using negotiation and mediation to resolve

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INT E RN AT IONA L F RANC HI SE DISP UT E S

USING NEGOTIATION AND MEDIATION TO RESOLVE INTERNATIONAL FRANCHISE DISPUTES Jeffrey A. Brimer, Faegre Baker Daniels LLP, Denver, Colorado, USA, Jennifer Dolman, Osler, Hoskin & Harcourt LLP, Toronto, Ontario, Canada, Michael K. Lindsey, Paul Hastings LLP, Los Angeles, California, USA, Dr. Karsten Metzlaff, Noerr LLP, Berlin, Germany This article discusses the use and effectiveness of forms of non-binding dispute resolution to resolve problems that arise in international franchise relationships. It addresses the methods and structures for drafting provisions in international franchise agreements, procedures and techniques for conducting non-binding dispute resolution, and regional differences in contract provisions and procedures for conducting arbitration and mediation.

1.

Definition of and differences between negotiation and mediation to resolve disputes ∗

1.1.

Background of mediation and negotiation

percent by some estimates. 1 Coupled with the fact that mediation services report settlement rates ranging between 65 percent and 85 percent, 2 disputants have been increasingly drawn to 1 Jonathan D. Glater, Study Finds Settling is Better Than Going to Trial, NEW YORK TIMES (Aug. 7, 2008).

The significant and increasing cost of civil litigation has been the principal impetus for parties to a dispute to seek alternative means of resolving that dispute. A variety of alternative dispute resolution (“ADR”) techniques is available, with the most popular including arbitration and mediation. Although estimates vary widely, the vast majority of civil litigation does settle, between 80 and 92

2

Peter R. Silverman, Mediation: Good, Bad, or it Depends?, BLUE M AU M AU (May 20, 2012), available at http://www.bluemaumau.org/mediation_good_bad_or_it_dep ends. For example, the Franchise Mediation Program operated in collaboration with the International Institute for Conflict Prevention and Resolution reports that, since its inception in 1994, the Program has achieved “a success rate of approximately 80 percent … in mediations in which the franchisee agreed to participate, with many more cases resolved without intervention of a mediator.” International Institute for Conflict Prevention and Resolution, THE FRANCHISE MEDIATION P ROGRAM 3 (2007), available at http://www.cpradr.org/Portals/0/Resources/ADR%20 Tools/Clauses%20&%20Rules/The%20Franchise%20Mediati on%20Program%20and%20Procedure.pdf.

∗

This article was originally prepared as a paper given at the 29th Annual IBA/IFA Joint Conference on International Franchising in Washington DC, USA, 7-8 May 2013.

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International Journal of Franchising Law Volume 11 – Issue 6 – 2013 © Claerhout Publishing Ltd.


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“One of the most essential differences between mediation and arbitration is the confidentiality of the mediation proceedings.”

mediation, particularly if their efforts to negotiate a resolution of disputes has proven ineffective. The term “mediation” has historically been defined as a non-binding process in which a neutral third party facilitates the disputants’ resolution of a conflict by themselves rather than through court or other adjudication. 3 However, the term can also encompass a wide variety of other techniques, including facilitation, in which an impartial third party assists in managing communications between disputants and facilitating their development of a resolution; early neutral evaluation, in which the impartial third party assesses the parties’ cases and renders a non-binding opinion on the parties’ respective positions; non-binding arbitration, in which the third party collects information and renders an advisory opinion; and summary trial, in which a third party conducts a mini-trial, listening to evidence and witnesses and rendering a non-binding decision. 4 This paper will focus on the more traditional concept of mediation.

1.2.

Differences between negotiation/ mediation and arbitration

a.

Mediation is private; arbitration is not

party’s “bottom line” for settlement of the dispute. It is important to mediating parties that these communications not be used against them in any subsequent litigation or arbitration. For that reason, mediation proceedings are cloaked in confidentiality by a variety of statutes, court rules and rules promulgated by the organizations rendering mediation services. For example, the International Dispute Resolution Procedures of the American Arbitration Association provide as follows: 10. Confidentiality Subject to applicable law or the parties’ agreement, confidential information disclosed to a mediator by the parties or by other participants (witnesses) in the course of the mediation shall not be divulged by the mediator. The mediator shall maintain the confidentiality of all information obtained in the mediation, and all records, reports, or other documents received by a mediator while serving in that capacity shall be confidential.

One of the most essential differences between mediation and arbitration is the confidentiality of the mediation proceedings. In mediation, a party can of course make arguments as to the merits of its position; such arguments tend not to be confidential in the sense that the other party will likely have heard those arguments before, in preparation for the mediation or in the opening portion of the mediation. A mediating party, though, may also share with the mediator the party’s confidential assessment of its own and its opponent’s cases, commercial or financial concerns affecting the party’s position, other sensitive information that could impact the outcome of the mediation and the

The mediator shall not be compelled to divulge such records or to testify in regard to the mediation in any adversary proceeding or judicial forum. The parties shall maintain the confidentiality of the mediation and shall not rely on, or introduce as evidence in any arbitral, judicial, or other proceeding the following, unless agreed to by the parties or required by applicable law:

3

See Allison E. Gerencser, Alternative Dispute Resolution has Morphed into Mediation: Standards of Conduct Must be Changed, 50 FLA. L. REV . 843, 847 (1998.)

4

Jason M. Murray & Nancy Gilsan Gourley, As Good As It Gets: The Rise of Mediation Options, 26 TH ANNUAL F ORUM ON F RANCHISING (Oct. 2003).


a.

Views expressed or suggestions made by a party or other participant with respect to a possible settlement of the dispute;

b.

Admissions made by a party or other participant in the course of the mediation proceedings;

c.

Proposals made or views expressed by the mediator; or

d.

The fact that a party had or had not indicated willingness to accept a proposal for 5 settlement made by the mediator.

5 American Arbitration Association, International Mediation Rule 10, INTERNATIONAL DISPUTE RESOLUTION P ROCEDURES.

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While statutes and various rules ensure the confidentiality of information provided during the course of the mediation as well as the results of the mediation, it would be naïve to think that the end result of the mediation would not ultimately be

dispute. On the other hand, such mandatory disclosures may discourage settlements after actions have begun, particularly if the settlement terms could be viewed as a significant concession or acknowledgment of wrongdoing by the franchisor.

“… the results of arbitration proceedings are frequently widely disseminated and indeed may be the subject of mandatory disclosures under various countries’ pre-sale franchise disclosure laws.”

disseminated throughout the franchise network, particularly if the result significantly favored either the franchisor or the franchisee. The principal effect of the statutes and rules, though, is to ensure that the mediation proceeding remains confidential at least with respect to any subsequent proceedings in court or before an arbitral tribunal.

b.

Arbitration has formal rules; mediation has no rules

By contrast to arbitration proceedings, which have detailed rules governing the conduct of the proceedings as well as pre-hearing discovery, the hallmark of mediation is its free-wheeling nature. A mediator is charged principally with guiding the parties to a resolution of their dispute. For example, apart from rules dealing with confidentiality and the impartiality of the mediator, the American Arbitration Association’s International Dispute Resolution Procedures charge the mediator as follows:

By contrast, the results of arbitration proceedings are frequently widely disseminated and indeed may be the subject of mandatory disclosures under various countries’ pre-sale franchise disclosure laws. For example, the U.S. Federal Trade Commission’s trade regulation rule entitled “Disclosure Requirements and Prohibitions Concerning Franchising” 6 requires a franchisor to disclose, under Item 3 of its franchise disclosure document, certain civil actions and related settlements. 7 For this purpose, the term “action” includes “complaints, cross claims, counterclaims, and third-party complaints in a judicial action or proceeding, and their equivalents in an administrative action or arbitration.” 8 Note that this disclosure requirement is not limited to “actions” commenced in the U.S.

The mediator shall conduct the mediation based on the principle of party self-determination. Selfdetermination is the act of coming to a voluntary, uncoerced decision in which each party makes free and informed choices as to process and 9 outcome.

