[Annex 3 to the UNIDROIT Guide to International Master Franchise Arrangements, periodically updated on this website]
(Prepared by the Secretariat of UNIDROIT in collaboration with Philip F. Zeidman of Rudnick, Wolfe, Epstien & Zeidman, Washington, D.C. – The Washington D.C. office of Rudnick & Wolfe, Chicago)
A healthy commercial law environment is of paramount importance for franchising. Indeed, without it franchising is not able to function. A “healthy commercial law environment” may be defined as one with general legislation on commercial contracts, with an adequate company law, where there are sufficient notions of joint ventures, where intellectual property rights are in place and enforced and where companies can rely on ownership of trademarks and know-how as well as on confidentiality agreements.
Franchise arrangements are subject to a considerable number of laws and regulations in addition to those regulating commercial contracts or intellectual property rights. Essentially, these additional laws and regulations fall into two separate categories. The first category includes laws and regulations that are applicable to contracts in general, the second those that are applicable to the specific contract concerned (franchise-specific legislation, where it exists, for example).
A. BRANCHES OF LAW RELEVANT TO FRANCHISING
Franchising is a form of business that touches upon a great many different areas of law, the majority of which are regulated domestically and at times also internationally.
I. GENERAL CONTRACT LAW
The agreement will naturally be subject to general contract law. In countries that separate the regulation of commercial contracts from that of other contracts, some aspects of the agreement will be subject to provisions in the laws or codes that regulate commercial contracts.
II. AGENCY LAW AND THE LAW REGULATING OTHER DISTRIBUTION CONTRACTS
There may be aspects of the relationship between a franchisor and its franchisees that are covered by agency law, independently of whether the courts actually assimilate the franchise relationship concerned to one of , or by the law regulating other contracts. The legislation that regulates agency relationships and distributorships should therefore be considered.
III. LEASING AND SECURITY INTERESTS
Equipment and premises might be leased and security interests might be involved. This is particularly the case where specific equipment is needed for the franchise and where the franchisor provides equipment.
IV. FINANCIAL INVESTMENTS
Financial investments will be covered by the legislation that specifically regulates those matters.
V. INTELLECTUAL PROPERTY
Intellectual property rights are the basis upon which the franchise relationship is built. They are therefore of importance. In international relationships the international conventions and other regulations of international origin must be taken account.
VI. COMPETITION LAW
The terms of the franchise agreement that might be covered by competition law are those that relate to the price that a franchisee should charge for the products or services it offers and those relating to the exclusive rights granted franchisees in a franchise relationship, as they might give rise to suspicions of market sharing and concerted action between the members of the network. The problem in franchising is ensuring that the franchisee is given the best possible protection to develop its territory, for example by being granted exclusive territorial rights, but without the terms of the agreement falling under the terms of the competition legislation. Care should therefore be taken in drafting the agreements.
VII. FAIR TRADE PRACTICES LAW
Fair trade practices law is of relevance in particular when post-term non-competition clauses are considered and in relation to the right that franchisors may reserve to themselves to distribute their products through alternate channels of distribution. It is also relevant in relation to arrangements. Legislation dealing with particular trading schemes, such as the 1996 Trading Schemes Act adopted in the United Kingdom which covers pyramid selling, should also be considered. Although not directly applicable to franchising, this latter legislation has a direct effect also on certain types of franchising. An issue to be determined with reference to pyramid selling is whether the statutes cover also the internal relationship between the parties to the franchise agreement and not only that between the sub-franchisee or franchisee and the consumer.
VIII. CORPORATE LAW
The corporate form the franchisor and the franchisees adopt is also relevant, in particular for questions of liability taxation.
IX. TAXATION
Taxation regulation is of considerable importance, not the least because taxation issues often decide the corporate form the parties will adopt, the franchisor for its presence in the host country and the franchisee for its unit. Issues such as who has to pay withholding taxes need to be regulated in the agreement.
X. PROPERTY LAW
Property law will also need to be considered in relation to the assets of the franchise. It is particularly relevant in case of termination of the agreement.
