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)?
Franchise & Licensing
Again, reference should be made to general information duties which every party is bound to when negotiating a contract. During the pre-contractual liability period, there is a general duty of providing information about certain essential technical qualifications of the parties, the scope of the agreement, and the business itself; both parties are bound to provide all the information required to enter into a fair contract, avoid misrepresentation of certain facts or misleading assertions. Regarding franchising agreements, this obligation should include the duty of the franchisor to inform the franchisee about the goods and the services included in the agreement.
As to when the disclosure should be made, there is no specific rule on that, but, in general, it is considered that the parties should provide the other with such information within a reasonable timing, depending on whether the disclosing party has already knowledge before entering negotiations, or during the referred negotiations.
The party that does not disclose the required information is liable for the same, as per article 227, 2 of the Angola Civil Code, which can lead to the counterparty be entitled to claim compensation, and the contract being considered void (provided that the damaged party files a court action within 3 years of knowledge that the party has concealed or misrepresented information).
Each disclosure province’s franchise legislation requires that a franchisor (or sub-franchisor) deliver a franchise disclosure document (FDD) to each prospective franchisee no later than 14 calendar days before the prospective franchisee signs a franchise agreement or pays any consideration in respect of the franchise, whichever is earlier. The FDD must contain all ‘material facts’, including those prescribed by regulation (ie, the prescribed list is not exhaustive). ‘Material facts’ include any information about the business, operations, capital or control of the franchisor, or about the franchise system, that would reasonably be expected to have a significant effect on the value or price of the franchise to be granted or on the prospective franchisee’s decision to acquire it.
In addition, between the time that the FDD is delivered and the time when the franchisee signs the agreement or pays any money, material changes may occur and the franchisor will be required to notify the franchisee of such material changes and give the franchisee an opportunity to consider their significance. ‘Material change’ is defined to mean a change in the business, operations, capital or control of the franchisor, or a change in the franchise system, that would reasonably be expected to have a significant adverse effect on either the value or price of the franchise or on the decision to acquire it.
Various exemptions are available in each disclosure province, the most common being exemptions for:
• renewals or extensions, where there has been no material change since the current agreement was entered into;
• additional franchises of the same type, where there has been no material change since the existing franchise agreement was entered into;
• fractional franchises (ie, where the revenues of the franchised business are not expected to exceed 20% of the revenues of the overall business);
• transfers by the franchisee, where the transfer is not effected by or through the franchisor;
• grants to directors or officers of the franchisor;
• grants where the franchisee is not expected to make a total initial investment of more than C$5,000; and
• grants where the franchisee is expected to make a total initial investment in excess of C$5 million.
Canadian courts construe these exemptions strictly against the franchisor, and so they are used sparingly and with caution. Absent one of these exemptions applying, a FDD must be provided to a prospective franchisee, regardless of whether it’s the grant of a new franchise or the transfer or renewal of an existing franchise. Failure by a franchisor to abide by these requirements can provide a franchisee with a claim for damages, or possibly a right to rescind the franchise altogether. For further information on remedies available to franchisees, see Question “6” below.
There is no specific law or regulation that subjects a franchisor to general or formal disclosure requirements. However, the general provisions on good faith in the Chilean Civil Code require the parties to disclose to each other all matters related to the future agreement that will be material to the other party's final decision to execute the agreement. Moreover, despite the lack of any legal provision setting forth the specific time when and procedure under which disclosure is to be carried out, general provisions of the Chilean Civil Code rules that any disclosure of material information must be given to the other party in timely fashion and before a decision is made as to entering into the agreement.
Parties entering into franchising agreement must acquaint each other plainly and completely with conditions related to franchise, especially with franchise system (model) in an honest manner. There is no prescribed format. Parties are prohibited from disclosure in the event the agreement is not concluded.
There are no specific pre-contractual disclosure requirements under Danish law. Consequently, there are no legal requirements to disclose certain information relating to the franchise prior to entering into the franchise agreement. However, as a general principle, a duty of disclosure arises when reasonable commercial standards of fair dealing require that particular circumstances should be disclosed when entering into an agreement. Franchisor's misrepresentation or mis-selling of the franchise concept prior to entering into the franchise agreement may therefore give rise to an action for breach of the agreement allowing the franchisee the ordinary remedies for breach. However, ordinary trade puff cannot constitute a breach of the agreement.