Further, despite the encouragement of some courts and commentators, 10 it is quite unusual for any discovery to be conducted prior to mediation. In this day of enormously expensive electronic discovery, whether in court proceedings or arbitrations, this

Mandatory disclosure requirements of this nature encourage mediation before any “action” is commenced, as Item 3 does not require the disclosure of settlements reached at that stage of a

9

American Arbitration Association, International Mediation Rule 7(a), INTERNATIONAL DISPUTE RESOLUTION P ROCEDURES. 10

6

16 C.F.R. Part 436.

7

16 C.F.R. § 436.5(c)

8

16 C.F.R. § 436.1(a)

See, e.g., State v. Carter, 658 N.E. 2nd 618, 623 (Ind. App. 1995) (“we urge parties to conduct at least limited discovery prior to mediation so that they have an enhanced understanding of the liability and damages involved in the case, and therefore, they are better able to make informed decisions as to which issues, if any, can be conceded.”)

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factor alone makes mediation a very attractive alternative for the resolution of disputes.

arbitrations or other proceedings, could develop at least talismanic importance within the system.

c.

f.

Mediation is non-binding; arbitration is binding

As a corollary to the issue discussed in the preceding paragraph, the adversarial nature of arbitration tends to polarize the parties, with one branded the winner and one the loser at the end of the proceeding. By contrast, although the parties entering mediation come in feeling the rectitude of their own positions, they tend to be less adversarial in the mediation and, if the mediation is successful, exit with a settlement which might be superior to, or at least more flexibly designed than, any resolution which could have been achieved through arbitration.

An essential attribute of mediation is that it is nonbinding, while arbitration typically results in a decision that is binding on the parties. A mediator, while entitled to express opinions and to encourage the parties’ settlement, typically cannot issue a decision that would bind the parties. This attribute of mediation can be viewed as beneficial, as the parties are encouraged to work toward their own development of a resolution of their dispute. It could also be viewed as disadvantageous, for a failed mediation merely produces additional costs and delays for the parties. d.

The potential impact of the two types of ADR on the parties’ long-term relationship should be obvious. This difference in impact is particularly important in the international franchising sphere, where a franchisee may be the sole representative of the franchisor’s brand in a country or significant part of a country.

Mediation is inexpensive; arbitration is not

Mediations are typically conducted in a one or twoday session, requiring some preparation by counsel as well as attendance at the mediation by officers authorized to settle the dispute. This certainly entails some costs for each party, but that cost is trivial in comparison to the cost of preparing for an arbitration hearing, the pre-hearing discovery conducted by each party and the inevitable skirmishing between the parties with respect to procedural matters. The true cost of each proceeding must also include the cost of executives’ time devoted to preparing for and attending the proceeding, and that is generally much more significant in arbitration than in mediation. e.

1.3.

Binding vs. non-binding provisions

In assessing mediation or negotiation provisions in franchise agreements, parties frequently wrestle with the issue of whether the mediation and/or negotiation process should be made binding or mandatory on both parties as a precursor to more formal proceedings (litigation or arbitration) or whether, at the time of a dispute, the process should be optional or the parties should be given an election to opt out of the process. On one hand, if mediation or negotiation is a process made mandatory by the parties’ agreement, it may be ineffective if one party is “dug in” or otherwise not motivated to pursue a good faith settlement of the parties’ differences. On the other hand, if the process is not mandatory for dispute resolution, each party may be discouraged from seeking mediation or negotiation with the other party because of a fear that it could appear weak to the other party or uncertain about the merits of its own case. In any event, exceptions are frequently included in mandatory mediation/negotiation contract provisions to permit either party to seek

Mediation provides no precedent; arbitration might

Because the result of a successful mediation is a uniquely negotiated compromise between the parties, mediation tends not to have any precedential value. On the other hand, in an arbitration, a third party renders a judgment with respect to franchisor or franchisee practices or conduct, and that judgment could well translate into a “win” for one of the parties to the proceeding. That “win” could be communicated throughout the franchise system and, while technically not binding in subsequent


Relative impacts on long-term relationship

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“… involving issues of policy or judgment which may have some impact on the parties’ long-term relationship.”

extraordinary relief in the form of a court injunction or similar process in appropriate circumstances, such as when necessary to protect a party’s intellectual property or public health or safety. 11

1.4.

Negotiating disputes

a.

General parties’ positions. In addition, the franchisee is typically seen as the “weaker” party in the relationship, and this weakness could be enhanced, to the detriment of the ultimate resolution of the dispute, if the pre-dispute negotiation requirement entails expensive travel by the franchisee to, for example, the franchisor’s home office.

As an alternative to mediation or other ADR processes, many parties prefer to pursue, and many franchise agreements expressly require, the parties’ good faith negotiation of pending disputes. Franchise agreements frequently require such negotiation as a precursor to the commencement of any more formal dispute resolution processes. Occasionally such provisions expressly require escalation, or in other words attendance by senior executives of each party, with authority to bind the party, at the negotiation. Whether simple or more complex, such negotiation provisions are useful to force the parties to take a timeout before rushing headlong into arbitration or litigation. In the franchising context, such provisions tend to reinforce the parties’ long-term relationship by requiring face-to-face contact and dialogue before the formality, rigidity and cost of arbitration or litigation take hold. b.

c.

Negotiations may well be less suitable for disputes over straightforward matters, such as whether a contractually required payment has been made on time. Rather, negotiations appear best suited for situations involving issues of policy or judgment which may have some impact on the parties’ longterm relationship. Negotiation may also be useful to help facilitate communications where one party may not have fully appreciated the other party’s position expressed in emails or brief telephonic communications. The relatively informal setting of a negotiation session permits deeper and more detailed discussion.

Pros and cons of negotiating disputes

There are some perhaps obvious benefits associated with pre-dispute negotiation of franchise disputes. The first is that there tends to be minimal cost associated with any such negotiation. Travel may be required, but beyond that mandatory negotiation is merely an enhanced form of communication between the parties. Further, negotiation is part of what business people regularly do in the conduct of their ongoing businesses, so the procedure should not feel at all foreign to them.

1.4.

Mediating disputes

a.

General

The level of formality inevitably increases when the parties attempt to resolve a dispute through mediation instead of negotiation, if for no other reason than the presence of a third party in the mediation room. That third party necessarily enters the mediation room without the understanding of the franchise system and without knowledge of the history of the parties’ relationship that the franchisor and the franchisee share. However, the mediator also enters the mediation room without the baggage attendant to that historical relationship. Further, if the third party mediator is skilled, his or her presence can act as a damper for the emotions that

On the other hand, if the parties have become emotionally attached to their respective positions, or if one party is disinclined to act in good faith, a mandatory negotiation provision could well be a waste of time and indeed could further inflame the 11

Cases most suitable for negotiations

See, also, Section 3.6 of this paper infra.

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could cause flare-ups in or perhaps even the end of an unmediated negotiation. Mediation is not, however, a miracle elixir that will cure every ailment in a franchisor-franchisee relationship. Therefore it is worthwhile for the parties to consider carefully the extent to which mediation could contribute to or retard the ultimate resolution of disputes.

less attractive to one or both of the parties depending on the issues in dispute. Moreover, the process could be frustrating for a party seeking “the truth” or a confirmation of facts, as there is no procedure for assessing the credibility of witnesses or otherwise testing the “evidence” submitted by a party to the mediation.

b.

c.

Pros and cons of mediating disputes

The International Institute for Conflict Prevention and Resolution reports that successful mediations under its Franchise Mediation Program have involved a wide range of franchise issues including impact/encroachment concerns, underreporting of sales or other financial violations of the franchise agreement, development rights of the franchisee, termination or renewal of the franchise, and customer service concerns. 12 Given the nature of mediation, the process seems best suited to in-term disputes where the parties desire to work together in an effort to continue their relationship. If the issue in dispute is limited to a single franchisee, there may be a greater likelihood of success, as both parties may feel more inclined to compromise their

A mediator brings to the mediation a set of experiences different from those of the franchisor and franchisee. With that perspective, the mediator can ask questions and encourage the elaboration of statements or positions that the parties, if left to their own devices, might never pursue. The goal of such questions and encouragement is to improve the effectiveness of the parties’ communications with each other, their understanding of their own needs and concerns and of the other party’s, and their recognition of the consequences to each party of a failure to achieve a negotiated resolution. The mediator may also help the parties discover alternatives permitting a resolution on terms that the parties had never considered, or had briefly considered and dismissed, prior to the commencement of the mediation. In an international setting, a skilled mediator may recognize and help address cultural, linguistic, business practice or other differences that are impeding the parties’ unaided resolution of their dispute. In that role, the mediator may act in essence as a translator, but translating between the business and social expectations that may be fundamentally different between the home countries of the franchisor and franchisee. Coupled with the voluntary, non-binding, confidential and costefficient nature of mediation, the process seems better designed to bridge the gap that may exist in a transnational relationship than other, more formal and less flexible processes.