XI. LEGISLATION ON CONSUMER PROTECTION AND PRODUCT LIABILITY
Legislation on consumer protection and product liability is of relevance particularly where the possible liability of the franchisor for products or services sold by the sub-franchisee or franchisee concerned. Consumer protection must be considered at two levels: firstly, at the level of liability towards the consumer in the ordinary sense, secondly at the level of liability towards the sub-franchisor or sub-franchisee. At the latter level what should be considered is whether the sub-franchisor or sub-franchisee can itself be regarded as a consumer and therefore be covered by the consumer protection statutes. The question is whether the reach of those statutes can be viewed as broad enough to protect sub-franchisors or sub-franchisees that are not purchasing items for consumption, but are making an investment and are therefore traditionally not thought of as consumers, even if they might be treated as consumers for the purpose of the statutes.
XII. INSURANCE LAW
Insurance law is relevant as master franchise agreements will often require sub-franchisors to take out insurance with the franchisor beneficiary.
XIII. LABOUR LAW
The issue of the applicability of labour legislation to the franchise relationship has been studied in particular in countries in which the regulation of labour relations is highly developed, such as Germany and Sweden. The different issues involved include:
XIV. THE LAW REGULATING THE TRANSFER OF TECHNOLOGY
Franchising may be covered by the broad definition of technology transfer contained some domestic legislations. If the technology transfer legislation is found to apply to the franchise agreement concerned, the latter may have to be approved by the local authorities responsible for contracts for the transfer of technology and registered in the appropriate register. In this context the recent European Regulation on technology transfer agreements should noted. Adopted on 27 April 2004, it replaced the existing regulation on technology agreements.
XV. LEGISLATION REGULATING FOREIGN INVESTMENTS CURRENCY CONTROL REGULATIONS AND IMPORT RESTRICTIONS AND/OR QUOTAS
Legislation regulating foreign investments needs to be considered, as do the connected currency control regulations and import restrictions and/or quotas.
XVI. LEGISLATION REGULATING JOINT VENTURES
Joint ventures are frequently used for the international expansion of franchise systems, particularly in situations where the local partners suffer from a lack of financial means. In such cases the legislation on joint ventures will also need to be considered.
XVII. INDUSTRY SPECIFIC LAWS OR REGULATIONS
Any laws or regulations specific to the trade sector involved (for example health regulations for food franchises) need to be carefully considered in each particular case.
B. SPECIFIC LEGISLATION
Although an increasing number of States are considering the introduction of franchise-specific legislation, still only a limited number regulate franchising. Where it does not, its applicability to international franchise transactions, to master franchise agreements and other arrangements needs to be assessed. In part, this lack of franchise-specific legislation is due to the complexity of the relationship and to the great number of areas of law involved in a franchise relationship. With few exceptions the legislation adopted is disclosure legislation and not legislation regulating the relationship between the parties.
With a varying degree of detail disclosure laws will require the franchisor to provide the prospective franchisee with information on a number of points that will enable the franchisee to make an informed decision on whether or not to enter into the agreement. The points on which information should be offered, or documents provided, may include:
It should be noted that although it may not be sanctioned by law, there is also an extensive duty on the part of the prospective sub-franchisor or franchisee to disclose all relevant information to the franchisor, so that the franchisor can evaluate whether or not the prospective sub-franchisor or franchisee fulfils the requirements to become a member of the network. This exchange of information is essential for the building up of trust between the parties, which is a prerequisite for the success of the enterprise.
C. THE EUROPEAN UNION 
AND FRANCHISING
D. THE UNIDROIT MODEL FRANCHISE DISCLOSURE LAW
On 25 September 2002 the Governing Council of UNIDROIT adopted the Model Franchise Disclosure Law finalised by a Committee of Governmental Experts convened by the organisation to examine a draft prepared by the UNIDROIT Study Group on Franchising.
The Model Law is limited to pre-contractual disclosure. It does not deal in an analytical way with the contractual relationship between the parties, nor does it deal with the consequences of termination.