Danish courts are reluctant to award damages for pre-contractual behaviour when no agreement has been entered into. The basis of liability for contractual damages because of breach of an agreement is the concept of fault (culpa). In addition, liability requires that the non-breaching party has suffered a loss and that there is an adequate causal connection between the breach and the loss. Damages are computed on an expectation basis, i.e. the non-breaching party shall be put in the same position as if the agreement had been performed.
The doctrine of culpa in contrahendo is recognised as a general principle for pre-contractual behaviour but only as an exception. As a starting point, pre-contractual liability requires a clear breach of the law in the form of an unfair behaviour or a clear breach of the rules applicable to the contractual process.
Furthermore, the general conditions of liability in terms of loss and adequate causal connection must be fulfilled to impose a pre-contractual liability. Since no agreement has been entered into, damages will be computed based on reliance damages.
French law requires certain mandatory pre-contractual disclosures by a franchisor before executing a franchising contract. (Articles L. 330-3 and R. 330-1 of the Commercial Code).
The purpose of these disclosures is to provide the franchisee with full knowledge of the facts enabling them to make an informed decision before contracting with the franchisor.
This information is provided in one document called the Document d'Information Pré-contractuelle (‘DIP’). The requirements are set forth in Article R. 330-1 of the Commercial Code, which includes, inter alia, the following information:
- Information about the franchisor (legal name, commercial name, headquarter address, amount of invested capital, business registration number, and details of the business bank accounts).
- Information regarding the trade mark (registration date and number). If the franchisor is a licensee of the trade mark, the document must include the period of validity of the license.
- The state and prospects for development of the market concerned, and whether the goods or services to be sold are already sold within the territory. The market study can be general, but it must not be incomplete, misleading or unreliable.
- Information on the franchise network (list of all companies in the network operating in France and their signature dates, and number of franchisees which have left over the past year including reason why, i.e. expired, terminated, or cancelled).
- Main terms of the agreement (duration, conditions of renewal, assignment and termination, and scope of exclusive rights).
- The franchisor's annual financial statements for the two previous financial years.
This duty applies to any franchising agreement performed on French territory, regardless of the law governing the agreement.
Article 1112-1 of the Civil Code by extension also creates an affirmative duty for a party to disclose any information which may be material to other party’s consent to the contact. Thus, failure to disclose material information could be interpreted as a violation of this disclosure requirement. Case law has yet to develop regarding the application of this law to the pre-contractual disclosure requirements, however, it could presumably be interpreted as another grounds for the annulment of an agreement subject to the pre-contractual disclosure requirement.
Delivery and Timing
The DIP must be delivered to the franchisee at least 20 days before the signing of the franchise contract, allowing the franchisee the opportunity to independently review the document
When payment of a sum is required in advance of signing the contact, the disclosure must be provided before payment is made.
This also applies during renewal of a contract, including when renewal by tacit agreement. The disclosure must also be provided to assignees of the franchise agreement, and to a sub-franchisees.
The burden of proof of delivery of the pre-contractual information document lies with the franchisor. A copy of the document should be signed by the franchisee as proof of receipt. Electronic signatures are allowed.
Consequences of non-disclosure
There is no regulatory body enforcing the disclosure requirements. Any violation would be assessed by the competent courts. Non-compliance does not automatically trigger annulment of the contract. Instead, the decision will hinge on whether the franchisee was prevented from giving informed and clear consent.
Courts have annulled contracts on the grounds that the pre-contractual disclosure was not made in time. However, it must be proven that such failure prevented the franchisee from making an informed decision to enter into the contract.
There are no specific pre-contractual disclosure requirements under Greek Law. The general provisions of the Greek Civil Code would apply. Among others, there is an obligation to deal in good faith, both, during the course of negotiations (articles 197-198 of the Greek Civil Code) and in performing the obligations under the franchise agreement (article 288 of the Greek Civil Code – see Q. 13 below). In addition the provisions of articles 140 - 149 of the Greek Civil Code on error and fraud would be applicable, on the basis of which a party who has been in error or has been defrauded on material aspects of the agreement has the right to terminate the agreement and, in the event of fraud, claim compensation for any damage suffered.
