Franchising 2025

Definitive global law guides offering comparative analysis from top-ranked lawyers

CHAMBERS GLOBAL PRACTICE GUIDES

Franchising 2025

Definitive global law guides offering comparative analysis from top-ranked lawyers

Contributing Editor Babette Märzheuser-Wood Dentons

Global Practice Guides

Franchising Contributing Editor Babette Märzheuser-Wood Dentons

2025

Chambers Global Practice Guides For more than 20 years, Chambers Global Guides have ranked lawyers and law firms across the world. Chambers now offer clients a new series of Global Practice Guides, which contain practical guidance on doing legal business in key jurisdictions. We use our knowledge of the world’s best lawyers to select leading law firms in each jurisdiction to write the ‘Law & Practice’ sections. In addition, the ‘Trends & Developments’ sections analyse trends and developments in local legal markets. Disclaimer: The information in this guide is provided for general reference only, not as specific legal advice. Views expressed by the authors are not necessarily the views of the law firms in which they practise. For specific legal advice, a lawyer should be consulted. Content Management Director Claire Oxborrow Content Manager Jonathan Mendelowitz Senior Content Reviewers Sally McGonigal, Ethne Withers, Deborah Sinclair and Stephen Dinkeldein Content Reviewers Vivienne Button, Lawrence Garrett, Sean Marshall, Marianne Page, Heather Palomino and Adrian Ciechacki Content Coordination Manager Nancy Laidler Senior Content Coordinators Carla Cagnina and Delicia Tasinda Content Coordinator Hannah Leinmüller Head of Production Jasper John Production Coordinator Genevieve Sibayan

Published by Chambers and Partners 165 Fleet Street London EC4A 2AE Tel +44 20 7606 8844 Fax +44 20 7831 5662 Web www.chambers.com

Contents

INTRODUCTION Contributed by Babette Märzheuser-Wood, Dentons p.4

AUSTRALIA Law and Practice p.9 Contributed by ARCHER SCOTT Lawyers Trends and Developments p.17 Contributed by ARCHER SCOTT Lawyers CANADA Trends and Developments p.24 Contributed by MLT Aikins CHINA Law and Practice p.31 Contributed by Jingtian & Gongcheng Trends and Developments p.42 Contributed by Jingtian & Gongcheng DENMARK Law and Practice p.49 Contributed by Bech-Bruun Trends and Developments p.60 Contributed by Bech-Bruun NEW ZEALAND Law and Practice p.65 Contributed by MinterEllisonRuddWatts PERU Law and Practice p.76 Contributed by Aguirre Abogados & Asesores Trends and Developments p.83 Contributed by Aguirre Abogados & Asesores PHILIPPINES Law and Practice p.88 Contributed by Cruz Marcelo & Tenefrancia Trends and Developments p.101 Contributed by Cruz Marcelo & Tenefrancia

SOUTH KOREA Law and Practice p.107 Contributed by Bae, Kim & Lee LLC

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INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons Dentons is a multinational law firm operating in more than 80 countries with more than 160 offices world - wide. The firm provides a wide range of legal services. Its franchise group, founded by Babette Märzheuser- Wood, has extensive experience in all aspects of franchising and related distribution models across industry sectors including restaurant, fitness, retail,

services, hospitality, entertainment, healthcare, edu - cation and automotive. Dentons provides high-level strategic advice to both new franchisors and existing franchise clients, drawing on its experience of work - ing with more than 100 different franchise systems in over 50 countries and its extensive international net - work of franchising experts worldwide. countries. She lectures regularly on franchise law and advised the Russian government on using franchising to kick-start small businesses. Babette advises on master franchise and area development, agreements, unit franchising, franchise disclosure and registration, franchise disputes, taxes, dispute resolution, customer data management and loyalty schemes, anti-trust and competition, law compliance, regulatory compliance and litigation.