The Model Law is intended to apply to both domestic and international franchising, and to different types of franchise agreement, such as traditional unit agreements, master franchise agreements and development agreements. The Model Law is also intended to cover any new forms of franchise arrangements that might develop in the future. The Model Law does not require disclosure on the part of franchisees, only on the part of franchisors. The reason for this is that it was considered that the experience and economic size of franchisors, which permit them to have access to expert legal counsel, do not make it necessary to provide franchisors with the same degree of protection as franchisees.
The Model Law has ten articles and a Preamble. The articles deal with the scope of application of the law (Article 1); definitions (Article 2); the delivery of the disclosure document (Article 3); the format of the disclosure document (Article 4); exemptions from the obligation to disclose (Article 5); what information has to be disclosed (Article 6); acknowledgement of receipt of the disclosure document (Article 7); remedies (Article 8); the temporal scope of application of the law (Article 9); and waivers (Article 10).
E. VOLUNTARY REGULATION OF FRANCHISING
A number of franchise associations, both national and international, have adopted Codes of Ethics that are to regulate the conduct of their members. These Codes of Ethics often also deal with disclosure, albeit in a more summary manner: in general they provide that prospective franchisees have to be provided with accurate and full disclosure, but do not contain detailed provisions as to what is to be understood thereby. It should also be noted that a number of national franchise associations offer their members assistance in and/or arbitration.
CODE OF ETHICS OF THE EUROPEAN FRANCHISE FEDERATIONCODES OF ETHICS OF NATIONAL FRANCHISE ASSOCIATIONS
See Chapter 1, Section A, Sub-Section II, lit. (a) “Commercial Agency Agreements”.
See Chapter 1, Section A, Sub-Section II, lit. (b) “Distribution Agreements”.
See Chapter 9, Section C “Franchisor/Sub-Franchisor Relationship”.
See in general Chapters 10 “Intellectual Property” and 11 “Know-How and Trade Secrets”.
See Chapter 10, Section A, Sub-Section VII “The International Regulation of Trademarks”.
See Chapter 9, Section D “Regulation of Supply Relationship”.
See, in general, Chapter 2 “Nature and Extent of Rights Granted and Relationship of the Parties” for an examination of the relationship of the parties and Chapter 14, Section A “Vicarious Liability” for questions of liability.
See Chapter 4, Section E “Fiscal Considerations”.
See Chapter 14, Section A, cit.
See Chapter 14, Section C “Insurance”.
OJ EC L 254/64 of 30 September 1995. The Directive was amended by Council Directive 97/74/EC of 15 December 1997 (OJ EC L 10/22, 16.1.1998) and by Council Directive 2006/109/EC of 20 November 2006 (OJ EU L 363/416, 20.12.2006).
Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements (Text with EEA relevance) (OJ EU L 123/11, 27.4.2004).
Commission Regulation (EC) No 240/96 of 31 January 1996 on the application of Article 85(3) of the Treaty to certain categories of technology transfer agreements (Text with EEA relevance) (OJ EC L 31/2, 9.2.1996).
This is the case of the Austrian, Belgian, British, French, German and Dutch associations. In Italy the FIF-Federfranchising, the parallel association of the Confesercenti, the business association of small and medium-sized businesses, offers a mediation service. In the USA, the IFA does not itself offer assistance, but adheres to the National Franchise Mediation Program.
Professor Iacopo Donati is the UNIDROIT/Bank of Italy Chair Holder and is mainly responsible for assisting in the Bank Insolvency project. He is Professor of Corporate and Insolvency Law at the University of Siena, and coordinates the research project ‘Pro.Re.Ba.’ (Proportionating rules on bank crisis prevention and management to the case of retail banks), which has received funding from the Italian Ministry of University. He has previously taught corporate law at the University of Venice ‘Ca’ Foscari’, at the University of Florence and at the University of Rome ‘Tor Vergata’.
Professor Donati is the author of several publications on corporate law, restructuring, insolvency law, and bank crisis management. On the same topics, he has been invited as a speaker to various international and national conferences and participated in some high-impact international, European, and national research projects. Professor Donati’s education includes a Ph.D. in Corporate Law (University of Rome ‘La Sapienza’), an LLM in Corporate Governance (Stanford Law School), and a Law Degree with honors (University of Florence). He is qualified as an attorney in Italy and in the State of New York (USA).
