Dispute Resolution Strategies in International Franchising: Arbitration or Ordinary Jurisdiction?

1. DISPUTE RESOLUTION STRATEGIES IN INTERNATIONAL FRANCHISING; ARBITRATION OR ORDINARY JURISDICTION? JOHN R. F. BAER Chicago, Illinois U.S.A. 13 June 2009

2. Venue Choices • Ordinary jurisdiction (litigation) • Arbitration • Mediation

3. Ordinary Jurisdiction: Advantages • Established procedures • Discovery • Appeal rights • Best protects intellectual or industrial property rights

4. Ordinary Jurisdiction: Disadvantages • Discovery in U.S.A. can be extensive and expensive • Possibility of jury trial in U.S.A. • Favoritism of local courts • Unknown or unfamiliar procedures • Can be very expensive in many jurisdictions

5. Ordinary Jurisdiction: Efficiency Of Enforcing Or Defending Claims • No U.N. treaty yet on enforcement of foreign judgments (unlike EU Council Regulation (EC) No. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters) • Plaintiff may want to sue in its own jurisdiction – but enforcing judgment may be difficult unless defendant has assets in that jurisdiction • Plaintiff probably should sue in jurisdiction where contract will be enforced or where defendant has assets

6. Arbitration Venues and Rules • American Arbitration Association (AAA): Commercial Arbitration Rules, with International Commercial Arbitration Supplementary Procedures • International Centre for Dispute Resolution (AAA): International Arbitration Rules • JAMS: Comprehensive or Streamlined Arbitration Rules and Procedures, or International Arbitration Rules

7. International Chamber of Commerce: ICC Rules of Arbitration • London Court of International Arbitration: LCIA Rules • UNCITRAL Arbitration Rules (No Administrative Authority)

8. 7. Swiss Chamber of Commerce: Rules of International Arbitration • Arbitration Institute of the Stockholm Chamber of Commerce: Rules of the Arbitration Institute of the Stockholm Chamber of Commerce • China International Economic and Trade Arbitration Commission (“CIETAC”): Arbitration Rules

9. Arbitration: Advantages • Sometimes faster and sometimes less costly • Limited discovery or information exchange • Final and binding awards • Generally not appealable • Use of arbitrator(s) experienced in subject matter

10. Arbitration: Disadvantages • Filing fees and arbitrator’s fees • Sometimes as costly as ordinary jurisdiction (litigation) • Not suitable to enforce intellectual or industrial property rights • Generally not appealable • Limited discovery or information exchange

11. Arbitration: Local Laws Check local arbitration laws to see if they would apply to your proceeding. For example: • U.S.A.: Federal Arbitration Act or state arbitration law • Mexico: Book 5, title 4 of Commerce Code regulates commercial arbitration • England: Arbitration Act 1996

12. Arbitration: Efficiency Of Enforcing Or Defending Claim • U.N. Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) • Sometimes local courts are reluctant to enforce foreign arbitral awards despite the New York Convention

13. Arbitration: Drafting The Contract Clause • Arbitration agreement must be in writing and define clearly what is to be arbitrated • Specify arbitration rules to be used and appointing authority • Number of arbitrators (1 or 3) and, if 3, how selected • Experience of arbitrators • Language of the arbitration

14. Arbitrator’s powers • Carve out: Allow intellectual or industrial property rights to be enforced in courts • Choice of law (including federal or state arbitration law if U.S.A. law is chosen) • Scope of discovery • Location

15. Award to be final and binding • Reasoned award or opinion • Fees and costs • Enforcement of award • Any appeal rights

16. Arbitration: Choice Of Law Issues • Bad idea to specify neutral third country’s law to apply • Application of mandatory laws by arbitrator • Exclusion of identified local laws

17. Arbitration: Informal Survey • Most franchise lawyers used arbitration clauses in international franchise agreements rather than ordinary jurisdiction (litigation) to resolve disputes • Few actually arbitrated disputes • Lesson: business solutions usually reached

18. Mediation • Most arbitration bodies have mediation rules • Mediation more likely to be used in U.S.A. • Confidential and non-binding • Can be effective with experienced mediator

19. The Franchise Mediation Program (Administered by CPR International Institute for Conflict Prevention & Resolution) • EU Directive 2008/52/EC (21 May 2008) on certain aspects of mediation in civil and commercial matters