Arbitrate or mediate - don't litigate!

Alternative Dispute Resolution is all the rage. Settling a dispute outside court proceedings is now seen by many franchisors and their franchisees as not only desirable but more readily achievable than previously. Recent reforms to our legal system now encourage protagonists to settle their disputes by means of mediation or arbitration. Traditionally, there have been four principal mechanisms for resolving disputes: Conciliation, Mediation, Arbitration and Litigation.

Conciliation involves the intervention, at the invitation of the parties in dispute, by an independent person who is chosen by them, with a view to conciliating between them with the object of resolving the dispute. The success or otherwise of conciliation depends largely on the desire of the parties to achieve an amicable outcome. The conciliation process is usually very informal - the conciliator using his or her common sense and skills in steering the parties towards a common goal. This method of settling disputes has been most notably successful in industrial disputes.

Mediation is a method by which usually an independent person is appointed by a third party like the British Franchise Association in a case involving one of its members, whose job it is to tease out common ground between the parties with a view to promoting a settlement between them.

Unlike an arbitrator, a conciliator or mediator makes no decision. A conciliator may offer an opinion or solution to the parties 'Why don't you two agree to do this' or 'that really isn't reasonable'. A mediator will do neither. His/her skills will be in making the parties aware that they need to compromise. The mediator's main task is to facilitate the making of compromises that lead to a settlement. It is the parties themselves who often come up with the solution.

Again there is no decision, and there is no persuasion. The parties reach agreement by themselves. Usually they will leave with less than they intended when they started the process but what is important is that if they agree to settle, they do so because they want to. They don't have to settle and not all mediations end in settlement - some fail.

Mediation has now become formalised in terms of procedures and a code of practice which mediators (who have usually received training) adhere to. Mediation, as a method of resolving disputes is becoming increasingly common, particularly as a consequence of the reform of our court procedures. The British Franchise Association also offers a mediation service, thereby encouraging franchisor and franchisee to resolve their differences amicably. Mediation is often used by parties as a first attempt at resolving their problems failing, which they may proceed to arbitration or litigation.

It has been generally accepted that arbitration is less costly than litigation, particularly if one arbitrates under a scheme such as that established by the bfa. Arbitration is usually quicker than litigation because the parties do not have to succumb to the long waiting lists of our court system. Arbitrators will usually suit the convenience of the parties and will attend at a time and place which suits them.

The ability of the parties to choose an arbitrator also overcomes one of the major drawbacks of litigation. A judge appointed to hear the case may not be 'au fait' with the type of matter under dispute, whereas it should be possible to appoint as arbitrator, someone who has the necessary experience to understand the problem.

In my view, however, the greatest advantage of using a system of dispute resolution other than litigation as a mechanism for resolving disputes is that it can enable the parties to continue in their business relationship not only during the process, but also after it has been concluded. This is something which seldom happens in litigation, which tends to be acrimonious with the result that it erodes the underlying relationship between the parties concerned. Under conciliation, mediation or arbitration there is an infinitely greater chance that the business relationship of the parties will survive.

So far as enforcement is concerned, in the event of a party refusing to comply with an arbitration order, or the terms of a mediation settlement, English law makes provision for arbitration awards to be enforceable by the courts.

The most serious drawback to conciliation, mediation or arbitration is that neither the conciliator, mediator nor arbitrator has the power to grant injunctions. This is an invaluable remedy and one that can be swiftly obtained. However the Court will not grant such a remedy (prior to conciliation, mediation or arbitration) to any party if the contract provides that in the event of any dispute, the parties will conciliate, mediate or arbitrate. If both parties agree in a franchise agreement to conciliate, mediate and/or arbitrate in the event of a dispute, then they must do so.

Flexibility

One should not overlook the fact that conciliation, mediation and arbitration provide flexibility for the parties. The parties can choose not only the arbitrator, but can also set down the procedures to be followed and the powers to be given to the arbitrator.

Indeed, in the United States, arbitration is increasingly seen as a serious alternative to litigation, particularly in California, where Californians have taken to hiring retired judges and renting court rooms literally to conduct a court hearing in private! Although the judges don't come cheap, when one considers the speed with which the matters are dealt with and the saving of lawyers' fees as a consequence, I am assured that the litigants find the arrangement very cost-effective!

bfa schemes

Some years ago the British Franchise Association, recognising the need for franchisors to resolve their disputes quickly, cheaply, privately and with the minimum amount of delay, adopted an arbitration scheme designed specifically for franchisors and franchisees. This scheme has now been revised with a few to simplifying it so the more franchisors are encouraged to use it.

Arbitration obviously does not suit all cases, but franchisors and franchisees should be aware of arbitration as a medium for resolving disputes in general and of the existence of the bfa Arbitration Scheme in particular.

The bfa has also established a Mediation Scheme in a form which is designed to encourage its members and franchisees to use it. Full details of these Schemes can be obtained from the British Franchise Association.