Ms Olga Fonotova is an Associate Professor of the Faculty of Law (Department of Legal Regulation of Business) at the Russian National Research University “Higher School of Economics” in Moscow. She holds a PhD degree cum laude in private law / private international law from the Lomonosov Moscow State University (2006). Her academic and teaching interests cover private international law, international and national commercial law, with a focus on unified and non-state legal regulation of cross-border commerce.
Olga is a Russian law qualified practicing lawyer in the sphere of national and international commercial and corporate law with 20+ years’ experience in leading law firms. As part of her legal practice, she has advised multinational corporations on the setting up of multi-jurisdictional commercial relations, on the formation / termination of international joint ventures, restructuring of assets, and financing / refinancing of projects. For her work on commercial and corporate legal matters she was included in the international rating of leading lawyers “The Best Lawyers® in Russia” (2018 – 2022).
She is a UNIDROIT alumna (2011) and a Correspondent of UNIDROIT in Russia (2023 – 2025). From 2016 to 2021 Olga was a member of the ICC Commission on Commercial Law and Practice (ICC CLP) and a member of the Association of European Business (AEB) in Moscow.
Allan M. Mukuki, PhD Candidate (Navarra, Spain), LLM (Groningen, Netherlands), PGDip (KSL), LLB (Hons) (UoN), ACIArb (London), Advocate of the High Court of Kenya.
Allan Mukuki is an Advocate of the High Court of Kenya as well as a Commissioner for Oaths. He is presently a PhD Candidate at the University of Navarra in Spain. He is also a holder of an LL.M in International Law and the Law of International Organizations, from the University of Groningen in the Netherlands. He has an LL. B (Hons) from the University of Nairobi, he is a Member of the Cha
rtered Institute of Arbitrators (London). He further holds a post-graduate diploma in law from the Kenya School of Law. Allan is also a scholar from the Hague Academy of International Law.
Some of his many roles in the legal profession include Director of International Partnerships; a Doctoral Fellow; member of the Management Committee and moot court coordinator, all for Strathmore Law School; Research Fellow for the African Region (Kenya), for the European Research Council Grant Project on the interpretation of customary international law; and Acting Director for the Strathmore Institute of Advanced Studies in International Criminal Justice (SIASIC)
Allan has previously worked at A.F Gross Advocate; in various legal institutes; in governmental agencies and in the Judiciary of Kenya. He was also a Legal researcher in the Office of the Solicitor General, Kenya, for the Maritime Delimitation in the Indian Ocean (Somalia v. Kenya), a case that was before the International Court of Justice. His main areas of specialization include Public International Law, The Law of International Organizations, International Humanitarian Law, International and Regional (EAC) Refugee Law and Legal Policy Development.
Further, Allan has been involved in various national and international legal consultancies and projects; he has published several peer reviewed legal articles, a legal monograph and presented several legal papers in international conferences around the world. He has also developed several policy documents for Strathmore University as well as (currently operational) manuals and laws for the operation of the Judiciary as well as governmental agencies and regional agencies such as IGAD.
ANDREA SANTACOLOMA
Director
PROFESSIONAL PRACTICE
Andrea Santacoloma is a Panamanian lawyer that focuses her practice on international commercial arbitration.
Prior to joining Adell & Merizalde, Andrea was the Deputy Director for Latin America of the ICC International Court of Arbitration for 5 years. In this role, she gained vast experience in the internal functioning of the ICC’s Secretariat and Court and saw first-hand the work of hundreds of arbitrators and ICC Court Members in the region. Andrea was also in charge of identifying new opportunities and potential users of the ICC Dispute Resolution Services (ICC DRS) in Latin America, in liaison with the ICC National Committees and other institutions in the region. She also worked as a lawyer advising local and international clients on business and corporate law and M&A in 3 Panamanian law firms.
She is currently the Executive Director of the Latin American Arbitration Association (ALARB), one of Latin America’s leading associations gathering practitioners and arbitrators, which seeks to encourage the use of arbitration and foster initiatives for the development of international arbitration in the region.
In July 2022, the G
overning Council of the International Institute for the Unification of Private Law (UNIDROIT) appointed Andrea as a Correspondent for Latin America. Namely, Andrea was appointed as a Correspondent for the Republic of Panama for the period 2022-2025.
