This country-specific Q&A provides an overview to franchise and licensing laws and regulations that may occur in Egypt.
It will cover pre-offer, registration and other requirements; ongoing relationships; renewals and terminations; and general considerations.
This Q&A is part of the global guide to Franchise & Licensing. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/franchise-and-licensing/
Is there a legal definition of a franchise and, if so, what is it?
Due to the major economic changes in all countries around the world the franchise system has become very much in demand, a business sought after for the latest top brands in the different market fields, including without limitation, fashion, technology, food stuff, beverages, home appliances etc.. all of which may be provided through franchise.. However, to date, there is actually no specific legislation in Egypt or regulation governing franchising, yet it could be described as a business relationship through which the franchisor grants the franchisee a franchise right within an agreed upon period i.e. the contract term, the license to use the franchisor’s commercial rights for example know-how, trademarks and brands etc.. thereby permitting the franchisee to sell and market the franchisor’s goods or services in a specific jurisdiction, and incompliance with the franchisor’s business plans and guidelines, in consideration thereof , the franchisee pays the franchisor an agreed upon royalty for the franchise right.
Are there any requirements that must be met prior to the offer and/or sale of a franchise? If so, please describe and include any potential consequences for failing to comply.
Due to the fact that there is no specific legislation regulating franchising as indicated under Question No.1 above, accordingly, the composition of the contract shall be referred to the provisions of the Egyptian Civil Code. The Egyptian Civil Code is considered the backbone and main source of all the legal rules applicable to contracts and execution thereof. In this regard, Article (89) of the Egyptian Civil Code states that “The contract shall be concluded once the two parties exchange the expression of the two wills, subject to other specific terms to be further prescribed by the law for concluding the contact “. This means that the contract exists after the exchange of offer and acceptance, as for the pre-period, negotiations are not considered obligatory to the parties thereof. This principle was provided by the Egyptian Court of Cassation in Challenge No. 1733 of 53 J which emphasizes no consideration will be regarded for pre-contract negotiations and the contract will be deemed concluded once the parties’ will are matched.
Are there any registration requirements for franchisors and/or franchisees? If so, please describe them and include any potential consequences for failing to comply. Is there an obligation to update existing registrations? If so, please describe.
In Egypt, there are no registration laws that require the registration of a party as a franchisor or a franchisee, however, it should be noted that in order for said party to be able to practice its activity, said party should maintain the activity by having a practicing license issued from the Egyptian Chamber of Commerce, in addition the activity should be registered at a competent authority i.e. the Commercial Registration Authority which will issue a Commercial Register indicating that said party is permitted to practice trade and this will include entering into the franchise activities.
Are there any disclosure requirements (franchise specific or in general)? If so, please describe them (i.e. when and how must disclosure be made, is there a prescribed format, must it be in the local language, do they apply to sales to sub-franchisees) and include any potential consequences for failing to comply. Is there an obligation to update and/or repeat disclosure (for example in the event that the parties enter into an amendment to the franchise agreement or on renewal)?
As previously indicated above that we do not have a comprehensive Egyptian franchise law addressing various issues such as disclosure commitments, registration requirements and other rights and obligations of the franchisor and franchisee. However, generally speaking, it will be subject to the provisions of the Egyptian Civil Code, the franchisor shall disclose to the franchisee any specific and material information that would be assumed to substantially affect the franchisee’s decision to enter into the franchise agreement.
In particular, due to the fact that the most important material and component in a franchise agreement is the transfer of the know-how, which has led to subjecting the disclosure of the know-how of franchise agreement to Article (76) of the technology transfer provisions stipulated under the Egyptian Commercial Law No. 17 of 1999. Said article indicates that the supplier of the technology should disclose the following to the importer of the technology whether through the contract or during the negotiation phase:
I. Risks that might rise from using the technology and, in particular, those related to the environment, public health, life, and money safety. The supplier should demonstrate to the importer the methods of avoiding such risks.
II. Judiciary actions and other obstacles that might impede the use of technology-related rights, particularly those connected with patents.
III. The provisions of local laws regarding the authorization to export technology.
The above mentioned disclosure obligations do not require a specific method to be applied, as disclosure may be done either in writing or verbally. In addition, there is no specific format to be used while demonstrating.
The required disclosure may be made either in the local language or in a foreign language or in bilingual form. However, it should be mentioned that if any action has been raised before the Egyptian Courts, the latter will require a formal translation of the foreign language used.