Contributing Editor

Babette Märzheuser-Wood is the founding partner of the Dentons global franchise group. Ranked in Band 1 for Franchising by Chambers Global and Chambers UK, she has 30 years of franchise industry experience, helping clients expand their franchise businesses in Europe and around the world. Multilingual and qualified in Germany and England, she has transactional experience in over 100

Dentons One Fleet Place London EC4M 7RA United Kingdom

Tel: +44 778 099 0750 Fax: +44 207 246 7777 Email: Babette.mwood@dentons.com Web: www.dentons.com

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INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons

It is the author’s great pleasure to introduce the new Chambers Global Guide to Franchising. In this guide, the aim is to provide clear and practical guidance on the most important international franchise laws that will impact the international expansion of a company using the franchise business model. In this introduc - tion, an overview of key aspects of international fran - chising is provided. Because franchising is first and foremost a business system, legal regulation varies greatly by jurisdiction. It should not be assumed that a legal structure or solution that has worked in one country can be trans - lated without modification to another jurisdiction. For example, franchise disclosure documents in the Unit - ed States of America are extremely detailed, running to many hundreds of pages, whereas in Europe the expectation is that a summary is given. In some coun - tries, franchise registration can be a formality whilst in others the authorities examine the documentation and raise queries. Withholding taxes continue to impact financial models, and new franchise laws are being enacted by more and more countries – most recently, the Kingdom of Saudi Arabia and the Netherlands. After 30 years of working in international franchising, the author still comes across new aspects every year. Why Franchise? Franchising offers businesses a sophisticated busi - ness tool for international expansion. The estimated turnover of franchise companies in the United States now exceeds USD930 billion. As globalisation contin - ues at an unprecedented pace, more companies are looking to expand into the lucrative Middle Eastern, African, Asian and Latin American markets. The costs and risks associated with expansion into new markets can be prohibitive for small and medium-sized com - panies. Barriers to market entry for foreign investors can be considerable. Franchising in its different forms offers companies a unique opportunity for profitable international growth at a modest cost. John Y Brown Jr grew KFC from 600 stores to 3,500 stores through franchising by accessing the capital of third parties to drive fast growth. Companies do not need signifi - cant capital or a large head count to expand globally through franchising. According to a survey of mem - bers of the International Franchise Association, 52% of US-based franchise firms had units outside the

United States in 2006, rising to 68.74% in 2024. It has been suggested that franchising creates enterprise value faster than traditional business growth. Because internationalisation is inherently risky, firms favour low-resource-commitment modes of entry into foreign markets, such as distribution and franchising. As a result, franchising continues to be a popular alterna - tive to equity funded expansion. The franchisee gains access to a tried and tested business model, backed by a strong global brand. The franchisor relies on the local market knowledge, infrastructure and capital of the franchisee, thereby reducing the foreign market risk . A well-run franchise system creates a win-win partnership. Definition of Franchising There is no uniform definition of franchising. Each jurisdiction has a different approach. However, a uni - form characteristic of franchising appears to be the existence of a “system”. This typically takes the form of an operations and marketing plan controlled by the franchisor. This principle originates in the United States of America. At the federal level, the Federal Trade Commission (FTC) Franchise Rule uses the concept of “control”, where “…the franchisor has the right to exert a significant degree of control over the franchisee’s method of operation”. Various US states follow the FTC Franchise Rule’s definition but add the concept of a marketing plan for further clarification, referring to a “marketing plan or system prescribed or suggested in substantial part by a franchisor”. The US definition has influenced the approach to defining franchising in a number of international juris - dictions, such as Australia (where the Trade Practices (Industry Code – Franchising) Regulation states that “the right to carry on the business of offering or sup - plying goods or services in Australia, under a system or a marketing plan substantially determine controlled, is suggested by the franchiser or an associate of the franchiser”) and Canada (Alberta uses the concepts of “a marketing or business plan prescribed by the franchisor” and “significant operational control”), but other countries have taken their own unique route. One of the broadest definitions is found in France, where the Doubin Law on pre-contractual disclo - sure (Article L330-3 of the French Commercial Code) applies to any person who makes a trade name, trade

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INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons

mark or commercial sign available to another person and requires that other person to operate with an exclusive or quasi-exclusive commitment. In Indone - sia, a franchise is defined more narrowly as a special right to use a proven, successful business system (where the system must be documented and distinct, with written standards and proven profitability for at least three consecutive years – supported by audited accounts for the past two years showing a profit – and registered intellectual property) for marketing goods and/or services, supported by an intellectual property agreement. Most definitions also include the payment of a fee and the licensing of intellectual property. The common elements of a franchise definition therefore appear to be that there is an agreement between the franchisor and franchisee, pursuant to which the fran - chisee is authorised to use the intellectual property of the franchisor and the business system of the fran - chisor in return for making a payment. It is important to pay close attention to the precise def - inition of franchising in the target market, to avoid cre - ating an “accidental franchise”. Equally, it is possible that a business system that is considered a franchise in one country may not be permitted to start franchis - ing in another country, until it has met the profitability or pilot operations requirement. For example, in China the 2 + 1 rule requires that a company cannot to be registered as a franchisor until they have operated two outlets for one year. Why is Franchising Regulated? There are more than 30 countries in the world with specific franchise laws. These laws seek to protect local franchisees from entering into a long-term com - mitment to invest in a franchise business without full and frank disclosure of all material facts. A success - ful franchise agreement requires long-term collabora - tion based on mutual trust. In view of the significant investment and long-term commitment required from the franchisee, many countries in the world recognise the need to regulate the formation and content of the franchise agreement. The sale of a franchise can be compared to the sale of securities or investments, and the disclosure document can be viewed as taking the function of a mandatory prospectus. Franchise regulation takes three principal forms.