EDUCATION
• American University Washington College of Law, LL.M. in International Arbitration and Business Law
• International Training Centre of the International Labor Organization (ILO) jointly with the United Nations Commission on International Trade Law (UNCITRAL), Università degli Studi di Torino, and University Institute of European Studies (IUSE), LL.M. in International Trade Law & Dispute Resolution
• Universidad Católica Santa María La Antigua, LL.M. in Corporate Law
• Universidad Católica Santa María La Antigua, Degree in Law and Political Science
• Centro de Estudios Regionales de Panamá, Diploma in Entrepreneurship and Management of Small and Medium Enterprises
Bar admissions
Republic of Panama
Languages
Spanish, English, Italian (intermediate)
asantacoloma@adellmerizalde.com
+507 370 4155
NAME: PROF. DR. HERNANY VEYTIA (LL.M. YALE)
AFFILIATION DIRECTOR BNM-CAMBRIDGE STUDY CENTRE ON SUSTAINABLE INVESTMENTS
PRESENTATION
Professor of law, international strategic consultant, arbitrator, and entrepreneur. Hernany Veytia is very comfortable with complex, high-profile and confidential transactions. Her consulting experience as partner of BNM and Deloitte enables her to focus on and add value to the sustainable and commercial aspects of each deal. Frequently she leads transdisciplinary teams to deliver fact findings and legal opinions, feasibility studies and turn-key projects for banks, governments, international organisations, and corporations willing to expand or withdraw operations in other jurisdictions.
In Prof Veytia’s experience UNIDROIT works have been very useful to understand not only the foreign law, but also to recognise the cultural, political, and economic factors at play, and the way national and international regulators operate-and cooperate. In her opinion, UNIDROIT instruments have been of utmost importance for the legal strategies she designed for:
• DANPREIT (Dispute Analytics Platform for Real Estate Investment Trusts in the Agriculture, Construction and Mining industries).
• TELEKAIROS, innovative methodology that incorporates the use of space assets.
• Corporate art collections, restitutions, including donations, sponsorships, and loans to museums.
• Contracts used by a German waterworks company willing to grow in all the Caribbean and Central American countries.
• Liquidation of commercial and investment banks
• IPOs and reverse mergers for companies in the extraction industries (Canadian stock exchange), ILS listed in Bermuda and African sovereign funds listed in London.
• Franchising and other commercial contracts in the food & drinks, health, aero-space, and automotive industries.
In the last three decades Prof. Veytia has lived, and successfully completed investments and disinvestments in more than forty countries in the five Continents. She is frequently appointed as arbitrator and invited as speaker on risk transfers at international industry conferences in fields of her expertise: energy (both renewable and traditional), artificial intelligence, infrastructure, mining, real estate, agriculture, rail, space, automotive, and franchising. She sits in the board of directors of companies in Europe including the United Kingdom.
Anna Veneziano is the Deputy Secretary General of the International Institute for the Unification of Private Law (UNIDROIT). She is a Professor of Comparative Law at the University of Teramo, Italy, where she was formerly the Director of the Department of Private Law. She has also formerly been a tenured Professor of European Property Law at the University of Amsterdam (UvA). Her education includes a Law Degree with honours from the University of Rome La Sapienza, an LL.M degree from the Yale Law School funded by a Fulbright scholarship, and a PhD degree from the University of Florence (Italy).
Her main research and publication areas are on secured transactions as well as international, comparative, and European contract and sales law. Before joining UNIDROIT she was a member of the Italian delegation with respect to the Cape Town Convention on International Interests on Mobile Equipment and its Aircraft Protocol as well as its Space Protocol. She was also a member of the Study Group on a European Civil Code and of the Compilation and Redaction Group on a Draft Common Frame of Reference on European Private Law (DCFR), and of the restricted Expert Group set up by the European Commission on a common European law on sales.
