Neither is “best.” “Best” is where the franchisor and franchisee have a good enough relationship that if a problem arises, one picks up the phone and calls the other. They resolve it without the need for attorneys. However, it takes two to tango. We all know people who will not take “yes” for an answer.
My agreements usually say the parties will litigate disputes, rather than arbitrate them. Here’s why:
There is another alternative: mediation. “Mediation” is a procedure where the parties choose an individual to serve as “mediator.” In the franchise context, the mediator is usually an experienced commercial law attorney who has undergone special mediation training. The mediator hears both sides of the story, points out the strengths and weaknesses of each party’s positions, and tries to bring the sides together. There is no “decision”: there is only an “agreement” or an “impasse.” Mediation is fast and relatively inexpensive. If the parties can’t reach an agreement, they still have the right to litigate or arbitrate.
Here’s the point: the best way to resolve disputes is by mutual agreement, whether the agreement arises from personal relationships or mediation. Failing that, if you must choose a formal procedure, litigation may involve lower costs and less risk.