Buying a franchise: how will you resolve contractual disputes?

When buying a franchise, it is easier to talk about opening an outlet than a potential dispute. Yet a clause at the end of the agreement can determine where you can enforce your rights, in which language and at what cost. In a responsible franchise community, a clear process for resolving disagreements is not a sign of mistrust, but a safeguard for the working relationship. Check it before paying the initial franchise fee or taking on long-term commitments.

1. Distinguish the governing law from where disputes will be resolved

Look for two separate clauses in the agreement: which law applies and who decides a dispute. Choosing Slovenian law does not, in itself, mean that a Slovenian court will hear the dispute. Equally, naming a foreign court does not necessarily clarify all the rules that will apply to the agreement.

When considering an offer from a foreign brand, ask for clear answers to the following questions:

• Does the agreement specify Slovenian or foreign law?
• Does it provide for court proceedings or arbitration?
• Is jurisdiction exclusive?
• In which language will the agreed proceedings take place?
• Which language version of the agreement prevails if there are discrepancies?

Do not settle for an explanation that this is standard wording used in every country. Ask a lawyer to check the validity and effect of the clauses in your particular circumstances. In cross-border agreements, choosing a governing law does not necessarily exclude all mandatory rules relevant to operating in Slovenia.

2. Understand Slovenia’s legal framework

Slovenia has no specific franchising act, compulsory franchise register or dedicated statutory disclosure document for buying a franchise. A franchise agreement is an innominate contract — one not specifically defined as a contract type in legislation — so its terms and the general rules of law carry particular weight.

The Obligations Code (Obligacijski zakonik, OZ) is relevant to negotiations, performance of obligations and the consequences of breaches, including the principle of good faith and fair dealing. The Civil Procedure Act (Zakon o pravdnem postopku, ZPP) is relevant to proceedings before Slovenian courts, while the Arbitration Act (Zakon o arbitraži, ZArbit) governs the arbitration framework. Cross-border relationships also require consideration of the relevant European and international rules on governing law, jurisdiction and recognition of judgments and awards.

A franchisee generally enters into the agreement for business purposes. Do not therefore assume that you have the same protection as a consumer making a private purchase.

Franchise associations’ codes of conduct can provide a useful benchmark for relationships within the franchise community, but they are not a state-run dispute resolution process. Check whether the association concerned actually offers help with disputes, who can access it and whether the outcome is binding. Membership alone is no substitute for legal protection through the courts.

3. Agree a workable route from complaint to decision

A good contractual clause should first allow the problem to be clarified quickly. Propose written notice, a designated address for service, a responsible contact and a reasonable deadline for a response. Also specify what the notice must contain: a description of the breach, supporting evidence and the action requested.

The next step could be a discussion between people authorised to reach an agreement, followed by mediation. In mediation, a neutral person helps the parties reach a settlement but does not normally decide the matter for them. In arbitration, by contrast, arbitrators decide the dispute; it is not simply informal mediation.

The process should have a clear endpoint. A clause requiring the parties to try to reach agreement first, without setting deadlines, can create further complications. Also ask your lawyer how negotiations affect the time limits for bringing claims. Do not assume that an ordinary exchange of emails suspends them.

Preliminary steps should not prevent urgent legal relief where there is a risk of harm that would be difficult to remedy. Ask a legal adviser to check how such action can be taken.

4. Assess the costs, not just the court’s distance

A foreign court or arbitration is not automatically a poor choice. However, you need to understand whether the agreed route is workable for your business. In addition to legal representation, check potential costs for translations, experts, travel, court fees and arbitration fees.

If an arbitration institution is named, ask for its exact name and the rules referred to in the agreement. Check the seat of arbitration, how arbitrators are appointed and how the initial costs are allocated. The grounds for challenging an arbitral award are limited, so do not treat arbitration as ordinary court proceedings with the same opportunities to appeal.

Run a practical test: if a dispute arose over an incorrectly calculated fee, how much time and money would taking action require? Ask for an indicative estimate, not a promise about the outcome. A contractual right has less practical value if enforcing it is beyond your business’s means.

5. Make arrangements for operating during a dispute

Check what happens during a disagreement to supplies, access to the ordering system and other services essential to your operations. Pay particular attention to clauses allowing services to be suspended immediately because of a disputed invoice.

Try to agree a way of handling disputed and undisputed amounts separately, and a procedure to follow before essential services are restricted. These are contractual safeguards, not automatic rights. Do not stop making payments or meeting other obligations without legal advice, as doing so could create an additional breach.

Keep the agreement, schedules, notices and evidence that you have met your obligations. After an important conversation, send a brief written summary and ask for confirmation of what was agreed.

Practical takeaway: before signing, you should be able to explain whom you report a problem to, who decides it and how much enforcing your rights could cost. If the answer is unclear, ask for clarification and an appropriate amendment to the agreement.