Must the franchise agreement be governed by local law?

Franchise & Licensing

Angola Small Flag Angola

Pursuant to article 62 of Law 18/03, without prejudice to any mandatory provisions of the law, parties are free to choose the applicable law to the contracts, as long as such law corresponds to a serious interest of the parties or is in connection with an element of the contract, namely the parties’ domicile, place of conclusion of contract or place of execution of the contract. In the event parties fail to choose an applicable law, the Angolan rules on conflicts of law shall apply.

Canada Small Flag Canada

Generally speaking, no. However, each existing provincial franchise statute contains a provision that says that any provision in a franchise agreement that purports to restrict the application of that province’s law to any claim that arises under the statute is void. As a result, many franchisors specify that the franchise agreement will be governed by the laws of the province in which the franchised business is located.

Chile Small Flag Chile

No, the choice of foreign law as substantive law of the agreement is acceptable.

Denmark Small Flag Denmark

Regarding choice of law, the 1980 Rome Convention applies in Denmark (not the Rome I Regulation because of Denmark’s opt-out from the EU cooperation as regards justice and home affairs).

Consequently, the parties are free to agree on the law that shall govern their agreement, whether it is the law of the country in which the franchisor is established, the country in which the franchisee is established or a third country. To the extent that no valid choice of law has been made by the parties, the starting point is that the agreement shall be governed by the law of the country in which it is "most closely connected". According to the basic presumption, the closest connection is to be found in the country where the party who is to effect the performance that is "characteristic of the agreement" has his or her habitual residence or, in the case of a company, its central administration.

It is generally considered in relation to franchise agreements that the franchisor is to effect the performance that is characteristic of the agreement, consisting of the franchise concept, the right to use the franchisor’s business names, trademarks and know-how and in some cases also patent rights, which shall be provided to the franchisee against payment of remuneration. Nevertheless, there are many indications that the franchise agreement shall be considered to have its closest connection to the country in which the franchisee is to make use of these rights. There is, however, no relevant Danish case law dealing with these issues.

Azerbaijan Small Flag Azerbaijan

N/A.

Egypt Small Flag Egypt

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.”

France Small Flag France

No. However, the choice of foreign law will not excuse the parties from compliance with mandatory provisions of law, such as the disclosure requirement.

Greece Small Flag Greece

As a general rule the parties are free to agree on the law governing the franchise agreement. Greek public policy provisions (such as those regarding clientele indemnity and minimum notice periods for termination of agreements of indefinite duration) will, nevertheless, still be applicable.

Mexico Small Flag Mexico

Any franchise agreement which is effective within the Mexican territory must comply with the applicable provisions of the IPL, regardless of the nationality of the parties, and it is applicable to the sale and offer of franchises to entities or individuals in Mexico.

Notwithstanding the above, the parties to a franchise agreement can agree to have Mexican or foreign laws to govern their relation under said agreement.

Lebanon Small Flag Lebanon

Since the franchise agreement is a commercial agreement, the parties have the freedom to choose the law governing their agreement whether the local law or a foreign law.

However, it is important to note here that if the franchise agreement was deemed to be a commercial representation agreement, i.e. if the case-law of the year 2009 referred to in the answer to question 19 above was successfully challenged, then the application of Law No. 34/67 would be mandatory.

China Small Flag China

No, unless there are purely domestic factors For instance, if both parties are domestic companies (including FIE), but they choose to be governed by foreign law as agreed in the franchise agreement, such clause shall be invalid since it will be decided that the application of law in this case has no connection point with the foreign law.

Peru Small Flag Peru

The franchise agreement does not necessarily have to be regulated by Peruvian legislation. The parties will freely choose the law that will govern the franchise agreement.