The Code of Ethics of the Franchise Association of Greece provides for a number of pre-contractual obligations for the franchisor. Indicatively, the franchisor must disclose various information of the franchise system, such as the corporate status of the franchisor including but not limited to the company purpose, registered address, the identity and relevant experience of the system key management personnel of the Franchisor, a general description of the business and the principal characteristics of the know-how, an estimate of the total costs associated with establishing a franchised business, information relating to all licenses required by law for the establishment and operation of a franchised business and the essential elements of the franchise agreement. As mentioned above, these obligations are binding only for the members of the Association and are not legally enforceable.
There are no franchise specific disclosure requirements; however, in this regard, the consumer protection law may be applied. According to the consumer protection law, suppliers must provide consumers with exact, sufficient, and clear information about the identification of the structure, the goods or services subject of the offer, the guarantees offered by the supplier, etc.
The law does not specify when and how the disclosure must be made, or the disclosure format. However, it is a legal requirement for the disclosure normally to be made in the Arabic language. Cases where it is permissible to use French or English as a substitute for Arabic can be determined only by a decision of the Minister of Economy and Trade.
NB. The above rules apply also to sub-franchisee since they are general rules applied to any supplier. In case of failure to comply, the franchisor will be liable to a fine varying from 40 million LBP to 75 million LBP (26,667 USD to 50,000 USD).
Yes. It is required that the franchisor shall provide the franchisee in writing with the following information at least 30 days before the execution of the franchise contract except where the franchisor and the franchisee renew the franchise contract under the same terms:
- basic information of the franchiser and franchise operation, including but not limited to basic information of filing by the franchisor, existing outlets and their address and phone numbers, information on bankruptcy or bankruptcy application of the franchisor or its related parties during the past two years.;
- basic information of business resources owned by the franchisor, including but not limited to text description of registered trademarks, corporate logos, patents, proprietary technologies and business model of the franchisor, as well as information on litigation or arbitration involving such business resources;
- types, amounts and methods of payment of franchise fees (including whether a security deposit is collected and its terms and methods of refund);
- prices and conditions for the products, services and equipment provided to the franchisee;
- specific contents of continual operational guidance, technical support, business training and other services to the franchisee and the method of provision and implementation plan thereof;
- specific measures on guidance and supervision of the franchisee's business activities;
- investment budget for a franchise operation network, including but not limited to franchise fee, training fee; real estate and fitting-out expenses; costs for equipment, office supplies, furniture and information sources and basis of estimation for the aforesaid expenses;
- quantity, geographical distribution, an evaluation of the business situation, etc. of existing franchisees in China;
- abstracts of the audited financial accounting reports and the auditor's report for the last two years;
- information on the legal and arbitration proceedings relating to franchise operations during the past five years, including cause of action, litigation (arbitration) request, jurisdiction and outcome;
- records of any major unlawful business operations the franchisor and its legal representative may have; and
- template of the franchise contract.
In case of failure to disclose the information as required, the potential liabilities shall be that the administration of market regulation has the authority to order the franchisor to make correction and impose a fine ranging from RMB10,000 to RMB50,000; where the case is serious, a fine ranging from RMB50,000 to RMB100,000 shall be imposed and a public announcement shall be made.
No prescribed format is required, neither is the language. However, in practice, the Chinese version is usually required to provide to the Chinese franchisees.
There is a general requirement that where there is a significant change to the information provided by a franchisor to a franchisee, the franchisee must be notified promptly.
As stated above in question 2, the IPL and its Regulations establish that the franchisor must provide disclosure to the prospective franchisee at least 30 business days prior to the execution of the relevant agreement. It is not necessary, in terms of the IPL, to update the information contained in such disclosure document afterwards; it must simply be accurate and true at the time in which it is delivered to the prospective franchisee.
Article 65 of the Regulations of the IPL establishes that the disclosure document must contain certain technical, financial and economic information regarding the franchisor, such as:
(i) name or corporate name, domicile and nationality of the franchisor;
(ii) description of the franchise;
(iii) seniority of the original main franchisor and, if applicable, of the master franchisee of the business subject matter of the franchise;
(iv) intellectual property rights involved in the franchise;
(v) amounts and concepts of payments that the franchisee must make to the franchisor;
(vi) types of technical assistance and services that the franchisor must provide to the franchisee;
(vii) definition of the geographical area in which the business exploiting the franchise operates;
(viii) rights or restrictions to grant sub-franchises to third parties and, if applicable, the requisites the franchisee must fulfil to grant sub-franchises;
(ix) obligations of the franchisee with respect to the confidential information provided by the franchisor; and
(x) in general, the obligations and rights of the franchisee arising from the execution of the franchise agreement.
