1. Legal Sources
What are the rules governing commercial franchising
agreements (if any) in your country?
Franchising is specifically regulated by Chapter 54 of Part II
of the Civil Code.
Further, the general provisions of the Civil Code –
especially those that govern general aspects of contract law and
obligations (Part I), intellectual property and licensing (Part IV)
and real estate and property law (Parts I and II) – may apply
to franchising.
Franchise relationships may also be affected by local laws
regarding:
- commercial law and competition;
- consumer and data protection;
- labour and employment;
- advertising and promotion; and
- tax and currency control.
Other rules and regulations may also apply to franchising
deals.
2. Notion of Franchising Contract
2.1 General notion of franchise contracts
Which agreements are normally qualified as franchising
agreements in your country?
Franchise agreement (legally named as “commercial
concession”) is defined in Civil Code. According to Article
1027(1) of the Civil Code, under a franchise agreement, the rights
holder grants the user, for consideration and for a definite or
indefinite period, a right to use a set of IP rights, including
trademarks and other IP rights, to operate its business – in
particular, trade names and secrets of production (know-how).
The key element of every franchise agreement is a protected (ie,
registered) trademark. Without this, the contract may not be
treated or interpreted as a franchise agreement.
2.2 Agreements which are covered by special rules on
pre-contractual disclo-sure
Which are the agreements to which special rules on
pre-contractual dis-closure (if any) apply?
Pre-contractual disclosure is not mandatory under Russian law.
The law only states that the franchisor alone must provide
technical and commercial documentation – along with any other
necessary information for the franchisee to be able to develop the
franchise operations – and instruct the franchisee and its
employees on any aspects associated with the contracted franchising
activities.
Disclosure obligations may be established by the parties on the
basis of the doctrine of culpa in contrahendo at the negotiations
stage of a prospective deal. When negotiating the franchise grant,
parties may corroborate their contractual negotiations using a
special form of agreement available under the provisions of Article
434(1) of the Civil Code.
The format of disclosure is not prescribed by Russian law or
published by any governmental agency. Therefore, the parties to a
contract may use and be guided by the documentation normally used
in the context of international franchise practice.
Also, parties to a franchise agreement are subject to an implied
duty of good faith. Good faith and fair dealing are the fundamental
principles of the national civil law, as set out by Articles 1(3)
and 10(5) of the Civil Code. These principles are usually supported
and enforced by local courts in all disputes involving domestic
contracts and cross-border transactions, including in terms of
franchising.
2.3 Distinctive criteria with respect to employment
contracts
According to the law of your country, in what situations
could a franchisee be considered as an employee of the
franchisor?
The franchisor and the franchisee are separate business entities
operating under the franchise agreement. Each has their own labour
and employment obligations in relation to their respective
employees, but not in relation to each other.
The terms and conditions of the franchise agreement are
primarily governed by civil law (ie, the Civil Code), while the
labour and employment relations of entities doing business in
Russia are regulated by the Labour Code.
Under the Labour Code, employment relations between the employer
and the employee may arise only under a labour agreement. Article
15 of the Labour Code stipulates that the conclusion of civil law
agreements which de facto govern the relationship between the
employer and the employee are not allowed.
Therefore, the franchisee or even the franchisee’s employees
cannot be treated as the employees of the franchisor for liability
or other purposes. However, in certain cases as cited by law,
franchisors may bear subsidiary or even joint and several liability
under product-related claims of third parties, but not related to
employment issues.
2.4 Distinctive criteria with respect to distributorship
contracts
According to the law of your country, how are
franchising contracts dis-tinguished from distributorship
contracts?
Franchise and distribution are two different business models,
although they are sometimes ‘blended’ together, especially
in product franchising deals. Specifically, if franchisor and
franchisee are involved in product-purchase-sales as well as supply
and re-sales relationship, relevant distribution clauses may be
incorporated into the franchise agreement, or the distribution
contract may be attached to the franchise agreement. Importantly,
there is no such contractual model as the distribution contract in
Russian civil law, and, in practice, such agreement will mix
different aspects of product purchase and re-sale, while
franchising is more about trademark and IP licensing, as noted
above.
2.5 Possible application of rules on commercial
agency
Is there a risk of application of the rules or case-law
principles provided for commercial agents also to
franchisees?
Can you provide details of the relevant circumstances and
application by case-law?
Is there anything that can be done to help mitigate this
risk?