“Given the nature of mediation, the process seems best suited to in-term disputes where the parties desire to work together in an effort to continue their relationship.”

Of course, the principal downside of mediation is that, if unsuccessful, it could merely add time and expense to the resolution of the parties’ dispute. Further, the attributes of mediation discussed in Section 1.2 above – that the result is non-binding and creates no precedent – could make the process


Cases most suitable for mediation

12

International Institute for Conflict Prevention and Resolution, The Franchise Mediation Program 2 (2007), available at http://www.cpradr.org/Portals/0/Resources/ADR%20Tools/Cl auses%20&%20Rules/The%20Franchise%20Mediation%20P rogram%20and%20Procedure.pdf.

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positions. By contrast, if the dispute relates to issues of concern throughout the franchise system, the franchisor may feel greater limitations on its negotiating flexibility. 13

the franchisor; the franchisor’s ability to protect such rights is typically not encumbered by a mandatory mediation in advance of more formal enforcement efforts.

Other issues that may militate in favor of the use of mediation include the following:

Similarly, if the dispute arises out of a conceptual or product change for the entire franchised business, the nature of territorial protection provided throughout the system or promotional initiatives undertaken on a system-wide basis, it may make little sense for a franchisor to attempt to mediate with unhappy franchisees, particularly if such matters have previously been addressed with the system’s franchise council or similar representative body.

−

If either party is concerned about submitting the dispute to resolution before a foreign arbitral body or court, that party would be inclined to favor mediation.

−

If either party desires to avoid publicity concerning the dispute and its resolution, the confidential nature of mediation would make the process attractive.

−

If the dispute arises from cultural or linguistic differences between the franchisor and franchisee, a skilled mediator could, as noted above, help to bridge the gap by guiding the parties away from misunderstandings arising from those differences or inappropriate phrasings of the issues in dispute.

−

1.6.

Drafting provisions for negotiation and mediation in international franchise agreements

While master franchise, development and unit franchise agreements used in international franchising have many elements in common, the agreements for each system must be tailored to reflect the unique features of the system. This section of this paper is intended to provide specimens of the types of clause that can implement negotiation, escalation and mediation processes for dispute resolution. Each specimen is just that – a specimen – and should not be inserted into a franchise agreement without careful reflection on its utility for the particular franchise system, including perhaps obviously the requirements of applicable law in particular countries which might make the provisions unenforceable in those countries.

If emotional issues have stimulated the dispute, the relatively calm environment of mediation could, if managed effectively by a skilled mediator, help to defuse emotions and lead the parties to a business-driven resolution of their dispute.

On the other hand, if there are relatively straightforward issues involved – such as the computation and payment of a license or royalty payment – mediation may well constitute a waste of time and money, as the ground rules for such matters should not be difficult to understand. The franchisor may also deem mediation unsuitable for disputes involving trademarks or other proprietary rights of

a.

Negotiation provisions

The goal of a contractual negotiation provision is to require the parties to engage in good faith negotiations prior to the institution of more formal ADR processes. As noted in Section 1.4, there are benefits as well as potential detriments to any such provision. Following is a specimen of such a provision adapted from a live franchise agreement:

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Others view this issue somewhat differently, submitting that serious conflicts that could affect the entire franchising system should be solved via mediation in order to support an atmosphere of constructive dialog and debate within the system. See, e.g., Andreas Löwe, Mediation bei Franchise – Systemen – eine zukunftsweisende Streitschlichtung?, in Eckhard Flohr & Ludwig Gramlich, AKTUELLE ASPEKTE DES FRANCHISING IM IN - UND AUSLAND 105 (2009), available at http://www.qucosa.de/fileadmin/data/qucosa/documents/5916 /data/Seminar_Franchising-2009.pdf .

Negotiation of Disputes. The parties agree that it is in their best interest to resolve Disputes between them in an orderly fashion and in a consistent manner. Accordingly, the parties agree to use their best efforts and good faith to resolve

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of or relating to this contract, or the breach thereof.” 14 While this language would cover the bulk of the disputes likely to arise in an international franchise relationship, thought should be given to whether the clause should be expanded to include all claims of whatever nature arising out of that relationship.

and settle by direct, private negotiation any Dispute which arises under or in relation to this Agreement or which concerns the relationship created by this Agreement. [This may be augmented by a requirement of an in-person meeting, similar to the clause in Section 1.6(b) of this paper.] Both parties may seek the advice and assistance of legal counsel in connection with any such negotiation. If the parties cannot resolve and settle a Dispute by private negotiation within 60 days after one party gives the other written notice that a dispute exists, the parties mutually agree to submit the Dispute to non-binding mediation in accordance with Section __ hereof.

b.

The clause should also specify those disputes excluded from coverage, thereby permitting the parties to exercise other available remedies. The types of dispute typically excluded from mediation or, for that matter, any ADR provision include simple collection actions as well as proceedings in which one party seeks temporary or permanent injunctive relief (e.g., to protect trademarks, preserve trade secrets, prevent health hazards or restrain legal violations).

Escalation provisions

The goal of an escalation provision is to mandate the attention of senior executives for each party to a pending dispute before it becomes subject to more formal proceedings. A specimen of such a provision, adapted from a live agreement, follows:

The nature of the mediation

Escalation. In the event that the parties are unable to resolve any Dispute pursuant to Section __ hereof [the negotiation provision], before either party may invoke the provisions of Section __ [either mediation or arbitration], such party will pursue the following escalation process: At the initiating party’s request, by notice (the “initial notice”) to the other party, the Dispute will be elevated to the senior executives of each party responsible for the business operations of the party to which this Agreement relates. Such senior executives will meet in [specify venue] within thirty (30) days of the initial notice. Each party shall cause its responsible executive to meet with the responsible executive of the other party to discuss and attempt in good faith to reach a mutually satisfactory resolution of the Dispute. If the Dispute is not resolved within sixty (60) days after the initial notice, either Party may request mediation pursuant to Section __ [alternative: proceed directly to arbitration].

c.

Should the mediation be purely facilitative, more evaluative or some variety of these styles? The individual, type of individual or mediation service selected to conduct the mediation If a type of individual (e.g., attorney) is specified, the parties may also wish to specify the level of experience in the field of franchising or international franchising that is required of the mediator. While significant experience in a field most relevant to the particular franchise is generally considered positive, the parties should recognize that the pool of individuals with this level of experience could be quite small.

Mediation provisions

If instead of specifying the individual or type of individual to serve as mediator, the provision merely identifies the mediation service to be used, the provision should also specify the procedure to be used in selecting among mediators who may be proposed by the mediation service.

Contractual mediation provisions come in many shapes and sizes. While not all of the following elements are necessarily included in each contractual mediation provision, the essential elements which should at least be considered for inclusion in any such provision include the following: What type of dispute should be subject to mediation and what types should be excluded?

14

American Arbitration Association, GUIDE TO DRAFTING INTERNATIONAL DISPUTE RESOLUTION C LAUSES 5, available at http://www.adr.org/aaa/ShowPDF?doc=ADRSTG_002539.

The American Arbitration Association’s model clause covers “any controversy or claim arising out International Journal of Franchising Law Volume 11 – Issue 6 – 2013 © Claerhout Publishing Ltd.

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Although the following mediation provision does not address all of the issues discussed above, it is representative of the type of mediation clause frequently seen in international franchise agreements:

What rules and procedures will be applicable to the mediation? If a mediation service is specified, presumably its rules will apply, but the parties may wish to determine whether those rules should be supplemented or otherwise revised.

