The Franchise Law Review: Editor's Global Overview
Over the past year, we have seen new franchising laws introduced in the Netherlands and Saudi Arabia, while Australia's already complex franchise law is being subjected to still further involved amendments. This book deals with the way that franchising is regulated in the following countries.
Chapter written by Nick Green
The past 12 months have seen a great deal of franchise investment into the African continent, North, South, East, West and Central Africa are all attracting a great deal of attention from franchisors. The regulatory regimes can be challenging and procedures time-consuming and expensive. Accessing knowledgeable legal advice on franchising can be a challenge.
Chapter written by Melissa Murray
The Gulf Cooperation Council (GCC) countries comprise six distinct nations, each with similar but distinct legal systems. For example, while Dubai (part of the UAE) has a legal system that has many similarities with Western nations, Saudi Arabia has a legal system firmly based on shariah law. However, there is such a degree of commonality in the way these jurisdictions approach franchising that they can sensibly be dealt with together.
Until recently there had been no specific franchise legislation in any of the GCC countries, but a new Saudi Arabian Franchise Law was approved by the Saudi Council of Ministers in October 2019 and is due to enter into effect in April 2020.
While, in general, direct foreign investment is restricted in GCC countries, the recently passed UAE Foreign Direct Investment Law allows foreign investors to own 100 per cent of onshore companies on UAE mainland, although the extent to which this might impact the sectors in which franchising is traditionally widely used is not clear yet. Notwithstanding these developments, the region is often granted by foreign franchisors as a single territory, this has an obvious impact upon the way in which franchisors and their developers or master franchisees structure their approach to the region.
All of the GCC countries have commercial agency laws that can apply to foreign franchises entering the market, with substantial negative consequences from the franchisor's point of view.
Chapter written by Eckhard Flohr and Alfons Umschaden
Austrian law closely resembles that of Germany in respect of its impact upon franchising and so good faith is of great importance.
Chapter written by José Carlos Vaz e Dias and Bruna Valois
Brazil is the commercial centre of South American franchising and has adopted a detailed franchise law based upon the US example.
Chapter written by Cristóbal Porzio
Chile is seeing an increasing amount of growth in the franchise sector but does not have a franchise-specific law. The concept of duty of good faith is used to impose both a degree of pre-contractual disclosure and a restraint upon how franchisors exercise their contractual rights.
Chapter written by Sven-Michael Werner
China's franchising law was adopted in a hurry to satisfy the conditions imposed upon China as regards its accession to the World Trade Organization. As a result, it was not as well considered as it might have been, and has since been amended several times.
The law imposes pre-contractual disclosure, registration and mandatory terms, and the registration process can be challenging and time-consuming. Chinese law also imposes a duty of good faith upon franchise relationships.
As China is a signatory to the New York Convention, foreign arbitration in international franchise agreements tends to be the norm. There is a growing body of Chinese jurisprudence about franchising, but there is yet to be any real evidence of consistency between the various courts.
Chapter written by Vojtěch Chloupek
The Czech Republic does not have any franchise-specific regulations and instead relies upon its Commercial Code to deal with issues such as pre-contractual misrepresentations and the like.
Chapter written by Jacob Ørskov Rasmussen
Like the other Nordic members of the EU, Denmark has a civil legal system that is markedly less interventionist than the German-influenced systems.
It does not have a franchise-specific law.
Chapter written by Raphaël Mellerio
The Napoleonic Code has had a substantial impact upon the law of other EU Member States.
France was the first European country to adopt a franchise-specific law – the Doubin Law – although paradoxically, it does not actually use the word franchising. Although its requirement for pre-contractual disclosure has many similarities to the United States' franchise laws, it is distinct from them.
Concepts such as good faith impact upon the franchisor–franchisee relationship especially as the French judiciary has over recent years taken a more interventionist approach to commercial relationships.
Article 101 of the TFEU shapes French antitrust law.
Chapter written by Mikheil Gogeshvili
Despite being a small economy with a moderate amount of franchising, Georgia has a franchise-specific law that requires formal pre-contractual disclosure.
Chapter written by Stefan Münch, Alexander Duisberg, Markus Körner and Michael Gaßner
Although Germany does not have any franchise-specific laws, it is probably one of the most heavily regulated franchise markets in the world. The application of the doctrine of good faith on both pre-contractual negotiations (culpa in contrahendo) and the franchise relationship itself can have a severe impact upon the franchisor's ability to exercise its contractual rights against franchisees. Added to this is a tendency of the German courts to treat franchisees as consumers and a willingness in some circumstances to view individual franchisees as 'hidden employees', who are able to take advantage of employment rights.
Chapter written by Michelle Chan and Hank Leung
Although a part of China, Hong Kong is a Special Administrative Region and has its own distinct legal system, which still has its roots in English common law. It has no franchise-specific law and, like the English legal system, puts great store in the concept of caveat emptor while being reluctant to imply any duty of good faith into the franchise relationship.
Chapter written by Péter Rippel-Szabó, Bettina Kövecses and Péter Sziládi
Unlike many former Soviet Bloc EU Member States, Hungary has resisted the temptation to specifically regulate franchising.
Its civil system still retains some vestiges of its Soviet past, but generally reflects EU directives and regulations. An overriding duty of good faith is imposed by the Hungarian Civil Code on franchising, but the courts do not look to jurisprudence on agency and distribution cases for guidance by analogy, as is the case in some civil jurisdictions.