P
rofessor Ignacio Tirado was appointed Secretary-General by the Governing Council at its 97th session, and officially took office on 27 August 2018. A national of Spain, Professor Tirado (Commercial, Corporate and Insolvency Law, Universidad Autónoma of Madrid, Spain) holds a PhD from the Universities of Bologna and Autónoma de Madrid and an LLM from the University of London. Professor Tirado has been a Senior Legal Consultant at the World Bank’s Legal Vice-Presidency and Financial Sector Practice for more than nine years, having also consulted for the IMF on insolvency related matters as well as for the Asian Development Bank on commercial legal reform.
Amongst other accolades to his professional experience, Professor Tirado is a founding member of the European Banking Institute, an International Fellow of the American College of Bankruptcy and has been Director and Academic Co-Chair of the International Insolvency Institute.
A Swedish national, Ms Lena Peters grew up in Italy where she attended an English school. In 1978 she took her Juris Kandidatexamen at Stockholm University followed by a Master of Laws from King’s College, London (1979). Since 1985 she has been with UNIDROIT, first as Research Officer, lastly as Principal Legal Officer, her main duties being Secretary to the Working Group for the Preparation of Principles of International Commercial Contracts, Secretary to the Study Group on Franchising, Secretary to the Committee of Governmental Experts on Franchising.She also collaborated on the project for the preparation of the ELI-Unidroit Model European Rules of Civil Procedure. She is currently Managing Editor of the Uniform Law Review and responsible for publications at UNIDROIT.
Marina Schneider is Principal Legal Officer and Treaty Depositary at UNIDROIT. She studied law at the University of Strasbourg (France) and Paris I – Panthéon Sorbonne. She joined the UNIDROIT in 1987 and was involved in the elaboration and French versions of most UNIDROIT instruments since. She is in charge of the 1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects and of the UNESCO-UNIDROIT Model Provisions on State Ownership of Undiscovered Cultural Objects. She is the author of the Explanatory Report of the 1995 Convention and many articles on the Convention and other international instruments in the field. Ms Schneider is also responsible for the project on private collections and for the UNIDROIT Convention Academic Project (UCAP). She is member of the Board of the International Society for Research on Art and Cultural Heritage Law (ISCHAL).
Professor of Commercial Law, Carlos III University of Madrid. Currently, Sir Roy Goode Scholar at UNIDROIT, Rome, 2021-2022. Chair of Excellence 2017-2018 at University of Oxford (Uc3m- Santander Program), affiliated to Harris Manchester College. Previously Distinguished Visiting Professor and fellow of a number of Academic Institutions. Arbitrator of Madrid Court of Arbitration. Member of ELI (European Law Institute) Council and Executive Committee. Member of the Expert Group of the European Commission on Liability and New Technologies and member of the Expert Group of the European Observatory of Platform Economy; the International Academy of Commercial and Consumer Law; the expert group of the Inclusive Global Legal Innovation Platform for Online Dispute Resolution – UNCITRAL and Hong Kong Department of Justice. Expert of the UNIDROIT Study Group on the MAC Protocol of the Cape Town Convention on International Interests. Delegate of Spain to UNIDROIT for the adoption of the Protocol, delegate of Spain in Working Group VI of UNCITRAL on secured transactions and in Working Group IV on Electronic Commerce. Member of UNIDROIT Working Groups on Enforcement and Warehouse Receipts.
William Brydie-Watson is an Australian lawyer who specialises in secured transactions law and private international law. Before joining UNIDROIT, William was a government lawyer in the Private International Law and International Arbitration section of the Australian Attorney-General’s Department, where he worked primarily on treaty negotiation and the implementation of private international law treaties in Australia. At UNIDROIT, he is primarily responsible for the implementation of the Mining, Agriculture and Construction (MAC Protocol) to the 2001 Cape Town Convention on International Interests in Mobile Equipment and the development of a Model Law on Factoring. William also serves as UNIDROIT’s liaison with the Asia Pacific Economic Cooperation (APEC) forum and as manager of the Institute’s Scholarship and Internship Programme. Admitted to practice in New South Wales and the High Court of Australia, he has a Bachelor of Arts (honours), a Bachelor of Laws and a Master of Laws from the Australian National University. William also lectures on International Secured Transactions Law at the Eotvos Lorand Faculty of Law in Budapest.