Though it is not required by the IPL or its Regulations, an original signed acknowledgement of receipt must be obtained from the prospective franchisee indicating the receipt date of the disclosure document. Once this document has been delivered, there is no obligation for ongoing disclosure in terms of the IPL.
As stated in question 1 above, failure to comply with this disclosure obligation on time could have the imposition of a fine by the IMPI as a result, as well as the nullity of the franchise agreement and an award payment for damages and losses by the competent judicial authority in the event that the information lacks veracity.
The disclosure document may be prepared in Spanish language, or in any other language which is familiar to the prospective franchisee, and it is not required to follow any specific form; it must only include and reflect all the information required by law, as it has been explained above.
Furthermore, regarding a sub-franchising model, the IPL makes no distinction in its applicability to master franchises or individual or unit franchises. It is simply required for the ‘grantor of a franchise’ to provide disclosure to a prospective franchisee, which includes a master franchisee acting as franchisor. Even if the franchisor is a party to the sub-franchise agreement, it is the master franchisee who must provide the disclosure since it is the one granting the franchise. In such a case, the disclosure document must contain the same level of information applicable to any franchise and include a description of the relationship between the franchisor and the master franchisee.
There are no disclosure requirements.
There are no disclosure requirements for franchisors and/or franchisees in the Philippines. However, Bureau Order No. 10-24 advises franchisees to secure from the franchisor the following information:
a. The franchisor’s business address, email address, internet home page/website, fax numbers and other contact details;
b. A copy of the franchisor’s DTI or SEC registration;
c. Information as regards the franchisor’s parent companies and affiliates, if any, and their respective roles in the franchise; and the franchisor’s declaration if any affiliate is a supplier and a statement as regards the goods or services these suppliers provide;
d. The names of the directors and officers, with a brief description of their qualifications, background, ownership of interests and references;
e. The contact details and business locations of existing franchisees;
f. Copies of executed promotional/marketing materials;
g. A description of the business concept, which includes the brand image, brand personality, unique selling proposition, target market, mission and vision, among others;
h. Basic information on training, commercial, and/or technical assistance provided by the franchisor;
i. A certificate that the franchisor is a member in good standing of any franchisor association and that the franchisor has no pending administrative, civil, or criminal case;
j. A declaration with respect to the initial franchising fee, other amounts that will be collected, and the services covering these fees;
k. Information with respect to training, e.g., the number of persons entitled to training, the duration of said activities, and the respective modules;
l. The number of years the company has been operating and the number of years it has franchised with corresponding numbers of company-owned branches and franchised outlets;
m. A draft Franchise Agreement;
n. Full disclosure of the financial requirements of the business franchise;
o. A provision that requires the franchise applicant to seek adequate legal and financial counsel before signing the Franchise Agreement; and
p. A mechanism for dispute resolution.
Pre-contractual disclosure is not mandatory under Russian law. Franchise amendment or renewal disclose is not obligatory either. The law only states that the rights holder (franchisor) shall provide technical and commercial documentation along with any other necessary information for the user (franchisee) to be able to develop franchise operations and instruct the franchisee and its employees on any aspects associated with the contracted rights.
At the same time, disclosure obligations may be established by the parties on the basis of the doctrine of culpa in contrahendo at the negotiation stage of a prospective deal. When negotiating franchising opportunities, parties may document their contractual negotiations by using a special form of agreement under Article 434(1) of the Russian Civil Code. Otherwise, the parties may be guided by the documentation normally used in the context of international franchise practice, if they have chosen foreign law as applicable.
The format of disclosure is not prescribed by Russian law or published by any governmental agency. Neither the disclosure is subject to any registration or governmental approval.