Chapter written by Nipun Gupta and Divya Sharma
Indian law is heavily based upon English law and exhibits the traditional English doctrine of caveat emptor in its approach to pre-contractual dealings between franchisors and other franchisees. Likewise, it is loath to imply a duty of good faith on to the franchise relationship.
However, the Indian legal system is exceptionally slow and franchisors are often sceptical as regards the courts' impartiality. As a result foreign law and jurisdiction is the norm in international franchise agreements with arbitration being preferred to litigation because of India being a signatory to the New York Convention and the difficulty in enforcing foreign court judgments. However, there was some uncertainty about the status of foreign arbitration until the 2012 Balco decision.
There are some restrictions upon the ability of foreign parties to acquire more than 49 per cent equity interest of Indian companies and although royalties can now be paid without limit and approval, certain other payments still require the approval of the Reserve Bank of India.
Chapter written by Shelley Nadler and Farid Kani
Iran has no franchise law and the legal environment is fairly benign for franchisors. However, despite having been partially lifted for non-US companies, the international sanctions have a significant impact upon the way franchisors must structure their market entry.
Chapter written by Claudia Ricciardi
Italy adopted its franchise law in 2004 after some 15 years of toing and froing within the legislature. It imposes mandatory pre-contractual disclosure and various mandatory clauses.
The law had originally required that all foreign franchisors operate a pilot in Italy before they could franchise their concept there. However, this was received badly by franchisors and it was soon changed so that it did not become a barrier to foreign franchisors establishing their brand in Italy. As a Member State of the EU, Italy's approach to vertical restraints reflects Article 101 of the TFEU.
Chapter written by Kentaro Tanaka
The Japan Franchise Association is active but has little influence on the regulatory framework. Antitrust law has an impact upon franchising and the Fair Trade Commission has a good deal of influence over the way in which franchising is regulated on a day-to-day basis.
Chapter written by Nick Green and Saule Akhmetova
Kazakhstan has a sophisticated and in parts complex franchise law, which needs to be carefully considered before executing a franchise agreement in the country.
Chapter written by Lee Lin Li and Chong Kah Yee
The Malaysian franchise law is somewhat complicated and regulates not only franchisors, but also franchise brokers.
Chapter written by Stewart Germann
After considering whether it should adopt franchise-specific regulations, New Zealand decided that it would not follow the example of its Australian neighbour and that its common law was sufficiently adaptable to deal with the legal issues that arise as a result of franchising.
Chapter written by Kuba Ruiz
Poland has no franchise-specific law and applies a relatively light touch to its regulation.
Chapter written by Sergey Medvedev
Russia has a specific trademark-based franchise law, which requires registration of franchise agreements with the Federal Service for Intellectual Property (Rospatent). This can cause some difficulties in practice for franchisors.
Chapter written by Melissa Murray
The impact of shariah law on franchising is very marked, and standard agreements usually need substantial amendment before they are suitable for use in the country. The introduction of the new Franchise Law has meant that entering this potentially fast-growing market is more complex and involved and, therefore, more expensive than ever before.
Chapter written by Lorraine Anne Tay and Just Wang
The origin of Singapore's commercial success lies in its geographical position and its entrepôt trade. It has a legal system with its roots firmly planted in both English common law and its international outlook. As a trading nation its laws promote international trade and the concept of caveat emptor is a fundamental part of its approach to common law.
There is no franchise-specific law in Singapore and it does not generally imply a duty of good faith into contractual relationships.
Chapter written by Christophe Rapin and Vincent Jäggi
Although there is a fair amount of franchising in Switzerland, following the lead of Germany and Austria, which have similar legal systems, it has not adopted a franchise-specific law.
Chapter written by Wen-Yueh Chung, Jane Wang and Charles Chen
There are no franchise-specific laws in Taiwan, but the validity and the enforcement of franchise agreements is governed by the Fair Trade Commission Disposal Directions on the Business Practices of Franchisers (amended in 2009) and the Fair Trade Act 2010, which both deal with competition matters.
Chapter written by Volodymyr Yakubovskyy and Graeme Payne
Ukraine does not have a franchise-specific law and it falls to the Civil Code and Commercial Code to regulate it. Legal uncertainty about registration of franchises has been settled by the passing of new procedural rules on registration of concession agreements, which came into effect in April 2015.
Chapter written by Graeme Payne
The United Kingdom is the cradle of common law and yet it is also a Member State of the EU, which has a legal system dominated by civil law concepts such as good faith.
As a result, the law in the United Kingdom is undergoing constant change as the influence of civil law concepts becomes more and more marked. Its competition law is based on Article 101 of the TFEU.
Scotland has its own legal system, which, although very similar to that of England and Wales as regards corporate and commercial matters, is very different in respect of real estate.
There is no franchise-specific law in the United Kingdom and it is generally one of the more 'pro-franchisor' jurisdictions. Because of its colonial past and mercantilist traditions, English law is highly developed as regards international trade. As a result, English law is often adopted as the governing law in the international agreements of non-UK franchisors.
Chapter written by Steven Feirman, Daniel Deane, Keri McWilliams, Brad Steinbrecher, Kendal Tyre and Nathan Warecki
The United States is the birthplace of franchise regulation, the first such law being passed in California in the early 1970s. A complex network of both state and federal laws that imposes a cocktail of pre-contractual disclosure, registration and mandatory term requirements has led to many foreign franchisors believing that the law has become a near insuperable barrier to market entry. It is certainly a complex and ever-changing jurisdiction as regards franchise law, but with appropriate legal support it is far from impregnable.
1 Mark Abell is a partner at Bird & Bird LLP. The information in this chapter was accurate as at January 2021.