When it comes to sub-franchising, since the franchise agreement is a consensual contract so the parties may agree to permit sub-franchising, and in the event that the parties agree to allow sub-franchising, the above mentioned disclosure requirements shall apply.
Failing to comply with the above will lead to the revocability of the contract, as Article (125) of the Egyptian Civil Code states that “the contract may be annulled for fraud if the trick/deceit used by one of the contract’s party or a deputy thereof are so serious that without such trick/deceit the other party would not have concluded the contract. Keeping intentionally silent as to a fact or a surrounding circumstance shall be considered as fraud if it is established that the victim would not have concluded the contract if he/she has learned of the fact or those surrounding circumstances.”
There is no a disclosure obligation to repeat or update disclosure when amending or renewing the franchise agreement as long as such amendment is not related to one of the disclosure requirements in the contract.
If the franchisee intends to use a special purpose vehicle (SPV) to operate each franchised outlet, is it sufficient to make disclosure to the SPVs’ parent company or must disclosure be made to each individual SPV franchisee?
The Egyptian Civil Code does not recognize the idea of affiliates, subsidiaries and sister companies, but rather indicates in Article (53) that each company is completely independent from the other, accordingly, each company having a separate legal entity, is financially independent, and cannot be held accountable for the acts of another company. Therefore, if the disclosure has been made to the franchisee i.e. the parent company, the SPVs will not be considered the recipient of such disclosure.
In light of the above, the franchisor may follow either one of the two following ways:
1- To make the disclosure to the franchisee directly and have the SPVs approve the contract which include the disclosure provision or the disclosure document.
2- To conclude a franchise agreement with each of the SPV including the disclosure provision or attach to the franchise agreement a disclosure document to be executed between the franchisor and each of the SPV being an independent franchisee.
What actions can a franchisee take in the event of mis-selling by the franchisor? Would these still be available if there was a disclaimer in the franchise agreement, disclosure document or sales material?
It should be noted that there is no sale in the franchise it is a license of a right from the franchisor to the franchisee. So, applying this to the question i.e. if the rights subject of the license are deceptive, this means bad faith of the franchisor and in the event that the franchisor knows that the rights are not owned by him or licensed to him, this will keep the franchisor liable for any claims filed by third parties and in particular the owner of the rights. And the franchisee may annul the agreement executed with the franchisor for fraud. It goes without saying that the franchisee may claim compensation for any damage that the franchisee has sustained as a result of such fraud based on the general rule indicated under Article (163) the Egyptian Civil Code” whoever commits an error causing harm to a third party shall be liable to compensate therefor”.
Would it be legal to issue a franchise agreement on a non-negotiable, “take it or leave it” basis?
As indicated above, the franchise agreement is a consensual agreement based on the will and discretion of both parties and nothing legally prohibits non-negotiation, therefore, if the franchisee accepts this from the franchisor, they may conclude the agreement. In this event, the franchisor will remain responsible for the disclosure requirements referred to under the Egyptian Commercial Law indicated under Question No 4 above.
How are trademarks, know-how, trade secrets and copyright protected in your country?
Trademarks, Copyrights and Trade secrets are all considered Intellectual Property Rights which are regulated under Law No. 82 of 2002, concerning the Protection of the Intellectual Property Rights (“IP Law”).
In order for a trademark to be protected according to the IP Law, registering same before the Egyptian Trademark Office is mandatory. The period of protection conferred by the registration of the trademark is ten (10) years, said registration shall grant the owner of the trademark the exclusive right to use and license his trademark and prevent third parties from registering the same trademark. It also grants the owner of the trademark the right to take legal procedures against any infringement by third parties.
Copyrights are protected in Egypt under the provisions of the IP Law. The IP Law indicates that protection of copyrights which shall be through registration at the competent authority based on the classification of the work. Copyright is protected throughout the lifetime of the author and for fifty (50) years after his/her death except for i) the authors of works of applied arts which protection period is twenty-five (25) years from the date of publication or making the art work available to the public and; ii) collective works which shall be protected for fifty (50) years from the date on which the work was published or made available to the public for the first time, whichever comes first.
Trade secrets according to the Egyptian IP Law may be termed under another terminology, we call it undisclosed information. Undisclosed information is protected under the IP Law, this means any type of information that is related to commerce so long as the following legal criteria are met with:
- Information which is confidential, in the sense that it is not, as a body or in the precise configuration or assembly of its components, generally known or common among those involved in the industrial art within the scope of which the information falls.
- Information that has commercial value because it is confidential.
- Information that depends on the effective measures taken by the person lawfully in control of it, to keep it confidential.
