Arbitration clause applicable to franchise agreement? Maybe not

An arbitration clause is occasionally found in franchise agreements. In such a clause, in the event of a dispute between franchisor and franchisee, it is agreed that the parties will submit their dispute to an arbitrator in arbitration proceedings, instead of the ordinary court. If an arbitration clause is included in an agreement, the ordinary court is in principle no longer authorized to take cognizance of the dispute. In Dutch law, the provisions regarding arbitration can be found in Article 1020 et seq. of the Code of Civil Procedure (Rv). 

A condition for the application of arbitration is that the parties expressly agree that they will submit any dispute to arbitration. Such an agreement can also arise from an arbitration clause in a franchise agreement (Article 1020 paragraph 2 Rv). In both cases, the agreement or clause must show unequivocally that the parties have actually agreed with each other to submit any dispute to arbitration. 

It is precisely with the formulation of an arbitration clause that things sometimes go wrong in practice. In recent arbitration proceedings between franchisor and franchisee, the arbitrator considered itself to be without jurisdiction to hear the dispute, since it could not be unequivocally deduced from the arbitration clause that the parties had committed themselves to arbitration.

The arbitration clause read – in short – as follows. “(…) Before submitting a dispute arising from this agreement, which cannot reasonably be resolved in this way, to the Netherlands Arbitration Institute, either party may submit such a dispute (..) to non-binding mediation by an impartial mediator (…)”. The arbitrator ruled that the arbitration clause did not unequivocally indicate that the parties had submitted to arbitration. The NAI has several forms of alternative dispute resolution, including mediation, binding advice, arbitration and the so-called TGV (Traject Small Claims) procedure. The provision did not expressly refer to an arbitration procedure. The arbitrator therefore ruled that the arbitration clause did not meet the requirements of Article 1020 Rv, namely that the parties have committed themselves to arbitration by agreement. 

In this context, it is recommended to take a good look at your franchise agreement. If an arbitration clause has been included, the wording of this clause should be carefully examined. Has it been unequivocally agreed that disputes will be submitted to arbitration? Franchisors who are also considering including an arbitration clause in their franchise agreement should be aware that small nuances can have major consequences. Therefore, pay attention to careful wording. Another question is whether arbitration is actually desirable.

Mr D. Uijlenbroek – Franchise lawyer

Ludwig & Van Dam Franchise attorneys, franchise legal advice. Do you want to respond? Mail to uijlenbroek@ludwigvandam.nl