Usually, agency relations are mixed with distribution, but not
with franchising. Franchisors would not appoint their franchisees
as commercial agents. In fran-chising relationship, parties would
normally use regular sub-franchising models, if appropriate.
2.6 Possible reference to other contracts with respect
to the sale of goods (for distribution franchising
contracts)
Is it possible to include in the franchising contract
rules whereby the fran-chisor puts the contractual products (which
remain his property until they are sold to the end user) at the
franchisee’s disposal, and the franchisee sells the goods for
the account of the franchisor (like a commission agent)? If so,
does this modify the nature of the franchising
agreement?
Yes, it is possible, but such arrangements are rarely
implemented in product franchising deals. In this case, such
commission or agency relationship are simply incorporated into
franchise agreements, unless separate agreements are entered into
by the parties.
2.7 Requirements concerning the performance of the
franchise activity
Is there any condition required by the laws of your
country for being al-lowed to perform the franchising activity
(e.g. citizenship)?
Are there any registration requirements or other formalities
required as a pre-condition to establish and/or manage a franchise
system in your juris-diction?
No, there is no special citizenship, location or registration
formality to establish and manage a franchise system in Russia.
Franchisor can be a foreign entity, while franchisee can be a local
one. Formation of Russian business entity is not necessary to set
us a franchising or sub-franchising business.
3. Pre-Contractual Disclosure Obligations
3.1 Rules on disclosure in general
Which rules govern precontractual disclosure obligations
in your country?
Pre-contractual disclosure is not mandatory under Russian law,
as noted above. Disclosure obligations may be established by the
parties on the basis of the doctrine of culpa in contrahendo at the
negotiations stage of a prospective deal. When negotiating the
franchise grant, parties may corroborate their contractual
negotiations using a special form of agreement available under the
provisions of Article 434(1) of the Civil Code. Also, parties to a
franchise agreement are subject to an implied duty of good faith.
Good faith and fair dealing are the fundamental principles of the
national civil law, as set out by Articles 1(3) and 10(5) of the
Civil Code. These principles are usually supported and enforced by
local courts in all disputes involving domestic contracts and
cross-border transactions, including in terms of franchising.
3.2 The rules contained in the specific statute (if any)
on disclosure
Which information is to be provided to the prospective
franchisee before signing the contract?
N/A
How often must the disclosures be updated?
N/A
3.3 Consequences of the non-respect of the rules
regarding pre-contractual disclosure
What are the consequences of the non-observance of the
rules on pre-contractual disclosure?
Except for the rules described above, as well as the contractual
penalties, which may be set forth by the agreement governing
negotiations of the parties, there are no liability implications
for non-observance of pre-contractual disclosure. Again,
pre-contractual disclosure is not compulsory under Russian law.
3.4 Choice of law and mandatory rules on
disclosure
Are the rules on disclosure to be observed in any case,
even if the parties have chosen to submit the franchising contract
to a law other than the law of your country?
No. Please see the above.
3.5 Possible translation into the local
language
Is there a requirement for disclosure documents to be
translated into the local language?
Disclosure documents, if they are submitted should be
accompanied by the cor-responding Russian translations to make them
clear to the franchisees. Howev-er, there is no requirement to do
so, as disclosures are not imperative.
4. Obligation of the Franchisor to Test the Business
Formula
Is it necessary that the franchising formula has been
tested before proposing it to prospective franchisees?
It is not necessary that the franchising formula must be tested
before proposing it to prospective franchisees. Also, there is no
imperative to establish a local business entity as a pre-condition
for doing franchise business in Russia. International companies are
free to offer and sell franchises directly or indirectly to local
business entities. When entering the Russian market through
franchising, foreign companies should comply with the relevant
national laws and regulations governing franchise-related deals and
general civil law principles.
5. Formalities Regarding the Franchising Contract and Its
Modifications
5.1 Formalities required by law
Is any formality (written form, notarisation,
registration, etc.) required for the validity of a franchise
contract in your country? If so, what are the consequences of the
non observance of the above for-malities?
Written form
According to Article 1028 (1) of the Civil Code a franchise
agreement must be made in writing. Non-compliance will make the
franchise agreement null and void (invalid).
Also, the franchise agreement must be translated into Russian.
In practice, bilingual versions are drafted in the context of
cross-border deals. If the franchise agreement is produced and
executed in a foreign language (eg, English), a certified Russian
translation may be prepared and attached to the original
contract.