• Disclosure obligation: A large number of countries impose a legal obligation on the franchisor to make full and frank disclosure of key commercial and legal information about the franchised business. • Registration: An obligation to register the franchise exists in the USA and certain Asia-Pacific (APAC) countries. Australia has recently introduced a sim - ple form. Some registration processes are complex and require translation into the local language, so franchisors need to factor the time required to sat - isfy these requests into their timetables. • Relationship laws: Legislation designed to black - list unfair terms in franchise agreements is on the increase. It is important to ensure that the franchise agreement is reviewed for compliance with these relationship laws. Franchise Disclosure Obligations The most important legal obligation of the franchisor is that of disclosure. More than 30 countries in the world have formal franchise disclosure laws. Most civil law countries recognise a general obligation of disclosure based on the principle of good faith but do not spec - ify what is to be disclosed. The franchise disclosure document typically contains two elements. Firstly, information about the business opportunity (including financial information) must be given. Secondly, disclo - sure of the franchise agreement is required, highlight - ing important obligations of the franchisee. Typical franchise disclosure items Typical franchise disclosure items include: • information about the business, including its his - tory and the franchise opportunity; • financial information about the franchisor, such as audited accounts; • details about disputes; • information about the fees and other charges pay - able by the franchisee; • details of intellectual property licensed; and • an overview of important contractual obligations such as restrictions on competition, renewal and termination provisions, and buyout options. Some countries require a market study – for example, France and Belgium. This can be time-consuming to prepare if the business has never traded in the terri -

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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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INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons

chisors impose nominated suppliers for critical goods and services, or nominate an affiliate as the sole sup - plier for certain contract goods and services. In the United States of America, the authorities apply the “rule of reason”, whereby the practical impact of the restrictions on competition contained in the fran - chise agreement determines if the restrictions are per - mitted or not. In the European Union, restrictions on competition contained in vertical agreements, such as franchise agreements, are prohibited and require an exemption to subsist. Most franchise systems fall below the market size threshold of 15% where the authorities intervene. Even large franchisors, such as Burger King and Subway, have not reached that market share. This protection does not apply to so- called hardcore restrictions. Those are restrictions on competition, such as price fixing, that are deemed inherently detrimental to consumers and are therefore prohibited regardless of market share. The EU vertical restraints block exemption (VBER) sets out in detail permitted and prohibited restrictions. A common question concerns the maximum permit - ted duration of purchase ties and other exclusivity obligations in franchise agreements. Under the VBER, these are permitted for five years. However, pursuant to the case law of the European Court of Justice in its landmark decision in Pronuptia of Paris, it has been clarified that longer restrictions are permitted to the extent that they are necessary to safeguard the uni - form quality standards and appearance of those oper - ating in a franchise system. Therefore, the requirement that franchisees purchase certain distinctive goods only from approved sources can often be justified for more than five years. Duration, Minimum Term and Renewal Franchise agreements are typically long-term con - tracts. They often have a duration of between 10 and 20 years. Termination rights are therefore important from the point of view of both parties. Many fran - chisors reserve to themselves extensive rights of ter - mination for breach by the franchisee, but will deny to the franchisee the right of early termination. A number of countries, such as Germany, impose a statutory requirement that both parties must be permitted to terminate the franchise agreement for material breach.