Mediation. Notwithstanding anything to the contrary in Section __ [the arbitration provision] of this Agreement, before either party ma y initiate any arbitration proceeding pursuant to Section __ of this Agreement, the parties undertake to attempt first to resolve the controversy or claim arising out of or relating to this Agreement (the “Dispute”) pursuant to mediation conducted in accordance with the [specified rules of the specified dispute resolution service provider] unless the parties agree on alternative rules and a mediator within 15 days after either party first gives notice of mediation. Mediation shall be conducted in the English language in [specified venue], and shall be conducted and completed within 45 days following the date either party first gives notice of mediation unless otherwise agreed to in writing by the parties. The fees and expenses of the mediator shall be shared equally by the parties. The mediator shall be disqualified as a witness, expert or counsel for any party with respect to the Dispute and any related matter. Mediation is a compromise negotiation and shall constitute privileged communications under [specified jurisdiction] and other Applicable Laws. The entire mediation process shall be confidential and the conduct, statements, promises, offers, views and opinions of the mediator and the parties shall not be discoverable or admissible in any legal proceeding for any purpose; provided, however, that evidence which is otherwise discoverable or admissible shall not be excluded from discovery or admission as a result of its use in the mediation. Notwithstanding anything to the contrary set forth in this Agreement, any party that fails to cooperate reasonably in scheduling and completing a mediation within 45 days after giving or receiving notice thereof shall be precluded from recovering costs, expenses, and/or prevailing party attorneys’ fees in any subsequent arbitration or other legal proceeding.

The location for the mediation Given the objective of mediation, it is not necessarily optimal for the franchisor to insist upon mediation in or close to the franchisor’s headquarters location. The language to be used in the course of the mediation In the international franchising context, it is frequently the case that the parties do not have a common mother tongue. This can frustrate the goal of mediation, as one or both of the parties may be unable to communicate successfully their issues and concerns. On the other hand, using in mediation a compromise language, one that is different from the “official” version of the parties’ agreement, could lead to confusion over the parties’ respective contractual obligations. Representatives of the parties to attend the mediation As with the escalation procedure discussed in Section 1.6(b), each party should be represented by an officer or other representative with full decisionmaking authority who is able to bind the party to an agreement, if the mediation should produce one. Without such representation, the mediation could be unsuccessful or at least punctuated by frequent breaks during which the on-site representative calls back to the office to obtain direction. On the other hand, if the dispute relates to a particular officer who has taken action provoking the dispute, it could be awkward at best to have that officer in the mediation room. In addition, while attorneys customarily participate in mediations, particularly when legal issues are involved, there may be circumstances in which attorneys should be left at home, in order to reinforce the true relationship between franchisor and franchisee.

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Procedures and techniques for conducting non-binding dispute resolution

2.1.

The negotiation process

a.

Preparing for negotiation

b.

Negotiation techniques

There are many different styles of negotiation, and no one approach is right for all lawyers and all situations. However, there are some helpful techniques that experts and practitioners agree can improve the chance of success of a negotiation.

Selecting a place for the negotiation

Be prepared.

The negotiation should take place where the parties are most comfortable. Some parties prefer meeting in a neutral location like a hotel or conference center. Other parties are less concerned about location and are happy to meet at one parties’ offices or at one side’s lawyers’ offices. Hopefully it will not be necessary for the parties to engage in a negotiation about where the negotiation should take place. If the parties have an ADR clause included in their franchise agreement, it may require the parties to first attempt to negotiate a resolution of their dispute in good faith, in which case the clause should include a place for negotiation.

Before meeting the other party, ensure that you have clearly outlined your goals and needs. Also take the time to determine the needs and goals of the other party so that you can approach the discussion effectively. Identify your preferred alternative if negotiations fail – often referred to as your BATNA (best alternative to a negotiated agreement) such that you have a point of reference for what you want to achieve during the negotiation and at which point you are willing to walk away. Determine what each party values and does not value, and then make concessions based on this list of priorities.

Determining the length of time to negotiate a dispute

This will create momentum in the negotiation and help foster an environment of trust and cooperation. Outlining each party’s values and goals will also facilitate understanding and focus the discussion on finding the middle ground.

There is no magic formula for how long it takes to negotiate a dispute. It really depends on the complexity of the issues and how many parties are involved. If the parties allocate too much time for a meeting, however, there may be no real hardbargaining until closer to the cut-off time. The parties may wish to have a series of negotiation meetings. If there’s going to be a break in the negotiation, it’s important that both parties agree to the break. A party shouldn’t walk away from a negotiation unless both sides have agreed to break or the party wants the negotiation to come to an end.

Take incremental steps and do not restrict the negotiation to one issue. Negotiations frequently fail because one or both parties ask for too much, which magnifies the space between the parties’ interests. One technique advocated by expert Stuart Diamond, author of Getting More. How to Negotiate to Achieve Your Goals in the Real World, is to use an agenda and break up the negotiation into many steps. Stuart recommends starting with the easiest issues to resolve and working down the list in order of difficulty, leaving the most contentious issues for the end.

Determining who participates in the negotiation It is important that decision-makers participate. No deal is going to get done in the absence of persons with authority. At the same time, it is important to have representatives attending who are familiar with the background and facts.


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“… it is very important to make sure that the settlement agreement is clearly drafted and that there is no uncertainty as to which party is to do what and when.”

parties. No negotiation is going to result in a settlement if one party decides to leave the meeting and is no longer willing to participate in the process. c.

Settlement agreements

The whole point of settling a dispute is to avoid litigation or arbitration. As such, it is very important to make sure that the settlement agreement is clearly drafted and that there is no uncertainty as to which party is to do what and when. No party who enters into a settlement agreement wants to end up litigating over issues surrounding the enforcement of the settlement agreement. The settlement agreement therefore needs to be comprehensive and easy to follow.

Always focus the discussion back to the goal of negotiation and problem-solving, instead of pointing fingers and attributing blame. Effectively and repeatedly articulating the goals of the negotiation can go a long way in moving the discussion forward and creating a ‘win-win’ environment. The most successful negotiators are able to put egos aside and show empathy for the other party’s concerns.

Once parties have reached an agreement, they are often in a rush to paper the deal quickly without thinking through how they will handle one party defaulting on its obligations under the settlement agreement. The parties should not leave the bargaining table without signing at least a memorandum of understanding that can be followed by a more detailed document, including a full and final release. Ideally, the parties should sign a complete settlement agreement before they leave their settlement meeting.

Ask lots of questions. Listening is a critical part of any negotiation. The opposing party will be much more likely to compromise and find a solution when they feel that their concerns and views are being heard and valued. It will also make the other party feel more engaged and receptive to your goals and ideas. In addition to building rapport, asking questions is the best way of gaining information about the other party’s goals and values.

2.2.

The mediation process

a.

Preparing for mediation

A checklist of issues to consider in planning for a mediation appears in Appendix A. The balance of this section explains and analyses many of those issues.

Use the other party’s words. Stuart Diamond recommends using the other party’s standards as one of the most powerful negotiation tools. People hate to contradict themselves, so if you give them a choice between being consistent with their standards and contradicting their standards, people often strive to be consistent.

Selecting a mediation organization and rules. Using the organization’s rules. It is not necessary to work with a specific mediation organization or to work with their rules, unless the parties have already agreed to do so by agreement. There are certainly a number of reputable outfits offering mediation services. These organizations typically offer a roster of mediators consisting of retired judges and commercial lawyers and litigators who mediate, and if the parties are interested, a set of mediation rules. Many parties also retain mediators who either

Be reasonable. Do not make extreme offers that will insult or scare off the other side. Often, lawyers think that they should make an offer that is far from their actual goal such that there is room for negotiation. However, this can do more harm than good by compromising trust and openness between the 13



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Ad hoc mediation. In some jurisdictions, mediation is mandatory, which means that until mediation takes place, a plaintiff cannot set a matter down for trial. The parties, however, can usually agree to conduct the mediation at any time. Whether mediation should be heard early or later on in a dispute really depends on the particular case.

practice on their own or who are in private practice at law firms and offer mediation services. Sitting judges are also increasingly participating in dispute resolution efforts and there is plenty of debate over whether it is advisable to get them involved. Judicial mediation is the subject of a report expected soon from the Ontario Bar Association’s Task Force on Judicial Mediation. 15

In the absence of mandatory mediation, mediation is still popular to resolve disputes outside of court. Parties who have been unable to settle disputes on their own or who believe that the assistance of a third party facilitator is required, will often agree to mediation at various stages of a dispute. The parties can choose to adopt the mediation rules of a particular mediation provider or are free to craft their own rules.

