Franchising in the Philippines: Review the Dispute Resolution Process

Before buying a franchise in the Philippines, read how disagreements will be resolved—not just how the business will get started. The franchisor’s obligations may be clear, but enforcing them can be difficult if hearings take place far away, the process is unclear or the costs are high. Good relationships matter in franchising, but both parties also need a practical way to protect their interests when problems arise.

1. Understand which laws will govern a dispute

The Philippines has no single comprehensive law covering every aspect of franchising. That does not mean the sector is unregulated. The Civil Code provides the main legal basis for contractual obligations. The Intellectual Property Code, or Republic Act No. 8293, is also important, particularly where a franchise involves the transfer of operational know-how and the licensing of intellectual property rights.

Executive Order No. 169, series of 2022, sets minimum requirements for franchise agreements with franchisees that are micro, small or medium-sized enterprises. These include a dispute resolution mechanism with provision for voluntary mediation under Republic Act No. 9285, the Alternative Dispute Resolution Act.

It is important to understand the difference between two processes:

• Mediation: An impartial mediator helps both parties reach an agreement. They do not simply decide who is right.
• Arbitration: An appointed arbitrator or tribunal hears the dispute and issues a decision that is generally binding, subject to the applicable law.

Do not treat these as interchangeable. They give you different levels of control over the outcome and can involve different costs.

2. Map out the process from complaint to hearing

Ask for the full draft contract and all accompanying rules before making a decision. Look for separate clauses covering notices, breaches, periods for remedying breaches, mediation, arbitration and court proceedings. These provisions may be linked even if they appear in different parts of the document.

Prepare a one-page checklist answering the following questions:

• Who should receive a complaint, and at which postal or email address?
• When is a notice deemed to have been received?
• How many days are allowed for a response or for a breach to be remedied?
• Must the parties’ representatives hold discussions before proceeding to mediation?
• Who will select the mediator or arbitrator if the parties cannot agree?
• What happens next if there is no response or discussions fail?

Have the process reviewed for fairness as well. For example, if you face a strict deadline for responding but the other party has no time limit, your complaint could drag on indefinitely. Propose clear deadlines for both parties.

3. Check the venue, costs and fairness

A sentence stating that “all disputes will be referred to arbitration” is not enough. The agreement should clearly identify the administering institution, applicable rules, number of arbitrators, venue, language and allocation of initial costs. If it refers to a separate set of rules, ask for a copy.

For agreements involving technology transfer, Section 88.1 of the Intellectual Property Code is important: Philippine law must govern their interpretation and, if litigation arises, the venue must be the appropriate court in the place where the licensee has its principal office. Section 88.3 contains separate requirements for arbitration. Exceptions may be available under Section 91, so ask a lawyer to review any departure from these requirements and its legal basis.

Request an up-to-date fee schedule from the named institution. Include legal fees, evidence preparation, travel and time away from managing the business in your estimate. Do not assume that the losing party will always pay all the costs; this depends on the contract, rules, law and decision.

4. Protect operations and preserve evidence

Clarify what will happen to the business while a dispute is ongoing. Will deliveries, access to systems and payment of undisputed charges continue? Is there a process for obtaining urgent protection if operations are at risk? Have these points reviewed before signing, rather than after an essential service has been cut off.

Do not simply stop all payments in response to a complaint. Doing so could amount to a separate breach. Seek legal advice first on the appropriate steps to take.

Keep organised copies of the contract, notices, receipts, reports and correspondence. After an important discussion, send a written summary and ask for confirmation. Record the date, what happened, the remedy sought and the other party’s response.

Practical reminder: Before buying, make sure you know whom to complain to, when to act, where the dispute will be heard and how you will fund the process. Clear rights need to be backed by an enforcement process you can realistically use.