International Law

Franchise Review in NZ and Mediation

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Part of  the text of the speech by Commerce Minister Lianne Dalziel at the Business Opportunities & Franchise Expo, Auckland, on 16 August 2008

"The particular focus is on whether those entering into franchise agreements have adequate information to make good business decisions, while ensuring that we don't impose unnecessary compliance costs on the sector that are disproportionate to the risks involved.

The discussion document identifies three aspects of the franchising relationship that may make a case for franchise-specific regulation:

1. Information imbalance:  franchisees need to do their due diligence before entering into a franchise contract, but may not have all the necessary information, or know the right questions to ask, in order to make a well-informed business decision.  Should franchisees be required to get independent advice before entering into an agreement or should there be a 'cooling off' period to enable advice to be sought after the fact?
2. Cost of resolving disputes:  there are few options available, particularly to franchisees, to resolve disputes when they arise.  Legal processes such as arbitration and litigation can be expensive, and can be damaging to the franchise relationship which relies on cooperation and collaboration.  Should there be a requirement for mediation?
3. Public perception:  the public's confidence in the franchising sector may have been damaged following the cases which involve alleged fraud.  It is important that there is confidence in the sector so that high quality business men and women are attracted to the sector, allowing it to continue to grow and prosper.
4. There are other issues that have been raised about various aspects of franchise contracts and these are included to seek feedback. "

The interesting part of the speech is the observation that neither arbitration nor litigation are appropriate tools for solving franchise relationship disputes.

Litigation and arbitration are appropriate for event ending adjudications, but not for ongoing relationships.

Having said this, it would not be appropriate to require mediation -if we mean by mediation a third party assisted negotiation.

Mandatory mediation is little more than forced settlement, usually at inappropriate times in the litigation cycle.

No, what is needed is a full blooded statute that explicitly endows an Independent Franchisee Association, IndFa, with the legal rights to collectively bargain with the franchisor.

Nothing more and nothing less is needed.

We should leave to the market the mechanics of forming an IndFA, but give the IndFA a legal role so as to encourage the appropriate dispute resolution between equal economic partners, but not legal partners.

Full post as published by Misleading Advertising Law on August 22, 2008 (boomark / email).