Franchise Disputes in the Philippines: How They Are Resolved Under Philippine Law

A franchise dispute in the Philippines is commonly resolved through mediation or arbitration rather than immediate litigation, especially where the franchise agreement contains a dispute resolution clause. Republic Act No. 9285, the Alternative Dispute Resolution Act of 2004, promotes party autonomy and encourages mediation, conciliation, and arbitration as alternatives to court. Because a franchise relationship is a commercial arrangement, disputes arising from it may be submitted to commercial arbitration. If the parties cannot agree on an alternative route, or if no arbitration agreement exists, the dispute may be brought before the courts.

What is a franchise dispute?

A franchise dispute is a conflict between a franchisor and a franchisee arising from their franchise relationship. Common examples include disagreements over royalty payments, territorial rights, supply obligations, use of the brand, contract termination, and alleged breach of the franchise agreement.

Under Philippine law, a franchise arrangement is essentially a commercial contract. Section 21 of Republic Act No. 9285 treats "distribution agreements" and "commercial representation or agency" as relationships of a commercial nature. This matters because it confirms that disputes from commercial relationships can be resolved through commercial arbitration.

Mediation as a first step

Mediation is a voluntary process in which a mediator, selected by the disputing parties, facilitates communication and negotiation and assists the parties in reaching a voluntary agreement. Section 3 of Republic Act No. 9285 defines mediation in these terms.

Mediation is often the fastest and least expensive route. A key advantage is confidentiality: information obtained through mediation is privileged and confidential, and confidential information is generally not subject to discovery and is inadmissible in any adversarial proceeding, whether judicial or quasi-judicial, under Section 9 of the law.

If mediation succeeds, the parties and their counsel prepare a settlement agreement, and the mediator certifies that its contents were explained to the parties in a language known to them. Under Section 17 of the law, the parties may deposit the settlement agreement with the appropriate Clerk of a Regional Trial Court of the place where one of the parties resides. If enforcement becomes necessary, a party may file a petition with the same court, which shall proceed summarily to hear it.

Arbitration for franchise disputes

Arbitration is a voluntary dispute resolution process in which one or more arbitrators, appointed in accordance with the parties' agreement, resolve a dispute by rendering an award. This definition appears in Section 3 of Republic Act No. 9285.

If the franchise agreement contains an arbitration clause, the parties are generally bound to arbitrate. Under Section 24 of the law, a court before which an action is brought in a matter that is the subject of an arbitration agreement shall, if at least one party so requests not later than the pre-trial conference, refer the parties to arbitration — unless it finds that the arbitration agreement is null and void, inoperative, or incapable of being performed.

Arbitration proceedings, including the records, evidence, and the arbitral award, are confidential under Section 23 of the law and shall not be published, except with the consent of the parties or for the limited purpose of disclosing relevant documents to the court where resort to the court is allowed.

Parties may also agree on the place of arbitration. Failing agreement, the place of arbitration shall be in Metro Manila, unless the arbitral tribunal decides on a different place after considering the circumstances and the convenience of the parties, under Section 30.

Going to court

If there is no arbitration agreement, or if the dispute falls outside the scope of any agreed alternative process, the dispute may be filed in court. Even then, the law's policy favors alternative dispute resolution. Section 2 of Republic Act No. 9285 declares it State policy to actively promote party autonomy and to encourage the use of ADR to achieve speedy and impartial justice and to de-clog court dockets.

Note also that not every dispute can be submitted to ADR. Section 6 of the law excludes certain matters, including criminal liability and those which by law cannot be compromised. A purely contractual franchise dispute, however, is generally an appropriate subject for mediation or arbitration.

Frequently asked questions

Can a franchise dispute in the Philippines be settled without going to court? Yes. Mediation and arbitration are recognized alternatives. If the franchise agreement has an arbitration clause, the parties may be referred to arbitration, and mediation remains available as a voluntary process.

Is arbitration mandatory for franchise disputes? Only if the parties agreed to it, such as through an arbitration clause in the franchise agreement. Under Section 24 of Republic Act No. 9285, a court shall refer the parties to arbitration upon request, unless the arbitration agreement is null and void, inoperative, or incapable of being performed.

Is arbitration confidential? Yes. Under Section 23 of Republic Act No. 9285, arbitration proceedings, including the records, evidence, and the arbitral award, are considered confidential and shall not be published, subject to limited exceptions.

Practical takeaways

• Check the dispute resolution clause in the franchise agreement first — it usually determines whether mediation or arbitration applies.
• Mediation is voluntary, confidential, and often the fastest route; a settlement may be deposited with the Regional Trial Court for enforcement.
• Arbitration is binding where agreed; a court may refer the parties to arbitration upon request not later than the pre-trial conference.
• Arbitration proceedings and awards are confidential under Section 23 of Republic Act No. 9285.
• Not all disputes can go through ADR — Section 6 excludes matters such as criminal liability and those which cannot be compromised.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• REPUBLIC ACT NO. 9285 - AN ACT TO INSTITUTIONALIZE THE USE OF AN ALTERNATIVE DISPUTE RESOLUTION SYSTEM IN THE PHILIPPINES AND TO ESTABLISH THE OFFICE FOR ALTERNATIVE DISPUTE RESOLUTION, AND FOR OTHER PURPOSES

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.