The legal possessor is the person who should maintain the confidentiality of such information. However, if the information were submitted to any competent authority to have a permission for marketing pharmaceutical-chemical or agriculture-chemical, the competent authorities should abide by the obligation of keeping such information protected from the date of its submission to the competent body until it is no longer confidential, or for a period not exceeding five (5) years, whichever comes first.
As for know-how, in order to explain protection thereof, we should differentiate between the source of the know-how which may be either: i) a patent, or; ii) technical information that is not registered as a patent as follows:
1- Know-how as a patent:
Registration is required before the Egyptian Patent Office for the protection of the invention as a patent according to the IP Law. Protection occurs when the inventor obtains the patent certificate which lasts for twenty (20) years, these 20 years will start retroactively as of the date of filing the application in Egypt.
2- Technical information which is not registered as a patent:
This is regulated under the Technology-Transfer Section in the Egyptian Commercial Law, which provisions thereof should be taken into consideration while executing the franchise agreement, as most of these provisions are considered as Jus cogens. The parties in this consensual franchise agreement will stipulate therein the protection provisions they deem suitable.
Are there any franchise specific laws governing the ongoing relationship between franchisor and franchisee? If so, please describe them, including any terms that are required to be included within the franchise agreement.
As previously indicated above, we do not have a comprehensive Egyptian franchise law regulating the relationship between the franchisor and franchisee. However, some Egyptian scholars and legislators have adopted the idea of characterizing a franchise agreement as being essentially a technological transfer agreement, thus subjecting this agreement to the mandatory provisions stated under the chapter on technology transfer in the Egyptian Commercial Law, inter ilia the obligatory choice of the Egyptian Law, being the governing law, and the Egyptian Courts being the courts having jurisdiction to examine any disputes that may arise out of the franchise agreement. Furthermore, should the parties agree to resort to arbitration to resolve a dispute, said arbitration must be held in Egypt.
Unlike the above mentioned approach, there is another perspective amongst the legislators, which we agree with, and that is that the franchise agreements are in fact distinct from technology transfer agreements, in several aspects inter ilia; technology transfer agreements, Article (75) of the Egyptian Commercial Law protects the licensee and limits the control of the licensor stating that “Any contractual term or condition that may impose restrictions on the licensee’s freedom to use the transferred technology may be null. This shall, particularly, apply to the conditions imposing any of the following obligations on the licensee: 1) obliging the licensee to accept and pay for the improvements introduce by the licensor, 2) prohibiting the licensee to amend the technology in a way that matches the local requirements, Also prohibiting the acquisition of another technology similar to or competing with the technology subject of the contract 3) using specific trademarks to distinguish the commodities for which the technology was used in their production, 4) limiting the volume of the production, its price, the method of its distribution or its export. 5) participation of the licensor in running the establishment of the licensee, or his interference in choosing the permanent workers in it. 6) purchase of the raw material, equipment, machines or spare parts for operating the technology, from the licensor alone, or from the establishment exclusively specified by the licensor. 7) restricting the sale of production, or the delegation for its sale, exclusively to the licensor or the persons defined thereby…” In light of this Article, any condition that will be included in the technology transfer agreement obliging the licensee to comply with business plan or business scheme applied by the licensor or to use a specific trademark, may be nulled in addition in case of occurrence of any of the events mentioned under the above article. In contrast, franchising is a tool for expanding the business of the franchisor in a way that complies with the franchisor’s plans with respect to the business, marketing and operation, Hence, the franchisee runs the franchised business under the supervision and assistance of the franchisor.
Therefore, we are of the view that the ongoing relationship between franchisor and franchisee in the franchise transaction is subject to the provisions of the Egyptian Civil Code.
Are there any aspects of competition law that apply to the franchise transaction (i.e. is it permissible to prohibit online sales, insist on exclusive supply or fix retail prices)? If applicable, provide an overview of the relevant competition laws.
We would like to differentiate between two aspects of competition, i) competition in the Egyptian Market resulting from the conclusion of a franchise agreement, and; ii) competition between the Franchisor and Franchisee, as follows:
i) Competition in Egypt is regulated under the Protection of Competition Law and Prohibition of Monopolistic Practices which was promulgated by Law No. 3 of 2005 and its Executive Regulations (“Competition Law”). This Competition Law prohibits specific acts and agreements that are considered to be anti-competitive acts and might have a negative impact on the economic activity in the relevant market, such as:
a) Agreements between Competitors (Horizontal Agreements):
According to Article (6) of the Competition Law prohibits agreements or contracts between competing persons of the same level in any relevant market, if their intension is to cause any of the following:
- Increasing, decreasing or fixing the prices of the sale or purchase of commodities.