Registration (where applicable)
Under Article 1028 (2) of the Civil Code a franchise grant must
be registered with the Federal Service for Intellectual Property
(Rospatent). The franchise grant which is not registered with
Rospatent will be regarded as invalid against third parties.
The types of documentation that may be submitted to Rospatent
for recordal purposes are as follows:
- the original franchise agreement;
- a notarised excerpt from the original franchise agreement;
or - the so-called ‘notification’ (ie, the statement of
franchise).
If the parties do not wish to disclose the original contract
along with agreed financial terms or other sensitive data, the best
option would be to make, sign and file an excerpt from the
franchise agreement or submit the notification.
Before filing, it is essential to ensure that the franchise
agreement as well as the document filed to Rospatent contains all
of the essential elements (ie, mandatory clauses) as required by
Russian law and applicable registration regulations.
The usual registration period will be 2-3 months, provided that
no office actions or Rospatent inquiries are issued in the course
of examination.
5.2 Contractual requirement of written form for
modifications
In case the contract requires the use of writing for
possible future amend-ments, what are the consequences of non
observance?
Amendments or modifications are also subject to written form and
registration with Rospatent. Registration is required, provided
that modifications concern the change in the franchise grant (i.e.
type of franchise, term, territory, etc.).
5.3 Specific acceptance of onerous conditions contained
in non-negotiated contracts
Acceptance of any franchise-related terms and conditions,
including onerous ones, must be made by way of signature of the
contract. In other words, a franchise agreement shall represent a
written instrument that is signed by both parties.
5.4 Form requirements and applicable law
How is the law governing the form of the franchising
contract to be deter-mined under the law of your
country?
In cross-border franchising deals involving the Russian element
a written form of the contract will always apply, even though a
foreign applicable law is chosen. This practice is based on the
provisions of Article 1209 (3) of the Civil Code which expressly
stipulate that if a transaction or creation, transfer, limitation
or termination of rights under the transaction is subject to the
official registration in the Russian Federation, the form of such
transaction is submitted to the Russian law. Again, according to
Article 1028 (1) of the Civil Code a franchise agreement must be
made in writing. Non-compliance will make the franchise agreement
null and void (invalid).
6. Other Provisions Which May Have an Impact on
Franchising
6.1 Antitrust rules
Are there any antitrust rules which should be taken into
consideration when drafting (or carrying out) a franchising
contract?
Generally, the national competition law, prevents monopolistic
(anticompetitive) activities, ‘cartels’ and abuse of
dominance. The law further prohibits any types of unfair
competition, including misrepresentation and passing off.
Unauthorised IP acquisition and use may also be treated as unfair
behaviour and, therefore, sanctioned. Importantly, the law allows
‘vertical’ contracts, including franchise agreements,
whether made between foreign or domestic companies.
Franchise agreement may impose different obligations and
covenants on the franchisee, particularly those listed in Article
1033 (1) of the Civil Code. Theoretically, these covenants, to the
extent they are incorporated in the franchise agreement, may be
declared invalid by Federal Antimonopoly Service (or other
interested person), if they are found to be contradictory to
anti-monopoly laws, subject to the relevant market conditions and
economic status of the parties.
6.2 Good faith
Is there a general legal obligation on parties to deal
with each other in good faith? If so, how does it affect franchise
relationships?
There is a specific legal provision in the Russian Civil Code to
the effect that the parties, while exercising their rights and
performing their duties, should act in good faith. There is also a
general civil law principle that the actions of private persons and
legal entities are not allowed if they are carried out with the
sole purpose of causing damages to other persons. Neither abuse of
rights, nor unfair competition are allowed.
6.3 Consumer protection
Does any law provision treat franchisees as consumers
for the purposes of consumer protection or other
legislation?
There is no law that would treat franchisees as consumers. The
Law on Protec-tion of Consumers’ Rights covers the rights of
individual consumers acting as physical persons (not business
entities). Franchisee will always be a business en-tity or
entrepreneur.
6.4 Possible other rules
Which other rules of general nature should be considered
when dealing with franchising?
As mentioned above, the franchise relationship may generally be
regulated and affected by the local laws on:
- franchising and IP licensing;
- IP and IT;
- real estate and property law;
- competition and commercial law;
- labour and employment;
- consumer law and data protection;
- advertising and promotion; and
- tax and currency control.
Other related Russian laws and regulations may also apply
depending on the nature of franchising deal.
