INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons
tory. It is important to carefully check the full list of required disclosure items applicable to the target country. It is not recommended to provide a franchisee in one country with financial data based on experience gained in another country. Timing of franchise disclosure Franchise disclosure must generally be made a cer - tain number of days before entering into the franchise agreement or paying money – typically between 10 and 30 days. Some countries allow a deposit to be paid – for example, Canada (Ontario; CAD50,000). Most countries do not permit the making of any pay - ment. Spain even prohibits the entry into a pre-con - tract. Remedies available to the franchisee if no disclosure has been made It is important to understand the rights and remedies available to the franchisee if there has been a failure to make the required disclosure. Typically, failure to disclose gives the franchisee the right to rescind the agreement and ask for both a refund of payments and damages. Some countries specify for time period for the exercise of these rights. For example, in Canada the period is two years. In other jurisdictions, such as France, it can be a defence that the franchisee was an experienced operator and did not rely on the dis - closure information. Some countries, such as China and Korea, impose administrative fines. Franchise Registration Outside the USA, the registration of a franchise agree - ment is less common. Franchise registration should not be confused with the obligation to register the trade mark licence or the requirement to own a reg - istered trade mark. Some jurisdictions have followed the example of the USA and require the franchise agreement to be registered with a government body before franchises can be offered for sale. Occasion - ally, registration is made after the franchise agreement has been concluded – for example, in Russia and Chi - na. In Indonesia, it is the obligation of the franchisee to register. It is generally in the best interest of both parties to comply with franchise registration obliga - tions to ensure that the franchise agreement cannot be invalidated. Without a registered franchise, some
government bodies can take the view that foreign exchange payments cannot be processed. Relationship Laws An increasing number of countries require a franchise agreement to have a certain minimum amount of con - tent. Typically, these are commonsense requirements, obligating the parties to clearly document the most important rights and obligations that arise between them – such as, for example, the territory of opera - tion, the duration of the agreement and the dispute resolution mechanism. Some countries will reject the registration if these terms are not present. Blacklisting unfair terms in franchise agreements is a relatively new trend. Countries such as France, Ger - many and Italy use fair trading laws to ensure that the franchise agreement is fair and balanced. In Germany, any provision in a franchise agreement that deviates from the German Civil Code can be challenged and requires justification. In France and Italy, the competi - tion authorities have the power to investigate whether the franchise agreement is fair and balanced. Fran - chisees can raise a complaint and require unfair provi - sions to be struck out. The leading case in France is that of Subway, where the French competition authori - ties struck out an arbitration clause that would have required the franchisee to arbitrate in New York. In Italy, a group of franchisees filed a complaint against McDonald’s for unfair practices. McDonald gave undertakings to the authorities to discontinue certain practices. Other countries, such as Saudi Arabia, the Netherland and Malaysia, require specific rights and obligations to be included in the franchise agreement, such as approval rights for the franchisee, protection against termination for minor breaches and protection against non-renewal without good cause. In the Netherlands, significant system changes are subject to consent requirements if the costs exceed an agreed threshold. Franchising and Competition Laws Franchise agreements invariably include restrictions on competition. In a typical international franchise relationship, the franchisor would grant an exclusive territory, and the franchisee would undertake not to operate a competing business. In addition, most fran -
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