Before selecting a mediator, it is important for the parties to agree upon what it is they want the mediator to do. Do they want the mediator only to facilitate the mediation by asking questions and helping them explore different options for settlement? Or do they want the mediator to form an opinion as to what a judge or jury is likely to do if the matter doesn’t settle and make recommendations? Do the parties want the mediator to recommend a particular settlement amount? Maybe the parties want a mediator who facilitates and evaluates.

Selecting a Mediator – Role of mediator is to facilitate the negotiation process by assisting the parties in identifying the problems and the settlement options available to them.

If the parties want a mediator who is going to form a view on the merits of the case, then it will be important that the parties select a mediator who is an expert in the relevant legal field. If not, it becomes less important that a mediator has particular expertise in the substantive area.

A mediator is not a decision maker and cannot order any party to do anything. Some mediators, however, when asked by the parties, will evaluate the merits of a case. Since the mediator is a facilitator and not a decision-maker, the parties should select someone whom they believe will do the best job at helping them reach an agreement. The nature of the case and the personalities of the parties will often dictate which mediator should be selected. Sometimes it’s preferable to have a retired judge mediate the dispute as he/she can give the parties a good sense of what a judge is likely to do if the matter doesn’t settle and proceeds to trial. In other instances, where the parties need help with “thinking outside the box” in order to craft a business solution, a commercial lawyer may be the ideal mediator. Some mediators are too process-oriented and aren’t prepared to pull up their sleeves and do the heavy-lifting necessary to find a resolution. Prior to agreeing to a mediator, it’s always a good idea to canvass proposed mediators with colleagues and contacts. What is their track record? Are they effective mediators? Do they tend to favour one side over the other even though they’re supposed to be neutral?

Whether facilitative or evaluative, an effective mediator helps the parties communicate effectively (the mediator as messenger), identify and narrow issues, crystallize underlying interests and concerns, explore areas of agreement and consequences of not settling, develop a co-operative problem solving approach, and identify options “outside the box.” Modifying mediation rules. Since mediation should be a voluntary process, the parties should be free to agree to whatever mediation rules they like. If the parties already agreed in their franchise agreement to particular mediation rules, then those rules will apply unless the parties agree otherwise. If there are any issues about a particular rule, these should be raised with the mediator. Mediation works best when everyone involved is happy with the process. 15

Judy Van Rhijn, Crafting consistent approach to judicial mediation, LAW TIMES (April 8, 2013)


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mediation, including legal counsel, to sign a form of mediation agreement in which it is agreed that the process is confidential and that no information shared at the mediation, whether in writing or not, will be disclosed to any third party. The parties also typically agree that the mediator cannot be called as a witness at court to give testimony as to what was discussed at the mediation. The range of issues to be considered and addresses in any mediation agreement is suggested by the mediation rules appended as Appendix B.

Selecting a place for the mediation. Mediations frequently take place in the city where a proceeding has been commenced; but, the parties can agree to mediate anywhere. Mediations often take place at one party’s lawyers’ offices; but, some parties prefer a neutral location, even though the mediator is not deciding anything, in which case the mediation will be conducted at the offices of the mediator. Determining the length of time to mediate a dispute.

The mediation agreement should set out a number of important factors: the process of the mediation, costsharing arrangements, confidentiality issues, disclosure, the mandate of the mediator, the subsequent process if mediation is unsuccessful, and the mediator’s remuneration. The mediator usually provides the mediation agreement to counsel for the parties well in advance of the mediation. Any issues with the form of mediation agreement should be raised with the mediator and resolved in advance of the mediation.

The parties can agree to whatever length of time they want for the mediation but length is often dictated by the complexity of the case and the number of parties involved. If the parties agree to too short a time, e.g. a half-day, then they may find that they have not left themselves a sufficient window in which to resolve their disputes. If too much time is set aside for the mediation, e.g. two or more days, then the parties may find that they do not get down to the real business of settling their differences until closer to the end of the process.

The mediator also typically explains the process and emphasizes the importance of the attendees listening to each other and being respectful of each other. The mediator explains that the parties are not usually in the same room for very long but that before the parties separate into their own break-out/caucus rooms where they will be visited by the mediator, their counsel will have an opportunity to make opening statements (if they want to) and that any of the parties are free to speak. In some instances, the parties are unfortunately so hostile that they have no desire to be in the same room as one another for very long; in other instances, it is important that the parties have some time together before being separated too quickly. The mediator makes it clear to the parties that unless he/she is asked to disclose information one party shares with him/her to the other side, they should not expect the mediator to share the information with the other side.

Orientation: setting rules, a timetable; the mediator gives information about the process. Usually, there aren’t too many rules involved in mediation. The parties agree that the mediation session will be confidential and that the representative(s) of the party attending the mediation will have the authority to settle the matter at the mediation. Although it is preferable that the person attending the mediation on behalf of a party have settlement authority, if this is not possible, the person with settlement authority should at least be readily available by phone. Some mediators will want to discuss the mediation process and how the mediator conducts mediation sessions with counsel in advance of the mediation. The mediator may wish to discuss the nature of the dispute, the desired length of mediation, who should attend the mediation, and any information that may help the mediator understand why settlement has been difficult.

While in break-out rooms, the mediator will visit each side and seek to better understand their positions and what they are willing to do in order to resolve the matter. The mediator communicates separately with both sides, thereby avoiding the

Prior to the mediation getting underway, the mediator typically requires each person attending the 15



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direct adversarial relationship of the parties. On some occasions mediations end without the parties regrouping.

Considering that both parties are attending the mediation in the hopes of avoiding the costs associated with litigation and arbitration, they will not want to spend too much money on preparing for the mediation. As such, legal counsel should be pragmatic when it comes to preparing mediation briefs.

Mediation briefs - Definition of problems: each party has to explain which problems should be solved; creating a list that shows the order in which the problems will be discussed.

Some mediators ask that they get both sides’ briefs at least a week ahead of the mediation. Rather than the parties delivering mediation briefs at the same time, it is always preferable for the plaintiff to deliver its brief first, so that the defendant can provide a brief that is responsive.

The parties generally have quite a bit of latitude when it comes to their mediation briefs. Since the purpose of the mediation is to explore resolution and find a business solution, most of the time at the mediation is spent negotiating the matter. It is important, however that the parties set out their respective theories of the case in sufficient detail in a mediation brief in advance of the mediation session so that each party fully appreciates the case it will have to meet at trial and the mediator has a good sense of the issues. If the mediation is taking place after examinations for discoveries (depositions) have taken place, then the parties will already know a lot about each other’s position. If the mediation is taking place early on and possibly only after pleadings have been exchanged, it will be especially important that parties exchange key documents. No party wants to settle a case in an information vacuum. The mediation briefs should clearly set out issues in dispute, summarize each side’s position on the facts and law, and indicate their interest in settlement. If any settlement offers have already been made, those should be referred to in the brief. The mediation brief is a confidential document and cannot be used by the parties outside of the mediation.

Carving out disputes, interests and needs. It is helpful for counsel to speak in advance of exchanging mediation briefs to explore whether there are some issues they can agree upon in advance of the mediation. If there are no liability issues but the parties are only fighting over damages, then it is not necessary for the mediation briefs to canvass all of the liability issues. The focus should be solely on what are the plaintiff’s damages and why does the defendant say that these damages are remote or cannot be proven. Preparing for the mediation. Prior to attending a mediation, each party should have a clear understanding of its settlement goals and have a game-plan in place. No party should be thinking of settlement for the first time at the mediation. The mediator will fully expect that the parties have turned their mind to settlement prior to the mediation and will be looking to the parties to start making settlement offers. Each side should carefully review the other party’s mediation brief and conduct any necessary inquiries arising out of the briefs so that the issues can be fully addressed at the mediation.