7. The Franchisee’s Obligation Not to Compete
7.1 Non competition during the contract
If there is no contractual provision prohibiting the
franchisee to sell com-peting goods or to engage with competing
franchising networks, does it mean that the franchisee is free to
act for competitors of the franchisor?
If there is no contractual provision prohibiting the franchisee
to compete, the franchisee is free to act for competitors of the
franchisor. Therefore, it is usually recommended providing a
special non-competition clause in the franchise agreement.
To what extent are contractual non-competition clauses
admissible?
The franchise agreement may contain non-compete and other
restrictive covenants. These may be imposed on the franchisee as
allowed under Russian law. The franchisor may elect inter alia for
the following covenants to be incorporated into the contract:
- the franchisee’s covenant not to compete with the
franchisor in the franchised territory in relation to the
franchised business and franchised set of IP rights; - the franchisee’s refusal to accept analogous rights under
franchise agreements from actual and potential competitors of the
franchisor; - the franchisee’s covenant to distribute and sell the
manufactured or purchased goods, perform works or provide services
by using the franchised rights and applying the prices fixed by the
franchisor; - the franchisee’s covenant to refrain from distributing
analogous goods, performing analogous work and providing analogous
services using the trademarks or trade names of other
franchisors.
The above restrictive covenants are permitted under Russian law
and may be enforced if not complied with, especially during the
course of the franchise agreement.
Is it possible to extend the franchisee’s non
competition obligation to non competing goods?
No, as the law does not permit this covenant.
7.2 Post-contractual non-competition
obligation
Is it possible to agree with the franchisee an
undertaking not to compete in the period after contract
termination? If so, is this obligation subject to specific
conditions (i.e. time limit, territorial extension,
etc.)?
Yes, it is possible to agree with the franchisee a covenant not
to compete in the period after the termination of the contract,
provided that such covenant survives the termination under the
agreement. Non-competition obligation shall be specific and limited
to certain territory and concrete period of time (e.g. 3 years).
Perpetual non-competition clause may be held invalid from the
antitrust perspective.
8. Exclusivity
8.1 Rights of the franchisee in the absence of
contractual rules on exclusivity
If there is no written contract or if the contract does
not state anything about the franchisee’s exclusivity, does it
mean that the franchisor is free to appoint other franchisees and
to sell the products or services in compe-tition with the
franchisee?
A franchise may be sole, exclusive or non-exclusive. If the
granted franchise is sole, the franchisor loses its right to use
the franchised set of IP rights in the franchised territory on its
own and loses the right to offer and sell the same franchise to
third parties in the franchised territory. If the granted franchise
is exclusive, the franchisor may reserve the right to use the
franchised set of IP rights in the franchised territory on its own.
However, it loses the right to offer and sell the same franchise to
third parties in the franchised territory. If the granted franchise
is non-exclusive, the franchisor is free to franchise the already
franchised set of IP rights to others in the franchised territory
and can use the franchised set of IP rights in the franchised
territory on its own.
8.2 What is actually covered by exclusivity
clauses?
What are the franchisor’s obligations under a clause
granting a territorial exclusivity to the franchisee?
The franchise agreement may provide for the franchisor’s
obligation not to grant third parties analogous sets of IP rights
for their use in the contracted territory, or refrain from
self-analogous business activity in such territory. The franchise
agreement may also stipulate the franchisee’s obligation to
sell goods and provide services exclusively within the boundaries
of certain territory. Therefore, if the franchise is fully
exclusive by territory, the franchisor is deprived of the right to
use the franchised set of IP rights on such territory and cannot
also grant third parties the same franchised set of IP rights on
such territory (i.e. only the franchise get all the rights).
9. Responsibility of the Franchisor for Acts of the
Franchisee
Under which circumstances the franchisor may be held
responsible for acts of the franchisee? In which cases customers or
employees of the franchisee may have a direct action against the
franchisor?
The franchisor’s liability for third party claims addressed
to the franchisee may be joint and/or subsidiary. More
specifically, the franchisor shall bear subsidiary liability for
the claims made to the franchisee for the inconsistency of the
quality of the goods (services), which are sold (provided) by the
franchisee under the franchise agreement. Under claims made to the
franchisee as the manufacturer of the products (goods) of the
franchisor, the franchisor shall be jointly liable with the
franchisee. There rules are imperative by operation of the law.
10. Franchisor’s Control Over the Franchisee’s
Activity
10.1 General limitations
Are there any rules of case law principles limiting the
franchisor’s right to impose a specific conduct upon the
franchisee?