- Allocating the markets according to geographic areas, distribution centers and type of customers, commodities, seasons or time periods.
- Coordination regarding refraining from or participating in tenders, auctions, negotiations as well as other procurement offers.
- Restricting production, marketing or distribution operations whether with respect to availability, kind or volume.
b) Agreements between a person and his suppliers or clients (Vertical Agreements):
According to Article (7), these kind of agreements are prohibited, if they restrict freedom of competition. The Egyptian Competition Authority determines such agreements according to the criteria stated under Article (12) of the Executive Regulations as amended by the Prime Minister Decree No. 2509 of 2016, such criteria are:
- The effect of the agreement on the freedom of competition in the relevant market.
- Benefits accrued by the consumer based on such agreements.
- Preserving the quality, reputation and safety of the product, as well as all security requirements.
c) Illegal use of control (abuse of dominant position):
According to Article (4) of the Competition Law, a Person is considered to be in a Dominant Person if:
• Its Market share exceeds 25% of the total relevant market.
• It has an effective impact on the prices or the volume of supply in the relevant market.
• Other competitors do not have the capability to restrict his practices in the relevant market.
However, it should be noted that being in a dominant position is not in itself considered as a violation but rather the abuse of the dominant position is the violation. In this regard, Article (8) of the Competition Law provides, exhaustively, a list of abusive practices that the dominant persons are prohibited to engage in:
• Any act that leads to non-manufacturing, non-producing or non-distributing a product for a certain period of time.
• Refraining from entry into sale or purchase agreement with any person or to cease dealing with such person, in a manner that could limit his freedom to access or exit from the market at any time.
• An act that would lead to the distribution of a specific product according to the geographic areas, distribution centers, clients, seasons or time periods between persons having vertical relations.
• Concluding a sale of product or service agreement on a condition that leads to the acceptance of the buyer to purchase products or services irrelevant to the original agreement.
• Discriminating between sellers or buyers with similarities regarding commercial positions/standing either in respect of sale or purchase prices or as regards terms of the transaction in a manner that limits their ability to compete.
• Refrain from producing or providing a scarcely available product when its production is economically possible.
• Mandating the dealers with the dominant person to prevent a competitor from having access to their facilities or services, when it is economically possible.
• Selling goods or services below their marginal or average variable cost.
• Obliging a supplier not to deal with a competitor.
In light of the above mentioned, we are of the view that the above mentioned will not be applicable to the transaction/agreements that would be concluded between the franchisor and franchisee.
ii) Since Egypt does not have a comprehensive law on franchising to regulate the specific aspects of the franchising contracts such as non-competition, due to this fact, we believe that the non-competition obligation will be agreed upon in the contract itself in application to the rule of pacta sunt servanda.
Are in-term and post-term non-compete and non-solicitation clauses enforceable?
Yes, the non-competition or non-solicitation clauses are enforceable as long as the contract’s parties have agreed to apply same during the contract term. As for the post-term non-compete clauses, due to the absence of a legal framework or regulation for the franchise to comprehensively regulate aspects of the franchise transaction, we are of the opinion that there is no restriction to include non-compete clauses to cover the period after the termination or the expiration of the franchise contract as long as said clauses are not targeted to harm or cause damage to the franchisee, however, said clauses are only made for the purpose of protecting the licensed rights and the trade secrets.
Are there any consumer protection laws that are relevant to franchising? Are there any circumstances in which franchisees would be treated as consumers?
Due to the fact that the franchise agreement is based on that the franchisor grants the franchisee the license to use the franchisor’s commercial rights for example the know-how and trademarks etc. in order to sell and market the franchisor’s goods or services, therefore, the Consumer Protection Law will not be applied to the relationship between the franchisor and the franchisee but rather it shall be subject to the provisions of the executed franchisee agreement. However, the franchisee being producer or service/goods provider will be subject to the provisions of Law No. 181 of 2018, throughout the practice of the business with the end user/ consumer.
Is there an obligation (express or implied) to deal in good faith in franchise relationships?
Yes, there is a legal obligation stipulated under the Egyptian Civil Code in Article (148) which states that “the contract shall be executed according to its provisions and in a manner that is compatible with bona fide/good intention requirements.”
Are there any employment or labour law considerations that are relevant to the franchise relationship? Is there a risk that the staff of the franchisee could be deemed to be the employees of the franchisor? What steps can be taken to mitigate this risk?
