Franchise disputes: jurisdiction and governing law in your agreement

When choosing a brand, it is easy to focus on fees and the requirements for opening an outlet, while overlooking the agreement’s final provisions. Yet a clause on courts, arbitration or governing law can determine how much it will cost to enforce your rights. Trust matters within a franchise network, but it also needs clear rules for resolving disputes. Check them before signing, particularly if the other party is a foreign company.

1. Separate governing law from where disputes are resolved

Governing law determines the rules used to assess the agreement, while a jurisdiction clause identifies where a case should be heard. These are two separate issues. Choosing Polish law does not automatically mean that every dispute will be heard by a court in Poland. Equally, specifying a Polish court does not always mean that only Polish law will apply.

In Poland, a franchise agreement remains an ‘unnamed contract’: there is no separate statute comprehensively regulating this relationship. The Polish Civil Code is central, including the principle of freedom of contract under Article 353¹ and the provisions on performing contractual obligations and liability for breach. Depending on the case, competition, intellectual property and personal data protection rules may also apply.

In international relationships, the choice of law for contractual obligations is governed primarily by the Rome I Regulation. Freedom to choose the governing law is not, however, a way to exclude all mandatory rules. Court jurisdiction in civil and commercial matters within the European Union is generally governed by the Brussels I Recast Regulation, subject to its scope and exceptions.

Ask a lawyer to answer three questions separately: which law governs the agreement, which court can hear a dispute, and where a judgment can be enforced. A general assurance that the document ‘complies with European law’ is not enough.

2. Check the real cost of using the specified court

The agreement may refer disputes to the court with jurisdiction over the franchisor’s registered office. For someone running a single outlet, this may mean additional logistical costs. A cross-border dispute may also require translations and a lawyer familiar with local procedures.

Where Polish procedural rules apply, the parties can agree on a court’s territorial jurisdiction within certain limits. They cannot, however, freely alter every jurisdictional rule, particularly rules on exclusive jurisdiction. The precise wording of the clause therefore matters more than the heading ‘dispute resolution’.

Before buying a franchise, establish:

• whether the specified court is intended to have exclusive jurisdiction or whether the clause allows other options;
• whether the clause covers all disputes connected with the agreement or only certain claims;
• whether a change in the location of the franchisor’s registered office could change where proceedings take place;
• whether similar provisions appear in any additional agreements forming part of the relationship.

One starting point for negotiations may be to retain the jurisdiction determined by the general legal rules, rather than automatically favouring the location of one party’s registered office. In a cross-border relationship, consider specifying Polish courts. The final wording should take account of where the parties operate and where their assets are located, not just the convenience of travelling to a hearing.

3. Do not confuse arbitration with mediation

Mediation helps the parties reach a settlement; arbitration results in a decision by an arbitral tribunal. An arbitration clause is therefore more than an invitation to have a calm discussion. It can prevent a dispute covered by the clause from being heard by a state court if the other party successfully raises the relevant objection.

Arbitration can offer specialist arbitrators and a flexible procedure, but you should not assume it will always be cheaper or quicker. Before agreeing to it, check the name of the arbitral institution, its rules and its schedule of fees. Also establish the seat of arbitration, the language of the proceedings, the number of arbitrators and how they will be appointed.

Ask for a cost estimate based on a sample claim proportionate to the size of your investment. Include institutional fees, arbitrators’ fees, legal advice and representation, and translations. A state court’s review of an arbitral award is limited: an application to set it aside is not an ordinary appeal allowing the entire case to be reheard.

If the agreement requires mediation first, agree on how the mediator will be chosen, how costs will be shared and a deadline for completing the attempt. The procedure should not indefinitely prevent you from pursuing a claim or obtaining urgent legal protection.

4. Agree on a process before a dispute arises

A good clause covers what happens well before a claim is filed. It is worth specifying who should be notified of a breach, how delivery of the notice will be documented and how long the other party has to respond. Also define when the matter should be escalated from the outlet’s support contact to someone authorised to agree a settlement.

Do not assume that simply sending a complaint or starting negotiations stops the limitation period from running. The effects of each step must be assessed under the applicable rules. Similarly, the mere existence of a dispute does not automatically entitle you to withhold fees or stop performing your obligations under the agreement.

Before signing, retain a complete copy of the agreement and any rules or terms it incorporates by reference. If the relationship involves several companies, check which one you can bring each particular claim against and whether the various documents direct disputes to different courts.

Practical takeaway: before paying to join a franchise network, establish not only what rights you have, but also where, how and at roughly what cost you can enforce them. Clarify and amend any unclear dispute resolution clause before signing.