Generally, there are no rules or principles limiting the
franchisor’s right to impose a specific conduct upon the
franchisee. The franchisee must follow the standards and
instructions of the franchisor towards the business, the system and
the licensed IP rights.
Also, unless there is an agreement to the contrary, the
franchisor is obliged to control the quality of the goods
(services) which are manufactured (provided) by the franchisee on
the basis of the franchise agreement. The exercise of control can
be specifically described in the contract.
10.2 Obligation to sell from the franchised
outlet
Would the franchisee’s obligation to sell only from
the franchised outlet be lawful under the law of your
country?
Yes, the franchisee’s obligation to sell only from the
franchised outlet will be lawful. However, the franchisee’s
obligation to sell goods or provide services exclusively to
customers (clients) having the location or residence in certain
territory (i.e. the obligation to select customers) will be
void.
10.3 Prohibition to change the place of the
outlet
Would a prohibition to change the place of the outlet
without the franchi-sor’s approval be valid under your
law?
The franchise agreement may contain the franchisee’s
obligation to approve the place of disposition of commercial
premises used for the exercise of rights under the contract.
Therefore, the franchisor may prohibit the franchisee to change the
place of outlet, without the franchisor’s approval.
10.4 Use of Internet
Is the franchisor free, under the law of your country,
to sell through the In-ternet in competition with his
franchisees?
The franchisor is free to sell through the Internet, unless
otherwise is provided by the contract. If the granted franchise is
exclusive, which prohibits the franchisor to use the same set of IP
rights and grant same franchise to others in the same territory,
the franchisor will not be able to sell through the Internet by way
of a website targeted at Russia (e.g. by having a Russian
web-page).
Is the franchisor entitled, under the law of your
country, to prohibit the franchisee to sell through Internet (or
otherwise limit his right to promote his business through the
Internet)?
Yes, the franchisor is entitled to prohibit the franchisee to
sell through the Internet. This is the question of scope of rights
that may be established by the contract.
10.5 Limitations as to the customers to whom the
franchisee may sell
Are possible limitations as to the customers to whom the
franchisee may sell lawful under the law of your
country?
The provisions of the franchise agreement stipulating the
franchisee’s obligation to sell goods (provide services)
exclusively to customers (clients) having location or residence in
the contracted territory will be null and avoid (Article 1033 (2)
of the Civil Code). The obligation to sell only to end users or
only to other franchisees may be lawful and shall not be regarded
as anti-competitive.
10.6 Resale prices
Would a clause which obliges franchisees to respect
certain resale prices of the products supplied by the franchisor be
lawful under the law of your country?
Under the law the franchisee’s covenant to distribute and
sell the manufactured or purchased goods (provide services) by
using the franchised rights and applying the prices fixed by the
franchisor will be valid.
11. Intellectual Property and Confidentiality
11.1 Use of the trademarks and symbols during the
contract
Would a use of the franchisor’s trademarks which
does not conform to the franchisor’s indications be a
substantial breach, justifying contract termi-nation?
The franchisee may use the franchisor’s trademark only
within the scope which is granted by the franchisor and only by
such means as determined by the contract. If the trademark use does
not conform to the franchisor’s indications, it will be
considered as a substantial breach of contract, which may lead to
contract termination.
11.2 Obligation to cease using trademarks after contract
termination
Are clauses which require the franchisee to remove and
cease using the franchisor’s trademarks, after contract
termination enforceable in your country?
After the contract is terminated, the franchisee must cease any
use of the franchisors’ trademarks. Otherwise, the
franchisee’s actions will be considered as trademark
infringement. Further penalties can established by the
contract.
11.3 Domain names
Are there any limitations on a franchisor being able to
require a former franchisee to assign local domain names to the
franchisor on the termina-tion or expiry of the franchise
agreement?
In the absence of a contractual provision regulating domain names,
is the franchisor entitled to claim the transfer of possible domain
names regis-tered by the franchisee/master, which include the
franchisor’s trademark, in your jurisdiction?
Registration and use of a domain name that includes a trademark
of the franchi-sor is not allowed without the consent of the
latter. If permitted, it may be done, but only pursuant to the
provisions of the agreement, and during its term. After expiration
or termination of the franchise agreement, the franchised trademark
cannot be used in the domain name.
Franchisee may either deregister the same or assign it to the
franchisor. If not, the franchisor can claim prohibition of such
(unauthorized) use in local court. Positive and effective court
decision will be a legal basis for Domain Registrar to proceed with
domain name transfer.