There are no employment or labour law considerations that are relevant to the franchise relationship as the relationship between the franchisor and franchisee are not considered as employment relationship, However, the employment considerations should be taken into account with respect to the Egyptian franchisee, being an employer, vis-à-vis its relation with its employees and the same applies on the franchisor if the latter is Egyptian.
If the staff are engaged in employment contracts with the franchisee, they cannot be deemed to be employed at the franchisor.
Is there a risk that a franchisee could be deemed to be the commercial agent of the franchisor? What steps can be taken to mitigate this risk?
The Commercial Agency is regulated under the Egyptian Commercial Law and the Commercial Agency Law No. 120 of 1982 which mainly governs the procedures of registering the commercial agency contract and the procedures for registering in the Commercial Agents Register (obtaining Form 14). On the contrary, the franchise agreement is not regulated specifically under the Egyptian Laws.
The Commercial Agency Law defines the agent under Article (1) thereof as any person offering bids, concluding operations of purchase, sale or lease or rendering services in the name and for the account of producers, merchants, distributors or in his own name but for the account of any of the said persons. As for the franchisee, there is no specific definition under the Egyptian Laws.
Comparing both relationships, agents for example are not legally independent from the principals rather the principal shall be liable for the agent’s acts that are done for the benefit of and on behalf of the principal. Moreover, the agent should register the agency agreement at the Agents Registry and obtain “Form S 14”.
Unlike the agency, the franchisee is legally independent from the franchisor, and the franchisee will be liable for its own activity and actions. In addition, the franchisee is a complete independent person operating a franchised business on its own behalf and for its own benefit. Also, the franchisee agreement is not required to be registered at a certain authority and the franchisee is not obliged to register itself at a certain registry.
Based on the above distinctions, the two relations are completely distinct and the franchisee cannot be considered as being the commercial agent of the franchisor.
Are there any laws and regulations that affect the nature and payment of royalties to a foreign franchisor and/or how much interest can be charged?
Payment of royalty to foreign entities is regulated under Law No. 88 of 2003 promulgating the Law of the Central Bank, The Banking Sector and Money and its Executive Regulations (“CBE Law”). CBE Law in Article (111) states that “Every natural or legal person may maintain all the foreign currencies transferred thereto, or owned or possessed thereby. Said person shall have the right to conduct any foreign currency transaction, including inward and outward transfers, and local dealing, providing these transactions shall be made via the banks authorized for dealing in foreign currencies. The natural or legal person may also deal in foreign currencies via the entities authorized to conduct such dealings according to the provisions of this Law, as defined in its Executive Regulations…etc.”).
In addition, Article (42) of the Executive Regulations indicates that it is permitted to sell and/or purchase goods and services using foreign currency as long as this is mentioned in the agreement concluded with the foreign entity and provided that dealing shall be made through one of the authorised banks permitted to deal in foreign currency.
The payment will be subject to tax at the rate of 20%, this amount is withheld at the source, as mentioned under Article (56) of the Income Tax Law No. 91 of 2005 which states that “Tax at the rate of 20% is due on amounts, paid by owners of individual firms, legal persons residing in Egypt and non-resident bodies which have permanent establishment in Egypt, to non-residents in Egypt, without deducting any costs from them. Said amounts include the following:
1- Yields and Interests.
2- Royalties, and etc…”
As for the interest, if the franchisee has delayed payment of the due royalty and considering that the franchise agreement is a commercial transaction, the delayed payment will be subject to either of: i) if there is no agreement in the contract, the provision of Article (50) of the Egyptian Commercial Law shall apply which indicates that the rate shall be the rate announced by the Central Bank of Egypt, or ii) if the parties agreed upon a certain interest rate in the contract, it shall be applied as long as it doesn’t exceed the rate announced by the Central Bank of Egypt.
Is it possible to impose contractual penalties on franchisees for breaches of restrictive covenants etc.? If so, what requirements must be met in order for such penalties to be enforceable?
Yes, the parties may agree on consensual compensation as per Article (223) of the Egyptian Civil Code which provides that the contracting parties may determine in advance the amount of the compensation by stating same in the contract or in a subsequent agreement.
The Egyptian Civil Code in Article (218) also states the important rule that should be followed to apply compensation, which is to notify the other party to execute his obligation unless otherwise stated between the parties. Notifying shall be by means of serving an official notice.