“The mediation brief is a confidential document and cannot be used by the parties outside of the mediation.” International Journal of Franchising Law Volume 11 – Issue 6 – 2013 © Claerhout Publishing Ltd.

It is important that legal counsel fully explain to their clients in advance of the mediation how a mediation works and what they can expect to happen. Legal counsel need to work closely with their clients and ensure that they understand that they have a critical role to play in the process. 16

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b.


essential when a franchisor is in a dispute with an existing franchisee, and the ability to make each party feel empowered and recognized. The mediator is less concerned with analyzing the conflict itself and solving it substantively, but focuses more on providing the parties with opportunities to make decisions, empathize, and communicate with each other.

Mediation techniques

Juridical approach In some jurisdictions, courts will require the parties to mediate disputes prior to moving forward in litigation proceedings. In this situation, the rules and procedures for the mediation and time to complete the mediation will be set by the court. This can be particularly effective with complex facts that may not be understood fully by a jury.

This approach emphasizes that mediation is a cooperative, team effort. Unlike in litigation, mediation is all about making concessions and being flexible. No one wins and no one loses. This means that a different, non-antagonistic type of body language and dialogue is required. For instance, the Department of Justice Canada in its Dispute Resolution Reference Guide updated in July 200616 recommends the following body language: facing the person who is speaking; maintaining a comfortable level of eye contact; leaning forward to listen; keeping the voice level; maintaining an open and a relaxed posture with hands open, and keeping a distance from the other party.

Trying to satisfy both of the parties: finding compromises Every settlement involves some form of compromise. To effect a settlement, both parties are going to have to bend a little. One common mediation approach is to focus on what each party values and wants, and then work towards a middle ground based on each party’s list of priorities. This approach is sometimes termed “interest-based mediation” since the mediator focuses on solving the problem itself and encouraging parties to find a compromise based on their respective interests. This requires analyzing the facts relating to the dispute and probing into each party’s experiences. So that the mediator can help persuade the other side to move off its position and can thus help the parties reach an agreement, the mediator needs to understand fully each side’s position.

c.

Settlement agreements

If a settlement is reached, it is extremely important that no party leave the mediation session until a settlement agreement setting out at least the main terms is signed. Too often, parties are so excited about the settlement, that they don’t take the requisite time to prepare a comprehensive settlement agreement. If there are any difficulties with interpreting/enforcing the settlement agreement, the parties may wish to re-engage the mediator; or the settlement agreement should provide for a mechanism for resolving any disputes regarding the settlement.

Just as in negotiation, active listening is one of the most important techniques a party can develop to facilitate this approach. During mediation, listening allows you to gain more information about the other party’s values and goals, and also makes the other side feel more willing to make concessions and listen to your needs. Transformative approach: Trying to improve the relation in general: cooperation The transformative approach was developed in contrast to interest-based litigation. Whereas the latter is a pragmatic approach that presupposes the parties are rational actors, the transformative approach recognizes the emotional nature of disputes. The transformative approach focuses on the relationship between the parties, which is

16

http://www.justice.gc.ca/eng/pi/dprs-sprd/ref/res/drrgmrrc/04.html.

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“If a settlement is reached, it is extremely important that no party leave the mediation session until a settlement agreement setting out at least the main terms is signed.” 2.3.

Regional differences

3.1.

General

As in every other aspect of binding or non-binding dispute resolution, there are regional differences in terms of mediation as well as negotiation. Those regional differences should be considered when choosing one of those non-binding dispute resolutions within a franchise relationship. Those aspects that affect negotiation and mediation in Canada and the United States are addressed in Sections 1 and 2. This section will focus primarily on negotiation and mediation in the European Union.

Confidentiality, privilege and admissibility with respect to documents, materials and statements produced in the course of mediation.

Depending on the country in which a conflict is solved, mediation mainly differs in its process and regulation. When it comes to negotiation, however, regional differences depend on all sorts of things. An important aspect is the culture of the parties and the language spoken in their respective country. English, for example, implies a more indirect and polite style than German. But, even within the same language (e.g., British/American English or French/Canadian French), differences can occur. Further, since negotiations are based on communication, the parties should assure an easy understanding, which might lead to the necessity of a translator. In terms of the culture, it may be of importance whether hierarchy is a topic within the culture at hand (e.g., India) or if decisions are usually taken democratically.

Prior to participating in the mediation, the parties typically agree that everything said, shared or disclosed at the mediation will remain confidential. The process is conducted on a strictly without prejudice basis. It is important that every person attending the mediation session sign an agreement to this effect and understand that what gets said in a mediation session stays in the confines of the mediation session. This means that if the matter does not settle, a party cannot rely on statements made at the mediation or documents produced at the mediation unless and until those documents are produced in the litigation or admissions are obtained on discovery/deposition. If the mediation fails and a party tries to introduce into the lawsuit a copy of a document it obtained from the other side in the mediation, the party whose document it is should object to its admissibility.


3.

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3.2.

European Union

a.

The EU Mediation Directive 2008/52/EC


States to implement its rules by enacting laws that only cover cross-border disputes rather than just purely national mediations. In order to avoid confusion and arbitrarily different regulation, each Member State should consider implementing one set of rules for both – international and national mediation.

Within the European Union mediation is in the process of unification since a framework for crossborder mediation is given by the “Directive 2008/52/EC of the European Parliament and of the Council on Certain Aspects of Mediation in Civil and Commercial Matters” (in the following referred to as: EU Mediation Directive). It became effective in 2008 and required the European Member States – except Denmark – to implement the necessary laws, regulations and administrative provisions by May 2011.

Regulations regarding the quality of mediation According to article 4 subparagraph 1, the Member States shall encourage the development of voluntary codes of conduct by mediators and organisations providing mediation services. 19 Lacking a consensus within the European Union about whether the state or the market is best equipped to guarantee a high quality standard of mediation, the EU Mediation Directive does not prescribe any concrete measures, but provides the Member States should resort to any means they consider appropriate. Furthermore, article 4 subparagraph 2 requests the Member States – again, without prescribing any concrete measures – to encourage the initial and further training of mediators in order to ensure that mediation is conducted in an effective, impartial and competent way in relation to the parties.

The scope of application The scope of its application is limited to firstly, mediation, which definition can be found in article 3 (a) of the EU Mediation Directive. 17 Secondly, it is limited to civil and commercial matters that are not at the parties’ disposal under the relevant applicable law (cf. article 1 sub. 2). Thirdly the EU Mediation Directive applies only to cross-border disputes as defined in its article 2. 18 The EU Mediation Directive, however, does not restrict the EU Member

The relationship between courts and mediation

17

Article 3 (a) of the EU Mediation Directive: “’Mediation’ means a structured process, however named or referred to, whereby two or more parties to a dispute attempt by themselves, on a voluntary basis, to reach an agreement on the settlement of their dispute with assistance of a mediator. This process may be initiated by the parties or suggested or ordered by a court or prescribed by the law of a Member State. It includes mediation conducted by a judge who is not responsible for any judicial proceedings concerning the dispute in question. It excludes attempts made by the court or the judge seized to settle a dispute in the course of judicial proceedings concerning the dispute in question.”

As stated in article 5, courts may invite the parties to use mediation in order to settle the dispute or to attend an information session on the use of mediation. Even though the EU Mediation Directive does not provide compulsory mediation orders by the courts within the European Union, the Member States are free to make the use of mediation compulsory or subject to incentives or sanctions as long as such legislation does not prevent the parties from exercising their right to access the judicial system.

18

Article 2 subparagraph 1 of the EU Mediation Directive: “1. For the purposes of this Directive a cross-border dispute shall be one in which at least one of the parties is domiciled or habitually resident in a Member State other than that of any other party on the date on which: (a) the parties agree to use mediation after the dispute has arisen; (b) mediation is ordered by a court; (c) an obligation to use mediation arises under national law; or

19

Back in 2004, the EU Commission already passed the European Code of Conduct for Mediators (http://ec.europa.eu/civiljustice/adr/adr_ec_code_conduct_en. pdf) to which mediators or organisations providing mediation services can commit themselves in their practice.