Some jurisdictions require a minimum or maximum term for a franchise agreement – for example, France (ten years maximum) and Korea (ten years minimum). Other jurisdictions, such as Saudi Arabia, prohibit termination of the franchise agreement without good cause. This follows the tradition of the commercial agency laws, protecting local companies from termi - nation without compensation. Getting Paid It is important to verify whether the target territory has foreign exchange regulations that may prevent the franchisee from paying franchise fees in a foreign currency. Countries such as South Africa and Azer - baijan continue to regulate currency outflows, and permits may be required to pay franchise fees. Some countries impose a maximum permitted amount that can be paid by way of royalties to foreign licensors – for example, Nigeria and Pakistan. Withholding Taxes Withholding taxes can significantly impact payment flows. Most countries impose a withholding tax on royalty and technical service fee payments to foreign recipients. The tax amount can range from 5% to 25%. Franchisors will typically seek to impose on the franchisee an obligation to gross up payments, there - by increasing the amounts payable by the amount of the tax. Where withholding taxes are high, this can be onerous on the franchisee. Arguably, the franchisee should not pay a tax that is intended to be paid by the franchisor. The franchisee may not be able to receive a tax credit for this payment, and it may not be able to deduct it as an expense. The franchisor should typi - cally be able to receive a tax credit if it is a profitable business. Some countries have an excellent network of double tax treaties enabling franchisors to reduce the amount of withholding taxes that they have to pay. For compa - nies that franchise internationally on a broad basis, it is therefore important to consider where the franchisor entity should be based. Conclusion No guidebook can replace due diligence and advice from specialist local counsel with experience in fran - chising.

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AUSTRALIA

Australia

Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs ARCHER SCOTT Lawyers

Sydney

Tasmania

Contents 1. An Introduction to Franchising p.11 1.1 Franchise Market Overview p.11 1.2 Franchise Regulation p.11 1.3 Definition of a Franchise Agreement p.12 2. Franchise Disclosure p.13 2.1 Mandatory Disclosure p.13 2.2 Consequences of a Failure to Disclose p.13 2.3 Franchise Disclosure Exemptions p.13 2.4 Franchise Disclosure Language/Translation Requirements p.13 3. Franchise Registration p.13 3.1 Mandatory Registration p.13 3.2 Franchise Registration Process p.13 3.3 Consequences of a Failure to Register p.13 4. Other Requirements p.14 4.1 Past-Profitability Requirements p.14 5. Duration, Renewal and Termination p.14 5.1 Duration of a Franchise Agreement p.14 5.2 Franchise Renewal p.14 5.3 Termination of the Franchise Agreement p.14 6. Restrictions on Competition in Franchise Agreements p.14 6.1 Treatment of Competition Restrictions in Franchise Agreements p.14 6.2 Exclusive Territories and Competing Businesses p.14 6.3 Requiring Franchisees to Purchase Specific Goods and Services p.14 6.4 Channel Reservation p.15 6.5 Vertical Agreement Block Exemptions p.15

7. Choice of Governing Law p.15 7.1 Possibility of a Franchisor Stipulating Non-Local Law p.15 7.2 Local Law Requirements p.15 7.3 Mandatory Content p.15 7.4 Prohibited Provisions in Local Law p.15 8. Dispute Resolution p.15 8.1 Enforcement of Foreign Judgments p.15 9. Payment and Taxes p.15 9.1 Restrictions or Limits on Franchisee Fees and Royalties p.15 9.2 Withholding Tax p.15 9.3 Foreign Currency Controls p.15 10. Execution Formalities p.15 10.1 Authentication, Notarisation, Witnessing, Etc p.15 10.2 Electronic Signatures p.16 10.3 Stamp Duties p.16

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AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

ARCHER SCOTT Lawyers is a full-service, globally connected, Australian law firm. Internationally rec - ognised franchising law expert Warren Scott is the national managing partner of this fast-growing law firm, which has offices in Melbourne, Adelaide and Sydney (via its association with Levitt Robinson Law - yers), and provides premium national support and service to national and international clients. Lawyers now at ARCHER SCOTT have advised leading Aus - tralian and international franchise brands – including

Formula 1, Boost Juice, Silk Laser Clinics, Jetts Fit - ness, Back in Motion Physiotherapy, Laser Plumbing & Electrical, Priceline Pharmacy, and Price Attack – on the development, structuring, and expansion of their franchise networks, as well as on network sales. Lawyers at ARCHER SCOTT and its associated firm Levitt Robinson have also acted in significant litiga - tion matters, including a class action on behalf of 7-Eleven franchisees and litigation involving the Link Business Broking franchise.