This means that the parties also may agree in the contract on how to enforce said penalty for example; to regulate serving the notice from the franchisor to the franchisee for being in default and requesting the franchisee to remedy said default, if it is capable of being remedied. If the franchisee did not cure the default within the agreed upon period, the franchisor shall have the right to claim the consensual compensation by applying the contract provision, but if the franchisee refuses to pay, the franchisor shall claim the compensation by way of the dispute resolution method agreed upon. It is worth mentioning that as a general rule, compensation is not a profit tool and the agreed upon compensation shall be subject to the evaluation of the judge or the arbitral tribunal taking into account that the compensation shall include the loss suffered and the profits/gain missed.
Furthermore, as per Article (224) of the Egyptian Civil Code, if the franchisee, being a debtor, is able to establish that the franchisor has suffered no loss, said agreed upon compensation shall not be due and the court may reduce the amount agreed upon if that amount is grossly excessive or if the original obligation was partly performed.
In addition, as per Article (225) of the Egyptian Civil Code, if the damage has exceeded the agreed upon compensation, the creditor may not request an additional amount unless he is able to establish that the debtor has committed fraud or gross error.
What tax considerations are relevant to franchisors and franchisees? Are franchise royalties subject to withholding tax?
As a general rule, each party shall bear the taxes applied within the jurisdiction in which such party is operating its business. In Egypt, the commercial profits taxes and the value added taxes shall be applied on the companies practicing its activity in Egypt.
The payment of the royalty will be subject to tax at the rate of 20% to be withheld at the source by the franchisee and submitted to the Egyptian Tax Authority against a receipt, as mentioned under Article (56) of the Income Tax Law No. 91 of 2005 which states that “Tax at the rate of 20% is due on amounts, paid by owners of individual firms, legal persons residing in Egypt and non-resident bodies which have permanent establishment in Egypt, to non-residents in Egypt, without deducting any costs from them. Said amounts include the following:
1- Yields and Interests.
2- Royalties, and etc…”
It is worth mentioning that the application of the above mentioned tax percentage may be differed if the franchisor has evidenced that there is an avoidance of double taxation treaty concluded between Egypt and the Franchisor’s country.
Does a franchisee have a right to request a renewal on expiration of the initial term? In what circumstances can a franchisor refuse to renew a franchise agreement? If the franchise agreement is not renewed or it if it terminates or expires, is the franchisee entitled to compensation? If so, under what circumstances and how is the compensation payment calculated?
Determination of the contract duration, renewal or non-renewal are subject to the parties’ discretion as agreed in the contract. However, if the contract was silent on the renewal, nothing legally prohibits the franchisee from requesting renewal.
In the event the parties have agreed on a renewal provision and the franchisor refuses to renew this may be considered as a breach to the agreement and, in this case, the franchisee shall have the right to claim compensation for the damage incurred. However, if the parties have not agreed on a renewal provision, the renewal of the contract shall be subject to the acceptance or rejection of the franchisor and in this event a compensation cannot be claimed.
It should be noted that the franchisee may claim compensation as a result of: i) the franchisor terminated the contract without reason and said termination incurred damage to the franchisee, or ii) if the franchisee has terminated the contract for reasons attributable to the franchisor’s breach of the contract.
The compensation shall be calculated in light of the loss suffered and the profits/gain missed.
Are there any mandatory termination rights which may override any contractual termination rights? Is there a minimum notice period that the parties must adhere to?
As a general rule, Article (147) of the Egyptian Civil Code, provides that the contract is the law of the contracting parties, and shall not be revoked or amended except with the consent of the parties or for the reasons prescribed by law, and as explained previously due to the fact that there is no specific law regulating the franchise transaction, we shall revert back to the provisions organising the formation of the contract and termination thereof as stipulated under the Egyptian Civil Code. In this regard, the Egyptian Civil Code indicates that the following reasons are considered to be mandatory regarding termination rights:
1- The non-existence of the capacity to any of the contracting parties.
2- If the object of the obligation is something impossible in itself, the contract shall be null and void.
3- If the obligation has no cause, or its cause constitutes a violation of public order or moral, the contract shall be null and void.
4- In the contracts binding two parties, if the obligation is terminated based on the impossibility of its execution, the counter obligations shall be terminated concurrently and the contract shall be revoked automatically.
If the contract is terminated due to any of the above mentioned reasons, there is no minimum notice period since the contract is terminated by the force of law. However, if the termination is based on contractual right, the notice period shall be as agreed in the agreement provided it shall be reasonable.
Are there any intangible assets in the franchisee’s business which the franchisee can claim ownership of on expiry or termination, e.g. customer data, local goodwill, etc.