(d) for the purposes of Article 5 an invitation is made to the parties. […].”

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“The EU Mediation Directive mainly regulates the impact of mediation, such as enforceability, suspension of limitation and confidentiality and does not cover its procedure.”

fails. The Member States have to ensure that neither the mediator nor those involved in the mediation administration is compelled to give evidence in civil or commercial judicial proceedings arising out of or in connection with a mediation process. Confidentiality will not apply when the parties agree otherwise, where it is necessary for overriding considerations of public policy or where disclosure is necessary in order to implement or enforce the agreement. The Member States are allowed to enact stricter measures to protect the confidentiality of mediation.

The impact of mediation

Information policy

The EU Mediation Directive mainly regulates the impact of mediation, such as enforceability, suspension of limitation and confidentiality (articles 6 to 8), and does not cover its procedure.

As mediation still suffers a lack of information within the relevant groups of judges, lawyers and other counsels, article 9 requires the Member States to encourage the availability of (online) information on mediators and organisations providing mediation services to the general public. Furthermore, the EU Commission is – according to article 10 – obliged to provide publicly available information on the courts and authorities competent to make mediation agreements enforceable.

First, the Member State must implement procedures for the parties to request the enforceability of a written agreement resulting from mediation. Therefore, the national legislature has to authorize a competent institution, such as a court or any other competent authority, to make an agreement enforceable unless it is contrary to the law of the Member State. Without any specification included in the EU Mediation Directive, enforceability can be reached by a judgement or any other authentic instrument in accordance to the law of the Member State. Second, the parties must be able to find a beneficial solution without the worry of suffering disadvantages from failing to mediate a resolution. Even though the EU Mediation Directive does not harmonise national rules on limitation and prescription periods, the Member States must make sure that parties are not prevented from initiating judicial proceedings or arbitration by expiry of limitation or prescription periods when they choose to settle the dispute via mediation.

“The Member States have to ensure that neither the mediator nor those involved in the mediation administration is compelled to give evidence in civil or commercial judicial proceedings arising out of or in connection with a mediation process.”

Third, to give the mediator the opportunity to develop beneficial solution scenarios, the parties need to be able to share sensitive information without fear that this information might be used against them in judicial proceedings if the mediation


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of Conduct for Mediators, but they are not compulsory. 20

Implementation in the EU Member States

Mentioning every single EU Member State and its implementation of the EU Mediation Directive and/or their national regulation on mediation would be too far reaching and is consequently beyond the scope of this paper. Within the following paragraphs, however, an overview of some EU Member States shall be given on the most important aspects of enforceability, suspension of limitation and confidentiality.

Confidentiality. While the EU Mediation Directive provides for the implementation of all three aspects enforceability, suspension of limitation and confidentiality - the MediationG only assures confidentiality (cf. § 4 MediationsG), which will exclusively be respected in civil courts. The right to refuse testimony on professional grounds within a criminal court procedure, however, is only given to mediators who also practice a profession which is named in § 53 of the German Code of Criminal Procedure (Strafprozessordnung, in the following referred to as: StPO).

Germany In Germany, mediation is regulated by the German Mediation Law (Mediationsgesetz; in the following referred to as: MediationsG), which has recently become effective in July 2012.

Enforceability. Under certain circumstances enforceability of a settlement reached by mediation can be assured by the application of the German Code of Civil Procedure (Zivilprozessordnung, in the following referred to as: ZPO). According to the ZPO compulsory enforcement may be pursued based on records or documents that have been recorded in accordance with the requirements as to form by a German court or by a German notary within the bounds of his official authority (cf. § 794 I Nr. 5 ZPO). Another option is to meet the prerequisites for the settlement reached among attorneys to be declared enforceable in accordance to § 796 a ZPO. 21

The MediationsG implements the EU Mediation Directive, but is even more extensive than the guideline itself. The relatively new MediationsG is more or less a pilot project and shall be changed and adapted during the following years (§8 MediationsG). This adaption shall be based on the evaluation of its impact. The requested evaluation of its impact, however, can be difficult because of the fact that the mediation process is not open to the public and the parties are often eager to protect everything in relation to the mediation process from publicity. Mediation procedure. In terms of the mediation procedure itself, the parties to a conflict choose the mediator (cf. § 2 MediationsG). The mediator has to reveal any facts that may lead to a conflict of interest. A conflict of interest may occur, for example, if the chosen mediator was involved in the case at hand in an earlier stage (e.g. as a lawyer). In the event of a conflict of interest, the mediator can only assist the mediation procedure if the parties agree. The mediator also has to continue education (cf. § 5 MediationsG), so as to ensure consistent quality. There are also codes of conduct for mediators that are laid down in the European Code

20

Thomas Thalhofer, Handbuch IT litigation (2012), p. 64.

21

§ 796 a ZPO: “(1) A settlement reached by attorneys on behalf of the parties they represent, upon having been correspondingly authorised, shall be declared enforceable, upon corresponding application being made by a party, if the debtor has subjected himself in such settlement to immediate compulsory enforcement and the settlement has been deposited, specifying the date on which it was reached, with a local court (Amtsgericht, AG) in the district of which one of the parties had its general venue at the time the settlement was reached. (2) Subsection (1) shall not apply should the settlement be directed at the issuance of a declaration of intent or should it concern the existence of a tenancy relationship for residential premises. (3) The declaration of enforceability shall be refused to be issued if the settlement is invalid or if its recognition would violate public order.”

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Suspension of limitation The suspension of limitation is also not covered by the MediationsG. Some argue that § 203 of the German Civil Code (Bürgerliches Gesetzbuch, in the following referred to as: BGB) can serve as a basis. It reads inter alia that the limitation period is suspended if negotiations between the parties are in progress in respect of the claim or the circumstances giving rise to the claim. Such suspension shall end until one party or the other refuses to continue the negotiations. Some argue, however, that this is contrary to the wording. In any event the franchise agreement should consider the effect of a mediation process on the limitation period.

encouraged the parties to attempt mediation. Furthermore, in purely national cases confidential information will be presented to the judge if this is in the interest of finding justice. 24 In France the mediator in a franchising mediation has to have expert knowledge of franchising matters. 25 The procedure of a mediation in franchising is neatly regulated and comparable to taking legal action against someone (there is a chamber of mediation to which one has to submit a demand in mediation and which decides whether the demand is admissible or not). Mediation concerning a franchising issue that is already pending before a court is not possible in France. 26

Negotiation. Negotiations in Germany are often very detailed. It can be helpful to agree a schedule of the subjects to be discussed. Arguments will often be accepted more easily if they are based on facts and science. Exaggerations might be taken literally; you should hence try to avoid them.

Conclusion Negotiation and mediation can be effective tools to resolve disputes under international franchise agreements. To be effective, however, the parties must plan for the use of these tools by building appropriate provisions into their agreements to determine when and how negotiation and mediation will be used. Then, when the need to use these tools arises, they must prepare by dedicating the necessary resources so that they create an environment where that negotiation and mediation can be effective to resolve their disputes. Finally, they must recognize regional differences between the franchisor’s and franchisee’s cultures so they do not misinterpret each other and, instead, develop solutions to their disputes than can be implemented and enforced.

Other EU Member States In Belgium, Spain, Sweden and Italy a lawyer can invoke professional confidentiality in litigation. It can be suitable to choose a lawyer as mediator. In Switzerland all mediators can invoke confidentiality in litigation if the information they receive is marked as confidential. In Poland courts can prescribe mediation until the end of the first hearing. 22 However, the parties are not bound by a judicial directive. They can choose not to have mediation and continue the trial. Mediation can only be performed with the consent of both parties. In England courts can impose cost sanctions for rejecting mediation without a good reason. 23 The courts therefore have to consider numerous factors, such as the nature of the dispute, the costs of mediation and its chance of being successful, a possible delay in the trial and whether the court has

24

Vgl. Diop: Cui bono? Das Mediationsgesetz aus Unternehmersicht; BB 3023, 3024.

22

De Vries/Schubert-Panecka, Die Regelung der Mediation in Polen, WiRO 2010, 97 (99 f.).

23

Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576.


22

25

II 1. of the règlement de mediation franchiseur – franchisé.