Authors

Warren Scott is an internationally recognised expert in franchising law and M&A, with a Master’s in Commercial Law from the University of Melbourne. He has worked on some of the most prominent

Erik Purcell is an associate at ARCHER SCOTT and has been involved in a range of franchise advisory work, as well as franchising litigation. Having started his own wine bar at age 21, Erik has an interest in

franchising M&A, including the sale of Jetts’ Fitness to private equity-backed Fitness First/Goodlife, the sale of Back in Motion Physiotherapy group to an ASX-listed purchaser, and the sale of Laser Plumbing & Electrical to O’Brien. Warren advises on all aspects of setting up a franchise, growing it and selling the entire network, and clients value his long-term approach to building value.

entrepreneurship and the hospitality industry, having signed a lease himself and employed people in his business. This gives him a unique perspective for a mid-level lawyer. He still owns his wine bar, which operates under management.

Lachlan Speirs is a graduate lawyer at ARCHER SCOTT. The son of third-generation dairy farmers, he grew up working in his family’s business. This background gives him a practical, grounded perspective on

Stewart Levitt is a leader in commercial litigation, including franchising-related matters. He commenced a class action proceeding in early 2018, and a settlement was negotiated in mid-

commercial operations and business relationships. Lachlan’s legal experience to date has included franchising advice and litigation.

2021 for AUD98 million, the first class action “win” against 7-Eleven anywhere in the world. Stewart continues to represent the interests of franchisees across the spectrum of franchised goods and services, and consulted with the Morrison government in relation to Franchising Code reform.

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AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

ARCHER SCOTT Lawyers Level 27, 101 Collins Street Melbourne

VIC 3000 Australia Tel: +61 396 536 463

Email: info@archerscott.com.au Web: www.archerscott.com.au

1. An Introduction to Franchising 1.1 Franchise Market Overview The franchising business segment in Australia rep - resents AUD174 billion in economic activity. This includes over 1,200 franchise networks, with more than 94,000 individual franchised outlets, employing over 565,500 Australians across the country. Key brands in the Australian market include McDon - ald’s, Harvey Norman, Boost Juice, 7-Eleven, Priceline Pharmacy, Laser Clinics Australia and Jim’s Group, covering food and beverage, furniture retail, health, beauty and a range of services. 1.2 Franchise Regulation Australia is home to arguably the highest level of fran - chising regulation in the world. Over the past decade, franchising protection for fran - chisees has become highly politicised, with the Labor party and the Liberal and National parties competing to position themselves as offering the strongest pro - tections for franchisees. The Regulator The regulator of franchising in Australia is the Austral - ian Competition and Consumer Commission (ACCC). Franchising Code The key regulatory document is the Franchising Code of Conduct, which is a regulation under the federal Competition and Consumer Act 2010 (the Act). A new version of the Franchising Code came into effect on 1 April 2025, under which new rules apply to

franchise agreements that are entered into, extended, renewed or transferred from 1 April 2025. For these agreements, new rules apply from 1 April 2025 and from 1 November 2025. Previous versions of the Code remain applicable to franchising agreements entered into before these dates, depending on their terms. Australian Consumer Law The Act also contains the Australian Consumer Law, which sets out consumer protections. While not spe - cific to franchise businesses, many provisions have application in a franchising context. Other Relevant Laws Franchisors and franchisees may have obligations under other legislation, such as: • the Fair Work Act 2009; • the Australian Securities and Investments Act 2001; • Australia’s tax laws; and • state and territory licensing schemes. Federal, State and Territory Laws Australia has both State and Territory laws, as well as federal laws, so when doing business across more than one State or Territory in Australia, it should not be assumed that there is consistency of laws. When the Franchising Code Does Not Apply All or some parts of the Franchising Code may not apply to a franchising agreement or the specific cir - cumstances, with the following examples.

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AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

New vehicle dealership agreements There are specific parts of the Code that only apply to new vehicle dealership agreements. These are agree - ments where one party is a motor vehicle dealership that deals mostly in new passenger vehicles or new light goods vehicles, or both. When another mandatory industry code applies The Franchising Code does not apply to a franchise agreement that is covered under another mandatory industry code, such as the Oil Code of Conduct. Exceptions are the Unit Pricing Code and the Food and Grocery Code. If sales covered by the agreement are less than 20% of turnover The Franchising Code does not apply if the agreement is for goods or services that are: • substantially the same as those supplied by the franchisee for at least two years immediately before entering the franchise agreement; and • likely to provide no more than 20% of the fran - chisee’s gross turnover for goods or services in the first year of the franchise. Co-operatives registered under a State or Territory law The Franchising Code does not apply to franchise agreements that form part of arrangements under which the franchisee is a member of a co-operative registered under the Co-operatives National Law or the Co-operatives Act 2009 (WA). Mutual entities The Franchising Code does not apply to franchise agreements that form part of arrangements under which the franchisee is a member with voting rights of a mutual entity. 1.3 Definition of a Franchise Agreement The definition of a franchise agreement is set out in Section 5 (1) of the Franchising Code of Conduct, as an agreement: • that takes the form, in whole or part, of any of the following:

(a) a written agreement; (b) an oral agreement; (c) an implied agreement; and • in which a person (the franchisor) grants to another person (the franchisee) the right to carry on the business of offering, supplying or distributing goods or services in Australia under a system or marketing plan substantially determined, controlled or suggested by the franchisor or an associate of the franchisor; and • under which the operation of the business will be substantially or materially associated with a trade mark, advertising or a commercial symbol: (a) owned, used or licensed by the franchisor or an associate of the franchisor; or (b) specified by the franchisor or an associate of the franchisor; and • under which, before starting or continuing the busi - ness, the franchisee must pay or agree to pay to the franchisor or an associate of the franchisor an amount including, for example: (c) a fee based on a percentage of gross or net income, whether or not called a royalty or fran - chise service fee; or (d) a training fee or training school fee; • but excluding: (a) payment for goods and services supplied on a genuine wholesale basis; (b) repayment by the franchisee of a loan from the franchisor or an associate of the franchisor; (c) payment for goods taken on consignment and supplied on a genuine wholesale basis; or (d) payment of market value for purchase or lease of real property, fixtures, equipment or supplies needed to start business or to continue busi - ness under the franchise agreement. A motor vehicle dealership agreement is taken to be a franchise agreement regardless of whether the ele - ments of the definition set out above are satisfied. (a) an initial capital investment fee; (b) a payment for goods or services;

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AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

2. Franchise Disclosure 2.1 Mandatory Disclosure

Monetary penalties can be imposed by the ACCC where the franchisor fails to provide a disclosure doc - ument or where the disclosure is found to be deficient. 2.3 Franchise Disclosure Exemptions There are no exemptions from the requirement to pro - vide disclosure documents on the basis that a fran - chisee is considered sophisticated. Historically, there was an exemption for the grant of a single franchise, intended to allow an international franchisor to enter into a master franchise agree - ment for Australia without the need to comply with the Franchising Code. This exemption has now been abolished. 2.4 Franchise Disclosure Language/ Translation Requirements In Australia, disclosure documents should be pre - pared in English, which is the national language of Australia. There is no requirement for translation into any other languages. Pursuant to Chapter 2, Part 7, Division 2 of the Fran - chising Code, most franchisors are required to register on the ACCC Register and to provide certain informa - tion about the franchise offer. 3.2 Franchise Registration Process The registration process requires certain franchisors to create a franchise profile on the ACCC Register. Each year, those franchisors who are required to be on the Register also need to confirm or update their franchise profile before the 14th day of the fifth month following the end of the franchisor’s financial year. 3.3 Consequences of a Failure to Register Financial penalties apply for a failure to obtain and maintain the registration. 3. Franchise Registration 3.1 Mandatory Registration

The provision of a disclosure document is mandatory when granting or extending a franchise agreement. The form of the disclosure document is mandated in the Franchising Code of Conduct. In addition to the disclosure document itself, the fol - lowing are mandatory: • the franchisor must give certain information and documents to a potential franchisee before a fran - chise agreement is signed; • the franchisor must give the franchisee specific information and documents during the franchise agreement; • franchisees can back out of new franchise agree - ments within a certain timeframe, known as the cooling-off period; • franchisors and franchisees must act in good faith towards each other; • franchisors and franchisees can resolve a franchis - ing dispute without going to court; • specific steps must be followed if either the fran - chisor or franchisee wants to end the franchise agreement early; and • franchisors must create a franchise profile and publish key disclosure information on the franchise disclosure register. 2.2 Consequences of a Failure to Disclose Where a franchisor fails to provide a disclosure docu - ment at all, the franchise agreement is voidable (rather than being void). The franchisee can apply to the court for termination of the agreement and for damages to be awarded. Where a franchisor provides a disclosure document but it omits some required information, the remedies available to the franchisee will depend on the nature and extent of the shortcomings. Termination will only be ordered where the omissions or shortcomings are sufficiently material to justify that outcome; otherwise, damages may be awarded with or without termination.