Any intangible assets which branch from or relate to the licensed rights will remain the ownership of the franchisor. As for the assets that resulted from the business operations of the franchisee, the latter will be entitled to claim ownership thereof.
Is there a national franchising association? Is membership required? If not, is membership commercially advisable? What are the additional obligations of the national franchising association?
In Egypt, there is a non-governmental and non-profit organisation named “Egyptian Franchise Development Association “EFDA” which is the only national franchise association which represents and serves the franchise industry in Egypt. EFDA is a member of the World Franchise Counsel “WFC”. In order to obtain the benefits provided by the EFDA, a membership is required.
The EFDA’s Objectives are; increasing the awareness of the "franchise form" of doing business, develop the technical know-how of franchising among local franchisors, provide a database of the franchise industry parties and liaise between all stakeholders in the franchise industry i.e. financial institutions, governmental institutions, franchisors, and potential investors, match-make franchisors with potential investors from a local and international stand point.
EFDA also develop workshops and seminars tailored to meet the needs of the franchise industry stakeholder, hold the annual Franchise Conference held in parallel with MIFE attended by renowned world speakers in the franchise field, hold the annual Middle East & North Africa International Franchise Exhibition (MIFE), publish the annual "Franchise Egypt" magazine Offer consultancy services.
Are foreign franchisors treated differently to domestic franchisors?
There is no difference in the treatment of a foreign franchisor and a domestic franchisor. The contract that will be executed is a consensual contract which provisions shall apply whether the franchisor is foreign or domestic.
Are there any requirements for payments in connection with the franchise agreement to be made in the local currency?
The currency of payment shall be as agreed by the parties of the franchise contract, however, if the contract’s parties are Egyptian payment shall be made in EGP currency according to Article (42) of the Executive Regulations of the CBE Law which states that “ Dealing in commodities and services by purchase and sale within Egypt shall be conducted in Egyptian pound, according to the following rules: a- Dealing in terms of the Egyptian pound shall not violate any of the terms stipulated in any contractor, supply or services contracts concluded with a foreign party, provided that dealings are conducted through the banks authorized to deal in foreign exchange… etc.”
Must the franchise agreement be governed by local law?
As per the distinction referred to herein under question No. (9), we are of the view that there is no legal obligation to apply the local law to the franchise agreement, however, the general rule indicates under article 19/1 of the Egyptian Civil Code shall apply which states that “Contractual Obligations are governed by the Law of the domicile when such domicile is common for the contracting parties, and in the absence of the common domicile, the law of the country where the contract is concluded shall apply. These provisions are applicable unless the parties agreed otherwise or the circumstance indicate that the intention was to apply another law.”
What dispute resolution procedures are available to franchisors and franchisees? Are there any advantages to out of court procedures such as arbitration, in particular if the franchise agreement is subject to a foreign governing law?
Generally, given the rule that the contract is the legislation of the contracting parties, as provided by the Egyptian Civil Code, the parties may agree on the dispute resolution method whichever they prefer i.e. either to resort to court or arbitration. However, it should be noted that the Egyptian Procedural Law indicates in Article (28) that the Egyptian courts shall jurisdiction for any cases that are filed against an Egyptian, excluding cases related to real estate located abroad. In addition, Article (30) of the same Law provides that the Egyptian Courts shall have the jurisdiction to review any cases which are filed against a foreigner who has no domicile or place of business in Egypt, if the case is related to funds or assets existing in Egypt or related to an activity that shall be established, executed or should have been executed in Egypt. Therefore, choosing to resort to the courts will be limited to the Egyptian Courts, that is why, the parties are likely to choose arbitration as a dispute resolution method. In this regard, the Egyptian Arbitration Law permits the parties to hold the arbitration either in Egypt or abroad. The Arbitration Law also refers to a notable aspect that the Egyptian Arbitration law shall apply in any of the following events: i) if the parties agreed to hold the arbitration in Egypt, or ii) if it is commercial international arbitration and the contract parties have agreed to apply the Egyptian Arbitration Law. Otherwise, if the arbitration will be conducted abroad, the parties have the freedom to apply any foreign law.
Does local law allow class actions by multiple franchisees?
The Egyptian Procedural Law in Article (3) thereof states that “Any lawsuit, plea or claim based upon the provisions of this Law or any other law, shall not be accepted, if the party concerned does not have a personal, direct or existing interest approved by the law…etc.” based on this article, in order to file a lawsuit, each party shall file by himself or by issuing a POA for another party to act on his behalf and also should have a personal, direct and existing interest. Therefore, multiple franchisees cannot bring legal proceedings by one franchisee who represents the remaining members unless such franchisee has a POA to represent them all. However, this obligation shall not be required if the franchisees have established a legal-regulated group for example: syndicates or private associations. In this event, incorporation law and its articles of association will decide on the party to act on behalf of the group.