Pre-Sale Disclosure Requirements
The Federal Trade Commission (the “FTC”) Franchise Rule (the “FTC Rule”) requires franchisors to prepare a franchise disclosure document (“FDD”) and furnish it to prospective franchisees no less than 14 days before any contract is signed or any monetary consideration is exchanged. A number of states also impose pre-sale disclosure requirements on franchisors, some of which mirror the FTC Rule and others of which differ slightly. In particular, certain state laws require that the FDD be furnished to prospective franchisees earlier in the sales process. By way of example, New York requires prospective franchisees to be disclosed at the earlier of the first personal meeting or 10 business days before the execution of the franchise or other agreement or the payment of any consideration. Also, Michigan requires prospective franchisees to be disclosed at least 10 business days before the execution of any binding franchise or other agreement or the payment of any consideration, whichever occurs first.
The Franchise Disclosure Document
The FTC Rule specifies certain information that is required to be disclosed to prospective franchisees in the FDD, the style of writing that such disclosures must take, as well as the particular format with which the FDD must comply. The FDD is designed to provide a prospective franchisee with sufficient information as to determine whether or not it wishes to invest in acquiring a franchise.
The FDD consists of required federal and state cover pages and 23 substantive “Items,” each of which seeks to elicit information pertaining to a particular subject or a related group of subjects.
The first page of the FDD must be the FTC Rule Cover Page, which sets forth the franchisor’s name, type of business organization, principal business address, telephone number, email address, primary homepage address and a sample of the primary business trademark or service mark that franchisees will use in their businesses. A brief description of the franchised business follows, along with a recitation of certain federally prescribed language. FTC Rule Cover Page also must include the FDD’s Issuance Date (i.e., the date on which the FDD was finalized).
Following the FTC Rule Cover Page is the State Cover Page, which is mandated by NASAA’s (the North American Securities Administrators Association, Inc.) Franchise Guidelines and thus required by all franchise registration and disclosure states. This State Cover Page advises prospective franchisees that registration of a franchise does not infer government recommendation of the franchise or verification of the information contained in the subject FDD and includes certain standard franchise warnings and standard and individualized “risk factors.” Finally, the franchisor must include the Issuance Date at the bottom of the State Cover Page. If the franchisor is registering in multiple states, it must include the “State Effective Date Page” which contains effective dates of the franchisor’s registrations in all franchise registration states where the franchisor is registered. It is of note that NASAA recently adopted a new 3-page format for the State Cover Page which takes effect January 1, 2020, which (among other changes) contains an instruction guide for how to use the FDD.
The FDD then presents the substantive disclosures required by the FTC Rule and non-preempted state franchise registration and disclosure law provisions in a series of 23 “Items.” Generally, these Items describe: (i) the franchisor and its management, its and their background and experience (including any litigation or bankruptcy history), the franchise system and the franchise offering at hand (Items 1-4); (ii) the fees which the franchisee will have to pay to the franchisor and its affiliates in connection with acquiring and operating the franchise, the initial costs the franchisee will incur in connection with establishing and operating its franchise and the financial arrangements between the parties, including restrictions as to sources of products and services (Items 5-10); (iii) the obligations, prohibitions and provisions of the franchise arrangement (i.e., territorial grants/prohibitions, the franchisor’s pre-opening and ongoing obligations to the franchisee, restrictions on uses of the franchisor’s proprietary marks and confidential information, restrictions on products or services that may be sold, etc.) (Items 11-18); (iv) the historic and/or projected financial performance of the system, the size of the franchise system (including company-owned and franchised units) and the franchisor’s financial statements (Items 19-21); (v) the material contracts that the franchisee will have to sign to acquire the franchise (Item 22); and, (vi) a form evidencing the franchisee’s receipt of the FDD (Item 23).
The FDD must be written in “plain English,” defined as a manner easily understandable by a person unfamiliar with the franchise business, incorporating short sentences; definite, concrete, everyday language; active voice; and, tabular presentation of information, where possible. It avoids legal jargon, highly technical business terms, and multiple negatives.
Although a franchisor is permitted to offer unit franchises, area development franchises and multi-unit franchises in one single FDD, it is not permitted to offer subfranchise rights or area representation rights in that same FDD.
Requirement to Repeat Disclosure
If a franchisor makes any unilateral material changes to the form of its agreements disclosed in its FDD, the changed agreement must be furnished to the prospect for review no less than 7 calendar days prior to execution. It is helpful to note that changes to the agreements that are made at a prospective franchisees request and/or that are necessary in order to merely “fill in the blanks” of an agreement (i.e., name, entity type, address, etc.) do not trigger the 7-day rule. However, if a franchisor is relying on the former, it would be wise to include a specific representation to that effect in the amended documents.