Philippines Small Flag Philippines

The parties are generally free to stipulate the law governing their franchise agreement. However, should the same be considered a “technology transfer arrangement” as defined in the IP Code, Section 88.1 thereof requires the inclusion of a provision that Philippine law governs the interpretation of the contract and that in the event of litigation, the venue shall be the proper court in the place where the franchisee has its principal office. Non-compliance shall render the agreement unenforceable unless it is approved and registered as an “exceptional case” with the DITTB. For an exemption to be granted, the technology transfer arrangement must result in substantial benefits to the economy, such as high technology content, increase in foreign exchange earnings, employment generation, regional dispersal of industries and/or substitution with or use of local raw materials. Nevertheless, the DITTB is not known to grant exemptions to this mandatory provision.

New Zealand Small Flag New Zealand

No but it is advisable to have the agreement governed by the laws of New Zealand and to be subject to the jurisdiction of the New Zealand courts.

Russia Small Flag Russia

There is no legal requirement for the franchise agreement to be governed by the Russian law. Under the basic principles of international private law, the contracting parties are free to choose the relevant governing law when entering into a deal (or afterwards). Hence, the franchise agreement may be governed by the applicable foreign law (as chosen by the parties).

In the absence of a choice of law provision in the contract, the law of the country where the franchisee has been authorized to use the licensed IP rights shall be applied (Article 1211 (6) of the Russian Civil Code). At the same time, in cases where such use has been permitted in the territories of several jurisdictions, the law of the country where the franchisor is located or has its principal place of business will govern the parties’ relationship under the franchise agreement.

In any event, the law of the country that is more bound up with the contract may be applicable in the event that the nature and terms of the contract, or circumstances surrounding the transaction, clearly evidence such a fact (Article 1211 (9) of the Russian Civil Code).

Norway Small Flag Norway

No, there are no requirements for the franchise agreement to be governed by Norwegian law. The parties may agree on foreign law in choice-of-law clauses in the franchise agreement.

United States Small Flag United States

No. State laws - - not just franchise laws, but the common law of damages and the law of evidence - - vary in significant ways one to the other. For this reason, virtually every franchise agreement contains a “governing law” provision in which the parties agree upon which states’ law will govern disputes between them. A franchisor is free to designate whatever law it so desires to govern the franchise agreement and, in fact, many franchise agreements designate the law of the franchisor’s principal place of business as the governing law for the agreement and disputes arising from the relationship between the parties. As well, where the laws of a franchisor’s home state are unfavorable, it too can designate any other state law as governing (i.e. a California franchisor may designate New York law as controlling because it is “business friendly”).

However, the franchise agreement’s designation of “governing law” is not always entirely conclusive. Virtually every state franchise registration and disclosure law, as well as every state relationship law, contains an “anti-waiver” provision, prohibiting any attempt by a franchisor to compel its franchisee to waive the protections afforded by the statute (indeed, under most state franchise laws, seeking to compel such a franchisee waiver of the statute’s protection is itself an express statutory violation). What this means is that a franchisee will almost always be able to invoke the franchise law of its home state (whether the state of the franchisee’s residence or the state where the franchisee operates its franchised business) in any arbitration or litigation with the franchisor regardless of what the “governing law” provision of the subject franchise agreement says. For example, if the franchise agreement stipulates that California law will govern all disputes, a New York resident (whose franchise is situated in New York) will always have the right to invoke the New York Franchise Act’s rights, remedies and damages. Indeed, some state franchise administrators will refuse to register a franchisor’s disclosure document unless the franchisor first agrees to amend its franchise agreement to expressly provide that, regardless of the contract’s “governing law” provision, the franchisee can always invoke protection of the subject state franchise statute.

Italy Small Flag Italy

Parties are free to choose the law applicable to franchise agreement, but Italian mandatory rules (id est public policy rules) shall prevail. This means that contractual provisions which conflicts with mandatory rules will be replaced by Italian mandatory rules. This is the case – for example – of the disclosure provisions.

United Kingdom Small Flag United Kingdom

The parties to a franchise agreement are free to choose the governing law although certain internationally mandatory laws will be applicable, even where the agreement is not governed by English law. It is therefore important to obtain English law advice, even if the franchise agreement is governed by a foreign law.

In practice franchise agreements tend to be governed by local law so that potential franchisees have easy access to qualified lawyers that are able to advise them on its terms.

Updated: October 15, 2019