Arbitration Clauses in Franchise Agreements: Some Comparative Snapshots

Asymmetric nature of franchise agreements allows the economically stronger party, which is usually the franchisor, to impose certain contractual provisions. These provisions include also arbitration clauses, which can disadvantage the franchisees. The question is whether the arbitration clauses imposed by the franchisors can be enforced and considered valid. This question can be posed at different levels of courts’ scrutiny over arbitral awards. The national courts can be confronted with it during the setting aside proceedings, during the proceedings for the recognition and enforcement of the award or when deciding on enforcement of the arbitration agreement itself. American, Canadian, German, Finnish and Swedish courts found that these clauses can and should be, under certain conditions, considered “unconscionable” or “unreasonable” and, consequently, invalid and non-enforceable. Approaches taken by these courts can provide useful lessons for the future franchise related litigations in the Central and Eastern Europe.