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AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

4. Other Requirements 4.1 Past-Profitability Requirements

6. Restrictions on Competition in Franchise Agreements 6.1 Treatment of Competition Restrictions in Franchise Agreements Territory restrictions are permitted in Australia, pro - vided they do not lead to a substantial lessening of competition in an overall market (not just the franchise network). Purchase ties are also permitted in Australia, pro - vided they do not lead to a substantial lessening of competition in an overall market (not just the fran - chise network). There is also a restriction on resale price maintenance, meaning that a franchisor cannot require a franchisee to purchase a product and then require them to resell it above a particular amount. Non-compete/restraints are enforceable in Australia, provided they are no more broad than is necessary to protect the franchisor’s legitimate business inter - ests. This is assessed on a case-by-case basis. In some States of Australia, non-compete clauses must be drafted in a cascading manner, as unenforceable aspects must be severable and the balance must be an enforceable restraint. In other States of Australia, there are laws allowing a court to rewrite an otherwise unenforceable clause. 6.2 Exclusive Territories and Competing Businesses Exclusive territories are permitted, subject to compli - ance with Australia’s competition laws. Furthermore, the franchisor is normally entitled to a reasonable restraint that would apply during the term of the franchise agreement and for a period after - wards; this period depends on each particular factual matrix. 6.3 Requiring Franchisees to Purchase Specific Goods and Services Franchisees can be required to purchase specific goods and services from the franchisor or its nominat - ed suppliers, provided that in doing so the franchisor complies with Australian competition laws.

There is no obligation for the franchisor to demonstrate that the business offered under a franchise agreement has operated profitability for any prior period of time, nor is there any requirement for the franchisor to have had other locations in operation prior to the franchise being granted. 5. Duration, Renewal and Termination 5.1 Duration of a Franchise Agreement There is no minimum or maximum duration for a fran - chise agreement in Australia. The only requirements for duration relate to the termination process (see 5.3 Termination of the Franchise Agreement ). 5.2 Franchise Renewal Franchisees do not have a statutory right to renewal nor to compensation. However, where a franchisor does not offer a renewal of the franchise agreement, the franchisee is relieved of their non-compete and restraint obligations. This means the franchisee can de-brand and continue to trade, provided they do not use any intellectual prop - erty or confidential information belonging to the fran - chisor. 5.3 Termination of the Franchise Agreement The circumstances in which a franchisor can terminate a franchise agreement are highly regulated. Typically, a breach notice and rectification opportunity is the start - ing point, and a franchisor can only safely terminate if the relevant breach is not rectified in that period. The Franchising Code sets out limited circumstances in which a franchisor can terminate on a more trun - cated basis, including solvency issues, criminal con - victions and other similarly serious matters. Franchisees have relatively few termination rights after the initial cooling-off period, which applies immedi - ately after signing the agreement.

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AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

8. Dispute Resolution 8.1 Enforcement of Foreign Judgments Australia is party to the New York Convention. If it is likely that an overseas award will need to be enforced in Australia, it is recommended that an arbitral award is provided for as it is the easiest path to enforcement in Australia. 9. Payment and Taxes 9.1 Restrictions or Limits on Franchisee Fees and Royalties Australian law does not prohibit any particular types of fees under a franchise agreement. However, under Australian laws, if an amount is a penalty rather than a pre-estimate of loss, it will not be enforceable and certain third-party costs are only to be charged on a pass-through basis, such as credit card fees. These issues are not franchise-specific, and each business should consider any relevant applicable laws that relate generally to their business model. 9.2 Withholding Tax Withholding tax applies to royalties and other pay - ments where payments are exiting Australia. Tax advice should be obtained. 9.3 Foreign Currency Controls Relatively few foreign currency controls exist, but certain arrangements apply in relation to jurisdictions based on relevant international considerations from time to time. 10. Execution Formalities 10.1 Authentication, Notarisation, Witnessing, Etc If the franchisor or franchisee is a company, the Cor - porations Act 2001 (Cth) sets out rebuttable pre - sumptions about the proper execution of documents. Where a company has more than one director or a company secretary, execution should be carried out by two officers; this can be either two directors or one director and one company secretary.