In contrast to the foregoing, if a franchisee desires to amend the franchisor’s form of agreement based on negotiations that it initiates with the franchisor and for the franchisee’s own benefit (i.e., not a unilateral material change made by the franchisor), this does not trigger the 7-day re-disclosure obligation discussed immediately above.
Potential Consequences for Failing to Comply
The failure to comply with the federal and/or state pre-sale disclosure obligation could subject a franchisor to investigations, enforcement actions and fines of up to $40,000 per violation, as well as (depending on the particular state at issue) damages, rescission and legal fees and expenses.
There are no mandatory disclosure requirements, such as those typically found in franchise disclosure documents (FDDs) in the US. However, a well prepared potential franchisee will likely be requesting and expect to receive the type of information usually provided in FDDs. There is also an example in case law where the court expressed the opinion that not disclosing core information about poor financial results and small profit margins for a previous franchisee in the same location, lead to the franchise agreement being deemed invalid, and the franchisor was liable for the franchisee's financial loss.
Art. 4 of the Franchise Law requires the franchisor, at least 30 days before the execution of the contract, to hand over to the prospective franchisee “a full copy” of the agreement together with the following information:
a) relevant information about the franchisor;
b) details of the trademarks used in the concept;
c) characteristics of the business;
d) a list of the franchisees and of the franchisor's direct outlets, if any;
e) the annual variations in the number of franchisees with their locations and addresses during the last three years;
f) a short description of judicial or arbitral disputes concerning the franchising network concluded in the last three years.
An exception is made for those information requiring objective and specific confidentiality (for example the franchisor’s Operating Manuals).
Franchisors who, before the execution of the franchise agreement in Italy, have only carried out their business abroad, must, in addition to the information set out in Art. 4, letters (a), (b) and (c), provide the prospective franchisee with the following information (see Ministerial Regulation No 204 of 2 September 2005):
- a numerical list of the franchisees currently operating in the network as well as a list of outlets directly run, country by country, and, if requested by the prospective franchisee, the details and location of at least 20 franchisees currently operating;
- details of the variation, year by year and country by country, in the number of franchisees, including their location, in the last three years;
- a description of a judicial or arbitral disputes concerning the franchising network concluded in the last three years.
The Law does not require the use of a prescribed format for disclosure. The parties are therefore free to use a standard disclosure document, provided that all the items prescribed by the law are contained in such document.
According to art. 8 of the Franchise Law, if one of the parties to a franchise agreement provides false information, the other party may ask for the annulment of the agreement. Although the statute refer to false information only, it may be interpreted as applying also to insufficient disclosure.
Although not expressly addressed by the law, common practice indicates that there is no obligation to update/repeat disclosure in case of renewal of a franchise agreement or in case of extension of a franchise agreement, provided that the renewal or extension does not place new burdens on the franchisee.
There are no specific disclosure requirements in relation to franchising in the UK. However, pre-contractual disclosure is considered to be good practice and the BFA members need to comply with the pre-contractual disclosure requirements in the BFA's Code of Ethics. The BFA also requires franchisors to avoid ambiguity in any advertising to prospective franchisees.
Similarly, where a franchisor does decide to make voluntary pre-contractual disclosures it must ensure that it discloses all material information and that it is accurate and not misleading. A properly drafted disclosure document can be a helpful tool to fend of claims by franchisees for misrepresentation.
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.
Prospective franchisees should be given a disclosure document and franchise agreement by a franchisor. The Code of Practice (Code) of the Franchise Association of New Zealand (FANZ) states that franchisors must provide the disclosure document to prospective franchisees at least fourteen days prior to the signing of the franchise agreement. The disclosure document must follow the format set out in the Code and provide certain information including the following:
• Details about the franchisor and its directors including experience and a viability statement with key financial information of the franchisor;
• Details of any bankruptcies, receiverships, liquidations, or materially relevant debt recovery;
• Criminal, civil, or administrative proceedings within the past five years;
• A summary of the main particulars and features of the franchise;
• A list of components making up the franchise purchase;
• Details of any financial requirements by the franchisor of the franchisee; and
• Other information as listed in the Code.
The disclosure document should be updated annually.