Must the franchise agreement and disclosure documents be in the local language?
Neither the franchisee agreement nor the disclosure documents must be in the local language, as it may be drafted in either local language or foreign language or in bilingual form. However, it should be noted that if any action has been raised before the Egyptian Courts, the latter will require a formal translation of the used foreign language.
Is it possible to sign the franchise agreement using an electronic signature (rather than a wet ink signature)?
The electronic signature is regulated under Law No. 15 of 2004. As per Article (14) of said E-Signature law, electronic signature can be used within the scope of civil, commercial and administrative transactions. As long as the signatory (signing party) has a registered and valid electronic signature in Egypt according to the regulations of the E-Signature law and its executive regulations, and must be registered at the competent authority, which is “Information Technology Industry Development Agency”.
Can franchise agreements be stored electronically and the paper version be destroyed?
This shall be subject to two assumptions: the first one is that the agreement is signed on paper with a wet ink signature, and the agreement is scanned and stored electronically. In this event, the paper signed copy will be the original of the agreement and accordingly it should be kept and maintained and cannot be destroyed. The second assumption is that the agreement is signed through E-signature, in accordance with the provisions of the E-Signature law. In this event, there will be no original paper version.
Please provide a brief overview of current legal developments in your country that are likely to have an impact on franchising in your country.
Recently, there are many laws issued regulating different matters such as:
1- Law No. 181 of 2018 concerning the Consumer Protection Law, that came into force on December 2018 and has replaced the former Consumer Protection Law No. 67 of 2006. We believe that certain provisions of this law may have a direct impact on franchising in Egypt as franchisees in their deal with the end-user/consumers are mandatorily required to follow certain actions including but not limited to: 1) to maintain and guarantee the health and safety rules and quality standards for the consumer vis-à-vis the products, 2) to inform the consumer with all the core date of the product, 3) to avoid any misleading or deceptive behavior when advertising the product. 4) to hand to the consumer an invoice (a receipt) of their transaction, including all the details of the transaction i.e. date, time, price of the product and the i.e. franchisee’s details, 5) the franchisees which are suppliers of durable goods shall warrant such goods against manufacturing defects for at least 2 years from the date the consumer receives them. The warranty shall cover inspection, repair and supply of the original spare parts of the products, as well as bearing the costs of transportation of such products if they need to be repaired outside the consumer's premises, including installation and operating expenses, The New Law has introduced a new significant obligation on the supplier whereby it is committed to replace the product if the defect is repeated twice within 1 year of its repair, 6) The refund period is extended to 30 days in case the product turns out to be defective or non-conforming and 14 days as of the date of purchasing the product, without giving any reasons, and 7) to cope with the electronic market spread where many people now perform their shopping online, the Law has devoted some provisions to regulate key aspects of online shopping to protect the consumers in their electronic transactions as the Law mainly addresses the data that should be made available for the consumer at the time of the transaction, the time limit for cancelling the online order, and the right to refund the purchased item within 14 days of its receipt.
2- Law No. 175 of 2018, is the law combating IT crimes: Due to the fact that the global economic changes and developments, which led to the widely spread online shopping and accordingly the e-commerce transactions which shall be used in several businesses as the franchise, for the purpose of protecting and controlling same, the Egyptian legislator has intervened and issued Law No. 175 of 2018 combating IT crimes. The law penalizes various cybercrimes such as illegally logging into a website or private account, hacking or deactivating emails or websites, and illegally accessing credit card details. It is worth mentioning that this law shall apply outside Egypt, against any one of the crimes stipulated under the said law whenever the crime is punishable in the country where the crime is committed, under any legal description in any of the cases stated under the law. As a result of the issuance of this law, we expect that it will be much easier to prove any of the violations that will occur and concluding e-transactions will be quiet safer which may increase the franchise existence in Egypt.
3- Law No. 15 of 2017 on facilitating the procedures of licensing the industrial establishments. The Law is a major step toward facilitating the licensing procedures which is one of the challenges facing the industrial sector in Egypt. The license of the Industrial Development Authority (IDA) became the sole license required for establishing and operating an industrial facility. The Law clearly provides that no approvals or licenses shall be required from any other authority with respect to the industrial licenses.