the next point of contact?
• Are complaints or objections formally accepted by email?
• What arrangements are in place for acknowledging receipt and indicating when a response can be expected?
• Who has authority to decide issues about responsibility for costs?
• Which department handles representations made through a lawyer or another adviser?

Without response deadlines, an issue may remain ‘under review’ while bills and obligations continue to fall due. Check whether an unresolved matter can move to discussions between those with decision-making authority, or to a procedure involving a third party, after a specified period.

Pay particular attention to what happens while discussions are ongoing. Challenging a charge does not automatically suspend your payment obligations or deadlines for performance. For example, whether you can pay only the undisputed portion of an invoice depends on the contract and any agreement reached. Seek professional advice before deciding to withhold payment.

If a clause requires discussions before you can take further steps, check how those discussions must be initiated and what brings them to an end. Ask a lawyer whether the wording could require you to wait even when urgent action is needed to protect your rights.

3. Read court jurisdiction and arbitration clauses separately

A clause stating that ‘the district court with jurisdiction over the franchisor’s head office shall have exclusive agreed jurisdiction at first instance’ specifies the court in which a claim is to be brought. The word ‘exclusive’ is intended to restrict proceedings in other courts. The clause’s precise effect and any exceptions need to be checked against its wording and the circumstances of the case.

If the designated court is far away, consider not only travel costs but also time away from your outlet and meetings with your legal representative. Even where some steps can be handled online, the entire process may not be possible remotely. Before joining, there may be scope to negotiate an alternative, such as allowing proceedings where your outlet is located rather than only where the franchisor is based.

By contrast, a clause stating that disputes will be ‘finally resolved by arbitration’ is not simply a promise to hold discussions. Arbitration under Japan’s Arbitration Act resolves disputes through a decision by arbitrators selected by the parties or through an agreed selection process. Where a valid arbitration agreement exists, access to a court hearing on the merits of a dispute covered by that agreement is generally restricted. An arbitral award has the same effect as a final and binding court judgment, and there is no ordinary appeal process for challenging its substance as there is in litigation.

If the contract contains an arbitration clause, check at least the following points.

Item to check	What to establish before joining
Disputes covered	Does the clause cover only monetary claims, or also the contract’s validity and termination?
Arbitration institution and rules	Which institution will administer the arbitration, and which procedural rules apply?
Seat and language of arbitration	Which legal system is relevant, and will translation costs arise?
Appointment of arbitrators	How do the franchisor and franchisee participate in selecting arbitrators?
Costs	What filing fees, arbitrators’ fees and advance payments are required?

Distinguish mediation and conciliation, where a third party helps the parties reach agreement, from arbitration, which resolves the dispute through a decision. Do not rely solely on an assurance that you can ‘consult a third party’: establish which mechanism the contract actually requires you to use.

4. Assess practical access, costs and evidence

Evaluate dispute resolution clauses not just by the name of the procedure, but by whether you could realistically use it. If disputing even a small claim requires proceedings in a distant location or a substantial advance payment, the cost of asserting your rights may become a significant burden.

If the contract says that ‘the franchisee shall bear the costs relating to disputes’, check which costs this covers. Court fees, lawyers’ fees, arbitration costs and the franchisor’s investigation expenses are different categories. Establish whether costs arise only if you lose, whether merely starting proceedings triggers liability, and whether the franchisor’s costs are included. Do not assume the clause is fully enforceable simply because it appears in the contract; seek a professional assessment.

You also need a reliable way to preserve evidence. Keep contracts, disclosure materials, itemised invoices, records of enquiries sent and the franchisor’s replies in a form that identifies their dates and versions. For notices available only through the franchisor’s online portal, check how you can lawfully save copies in case you lose access.

When seeking legal advice before joining, bring the full set of contract documents rather than just the dispute resolution clauses. Their interaction with provisions on notices, termination, payment and confidentiality can change how you should respond in practice. Obtain an estimate of the advice costs and prepare a list of your priority questions to make the review more focused.

Practical takeaway: Before signing, prepare a one-page summary of who to contact, what happens if discussions stall, where a dispute would be heard and which costs you would have to bear. If you cannot explain a clause in your own words, do not simply accept it: ask for an explanation and have it checked by a professional.