26

Règlement de mediation franchiseur – franchise.

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Jeffrey A. Brimer Jeff Brimer is a Special Counsel in the Denver, Colorado office of Faegre Baker Daniels LLP. He holds a Certified Franchise Executive designation from the International Franchise Association. Mr. Brimer served as a member of the Governing Committee of the Forum on Franchising from August, 2000 to August 2005. He is the editor of the Franchise Law Compliance Manual (Second Edition), published by the American Bar Association Forum on Franchising in October 2011. Mr. Brimer has been named to The International Who's Who of Franchise Lawyers, Franchise Times “Legal Eagles”, Chambers USA: America’s Leading Lawyers for Franchising and Best Lawyers in America. ([email protected])

Jennifer Dolman Jennifer is a partner in the litigation practice at Osler, Hoskin and Harcourt. She conducts a broad commercial litigation practice with an emphasis on assisting franchisors with their business critical disputes, including defending claims under Ontario’s Arthur Wishart Act for rescission, breach of the duty of good faith, statutory misrepresentation, and interference with the right to associate, enforcing terminations, and defending franchise group and class actions. Jennifer also handles intellectual property matters (including trade-mark and copyright infringement, domain name disputes, and the protection of trade secrets and confidential information), defamation (including statements made via the Internet), privacy, and employment. Jennifer has expertise in the area of injunctions and emergency applications, especially regarding the enforcement of restrictive covenants against franchisees, dealers, distributors, licensees or departing senior employees. ([email protected])

Michael K. Lindsey Michael Lindsey is a partner in the corporate department at Paul Hastings. He concentrates his practice in intellectual property, cyberlaw and trade regulation. His intellectual property practice involves the acquisition, development, protection, and licensing of various forms of intellectual property. In the cyberlaw area, he represents diverse clients on matters ranging from domain name disputes to e-commerce structuring, new media development, co-branding, alliance and other marketing arrangements. His practice in the trade regulation area involves antitrust preventive counselling, franchise matters, and advice concerning the sale, distribution, and marketing of products and services, including manufacturing, joint venture, distribution, dealership, and agency agreements. His technology-oriented transactional practice focuses on mergers, acquisitions, joint ventures and other teaming arrangements in the U.S. and abroad. Michael has authored or co-authored a number of legal articles and publications. ([email protected])

Karsten Metzlaff Karsten Metzlaff is a partner of the international partnership Noerr LLP with over 450 fee earners. He studied law at the Universities of Münster and Hamburg, as well as in Lausanne and London. Karsten worked at the European Commission in Brussels for the Directorate General Competition where he mainly dealt with franchising matters. Since then he has mainly specialized in the field of German and European franchise law. He has advised on the structure and expansion of a number of well-known national and international franchising systems. He is a member of the International Bar Association, the German Franchise Association and the European Franchise Federation and its Legal Committees. He has lectured and written on many various domestic and international issues of franchising and distribution law. Karsten has been named in the latest JUVE edition (2012/13) on German law firms and in The International Who’s Who of Business Lawyers (2013) as a leading attorney in this field. ([email protected])

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Appendix A: Checklist for Mediation 1. Have the parties agreed to attempt mediation? 2. Are all directly interested parties (to the degree possible) at the table? 3. What additional people will be present at the mediation (i.e. lawyers, senior executives, etc.)? 4. Should the mediator be empowered to bring other people into the process if he/she feels that their presence would enhance the mediation? 5. Are the parties at the table represented by people with enough authority to agree to a final resolution? 6. Have you identified the issues to be mediated? 7. Has a process to select a mediator been selected? 8. Is there a mechanism for selection if the parties can’t agree on a mediator? 9. Does the mediator need to be bilingual? 10. Has a mediation agreement been entered into which includes: −

the mediator’s mandate?

−

a provision for a written agreement if the dispute is resolved?

−

the confidentiality of the process?

−

remuneration for the mediator?

−

acknowledgement of responsibility of the mediator?

−

acknowledgement of responsibility of the parties?

−

acknowledgement that all costs (i.e. location rental, mediator’s fee, witnesses’ fee, etc.) will be borne equally between the parties?

11. Has the date and time of the mediation been determined? 12. Has a neutral location been chosen? 13. Have limits been set on how long the mediated sessions will take? 14. Have any special requirements been met (i.e., translation, wheelchair accessibility)? 15. Has a procedure to be followed been established and agreed upon by all parties? 16. If not, does the neutral have the authority to set the procedure? 17. Is there a provision for disclosure? 18. Will the disclosure be in advance or as required by mediator? 19. Will any eventual agreement (Memorandum of Agreement/Intent) be subject to independent legal advice? 20. Is it established who will draft the agreement? 21. Is there an articulated alternative if the mediation is not successful? Source: Department of Justice, Dispute Resolution Reference Guide, available at: http://www.justice.gc.ca/eng/pi/dprs-sprd/ref/res/drrg-mrrc/04.html#iii)


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Appendix B: ADR Chambers’ Mediation Rules 1.

Agreement of parties

1.1

These Rules, and all amendments to them, shall be deemed to have been made a part of any agreement which provides for mediation with ADR Chambers.

1.2

Subject to approval by ADR Chambers, these Rules may be varied at any time by agreement.

2.

Initiating mediation

2.1

Any party may initiate mediation by contacting ADR Chambers and booking an appointment.

2.2

The party booking the appointment should contact the other party or parties and provide the other party with the particulars of the appointment.

2.3

Each party to the mediation is responsible for notifying ADR Chambers about a cancellation or change of the appointment date.

3.

Mediation briefs

3.1

All parties should prepare a mediation brief setting out: − − − − − − −

An outline of the facts The issues in dispute Relevant expert reports, if any Legal arguments and important case law The party’s suggestion as to how the dispute should be resolved A summary of settlement discussions held prior to the mediation Essential documents

3.2

Mediation briefs should be exchanged between the parties and a copy should be delivered to ADR Chambers at least ten days before the mediation date.

4.

Selection of mediator

4.1

The parties may agree on a mediator from the panel of mediators at ADR Chambers.

4.2

If requested, ADR Chambers will suggest mediators based on the type of issue in dispute.

4.3

If requested by all parties, ADR Chambers will appoint the mediator for the parties.

5.

Attendance at mediation

Parties with authority to settle the dispute should attend the mediation with their lawyers. If they cannot attend, parties with authority should be available by phone. Others who may assist the process may also attend on consent of all parties and the mediator. 6.

Agreement to mediate

Prior to the commencement of the mediation, everyone attending the mediation should execute the Agreement to Mediate, a sample copy of which is in Appendix A. The agreement may be modified on consent of all parties and the mediator.

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Confidentiality

Communications made at mediations are confidential and should not be disclosed to people who are not parties to or attending the mediation. 8.

Without prejudice

Communications made at mediations are made without prejudice. 9.

Compellability of mediator

Neither the mediator nor any of ADR Chambers’ employees will be compelled to appear as a witness or expert in any proceeding involving any one or more of the parties or relating in any way to the subject matter of the mediation. 10.

Immunity of mediator and ADR chambers employees

ADR Chambers and its employees, agents, and subcontractors including the mediator, shall not be liable to any party or representative for any act or omission in connection with any mediation. The mediator shall have the same immunity as that granted to a Superior Court Judge of the location where the mediation is conducted and where the mediator is domiciled. 11.

Process

Each party should be prepared to make a brief opening statement explaining that party’s perspective on the dispute. The mediator may caucus privately with any party during the mediation. Any party may request a private caucus with the mediator. 12.

Termination of Mediation

The mediation will end: − − −

by agreement between the parties; or if a settlement is reached by the parties; or if the mediator is of the view that the mediation ought to be terminated.

13.

Fees

13.1

The parties agree to pay the applicable fees and disbursements of ADR Chambers as set out in the confirmation letter.

13.2

The parties and their lawyers are jointly and severally responsible for the payment of the account rendered by ADR Chambers. The parties may agree between them as to how the account of ADR Chambers will be paid, but remain jointly and severally liable to ADR Chambers for the entire account if the account is not paid in full.


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using negotiation and mediation to resolve

using negotiation and mediation to resolve

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