6.4 Channel Reservation Franchisors are permitted to reserve channels, such as the internet, to themselves, but must clearly describe this in the disclosure document provided before the franchise agreement is entered into. 6.5 Vertical Agreement Block Exemptions Vertical agreement blocks are considered in the con - text of competition laws generally, and do not gener - ally require exemption. 7. Choice of Governing Law 7.1 Possibility of a Franchisor Stipulating Non-Local Law The franchisor in Australia may choose any relevant law they prefer, including an overseas law. Notwith - standing this choice, the Franchising Code of Con - duct and the Act and various other laws in Australia will apply, as they are focused on the conduct occur - ring in Australia. 7.2 Local Law Requirements There is no requirement for franchise agreements in Australia to be governed by local law. 7.3 Mandatory Content There are no mandatory content requirements under Australian law. 7.4 Prohibited Provisions in Local Law Several provisions are prohibited in Australian fran - chise agreements. Some provisions are contained in the Franchising Code, such as a provision that the franchisee pays the legal costs of the entry into the franchise agreement. However, the more extensive prohibitions on contrac - tual provisions currently arise as a result of the general laws against unfair contract terms in standard form contracts.

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AUSTRALIA Law and Practice Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

Deeds should be signed, sealed, delivered and wit - nessed by adult witnesses who have no relationship to the signatory. 10.2 Electronic Signatures Electronic signatures are valid in Australia. The laws in relation to electronic signing need to be complied with. 10.3 Stamp Duties There are stamp duties and other taxes in Australia. Stamp duty is a state-based tax, so care should be taken to check the position in each State or Territory in which the franchise will operate.

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AUSTRALIA Trends and Developments

Trends and Developments Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs ARCHER SCOTT Lawyers ARCHER SCOTT Lawyers is a full-service, globally connected, Australian law firm. Internationally rec - ognised franchising law expert Warren Scott is the national managing partner of this fast-growing law firm, which has offices in Melbourne, Adelaide and Sydney (via its association with Levitt Robinson Law - yers), and provides premium national support and service to national and international clients. Lawyers now at ARCHER SCOTT have advised leading Aus - tralian and international franchise brands – including

Authors

Warren Scott is an internationally recognised expert in franchising law and M&A, with a Master’s in Commercial Law from the University of Melbourne. He has worked on some of the most prominent

Stewart Levitt is a leader in commercial litigation, including franchising-related matters. He commenced a class action proceeding in early 2018, and a settlement was negotiated in mid-

commercial operations and business relationships. Lachlan’s legal experience to date has included franchising advice and litigation.

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AUSTRALIA Trends and Developments Contributed by: Warren Scott, Stewart Levitt, Erik Purcell and Lachlan Speirs, ARCHER SCOTT Lawyers

ARCHER SCOTT Lawyers Level 27, 101 Collins Street Melbourne

VIC 3000 Australia Tel: +61 396 536 463

Email: info@archerscott.com.au Web: www.archerscott.com.au

Franchising in Australia: An Introduction Australia is arguably the most highly regulated envi - ronment in the world in which to conduct a franchised business. This article outlines an Australian trend whereby busi - nesses that would traditionally have utilised a fran- chise model to grow and develop their business are looking to alternative models that give them greater control over their network, and align them better to all stakeholders. History of franchising in Australia In Australia 20 years ago, a franchise agreement could largely contain any terms that the franchisor consid - ered appropriate, provided an explanatory disclosure document was given explaining the relationship and the terms of the agreement. A common theme of the franchisor-franchisee rela - tionship was that the franchisor wanted to make sure that the franchisee was obliged to comply with the franchise system and represent the brand in a man - ner consistent with the franchisor’s brand positioning. Over the past 20 years, successive governments in Australia have heavily regulated the franchising sector on the premise of providing adequate protections for potentially vulnerable franchisees, leading to Australia becoming perhaps the most regulated environment for franchising in the world. Good faith Pursuant to the Franchising Code, each party to a franchise agreement must act towards another party

with good faith, within the meaning of the unwritten law from time to time, in respect of any matter arising under or in relation to: • the franchise agreement; and • the Code. The obligation to act in good faith contained within the Code extends to negotiations and discussions before the parties enter into a franchise agreement. “Good faith” is not defined in the Franchising Code, which provides that “each party to a franchise agree - ment must act towards each other with good faith, within the meaning of the unwritten law”. The “unwrit - ten law” means the law developed in the Australian courts through case law or common law. The High Court of Australia has held that good faith involves “fairness in dealings between contracting parties” ( Commonwealth Bank of Australia v Barker [2014] HCA 32). Similarly, the Federal Court of Australia has held that the obligation to act in good faith means to: “act honestly and with a fidelity to the bargain; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at time conflict) and to the provisions, aims and purposes of the contract, objectively ascertained” ( Paciocco v

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