11.4 Confidentiality
Is the franchisee obliged to treat the information
received from the fran-chisor as confidential?
Subject to the essence and features of the business carried out
by the franchisee under the franchise agreement, the franchisee is
obliged not to disclose trade secrets (know-how) of the franchisor
and other confidential (commercial) information received from the
latter. This obligation may be enforced through various sanctions,
including contractual penalties, which are imposed by franchisors.
Of course, it is critical to define what specific information, that
is transferred to the franchisee, is confidential and
proprietary.
12. Term and Termination of the Contract
12.1 Contract for a fixed period or for an indefinite
period
Is it possible to choose between a contract for a fixed
term and a contract for an indefinite period? What are the main
differences?
Yes, it is possible to make a contract for a fixed term (e.g. 5
years) or indefinite term. Indefinite term shall be equal to the
term of protection of the franchised set of IP rights, including
trademark rights. If the franchise agreement is tacit about the
term, and the term is not defined in the agreement at all, the
contract will be valid for five (5) years (i.e. the franchise grant
will be recorded for five years).
12.2 Contract for a fixed period (without automatic
renewal clause) which con-tinues to be performed after its
expiry
What happens, under your law, if a contract concluded
for a fixed term (and not containing a clause for automatic
renewal) continues to be per-formed after its term?
If a contract that is concluded for a fixed term continues to be
performed after its term, the franchisee may found itself
infringing the franchisor’s rights. If the renewal agreement is
not signed prior to the expiration of the franchise agreement, and
the renewal is not recorded, the rights and obligations will be
ceased. Automatic prolongation is not available under the law.
12.3 Termination notice (contract for an indefinite
period)
Does the legislation of your country require a minimum
period of notice for the parties to terminate a franchise contract
made for an indefinite term?
If so, is such period mandatory? For both parties?
If no period of notice is required by law, will it be fixed by the
courts?
In the latter case, will the courts intervene only if no period of
notice has been agreed contractually? Or will the courts establish
a reasonable peri-od if the period agreed in the contract is
considered too short?
Under the law, a franchisor may terminate a contract at any time
if the franchise agreement has been concluded for an indefinite
period. In such a case, six months’ written notice is required,
unless the contract indicates a longer term for the advance
termination notice. Either party to the contract that is concluded
for an indefinite term may terminate the franchise agreement by
sending written notice to the other party within 30 days. This
option is available only if the contract provides for the release
of certain monetary compensation.
12.4 Form of the notice of termination and
effectiveness
Is there a form (e.g. registered letter) that must be
respected for the termi-nation notice to be effective?
Termination notice should be sent by all possible means,
including the registered mail. Email letter, without the official
notice to be mailed, will not be sufficient.
Is the termination considered to have been validly given
when it is sent or when it is received?
Termination notice shall be regarded as legal notice under the
law. Legal notices are considered to have been validly given
(delivered) when they reach the addressees, even though the latter
has not reviewed the notices on the reasons depending on them.
If the addressee is a company, is there a specific
person to whom the noti-fication must be made in order to be
effective?
Termination notice should be addressed to the director of the
company. If the contract provides for certain other people to be
notified (e.g. legal department), they must be coped as well.
In case the form imposed by law or prescribed in the
contract has not been respected, what are the
consequences?
In this case, the termination notice will not be regarded as
validly given. Therefore, contract termination may be challenged by
the other side (addressee).
12.5 Earlier termination
Which reasons can normally justify earlier termination
by the franchisee and/or by the franchisor?
Can a party terminate the contract for a breach which such party
has tol-erated in the past without complaining?
If the answer is no, would the result be different if the contract
contains a «waiver clause» (e.g. a clause saying that
«Any waiver on the part of either party hereto of any right
or interest shall not imply the waiver of any other right or
interest, or any subsequent waiver»)?
The franchisor may terminate the franchise agreement if the
franchisee produces goods of inferior quality or the quality of its
services does not correspond to what has been set out in the
contract. The franchisor may also repudiate from the franchise
agreement if the franchisee does not follow the franchisor’s
instructions and guidance aimed at compliance with the contractual
provisions relating to the terms and conditions on the use of the
franchised set of IP rights. The franchisor may cancel the
franchise agreement if the franchisee fails to settle the franchise
fees on the terms and conditions set out in the contract.
Termination or repudiation by the franchisor is available if the
franchisee fails to remedy the breach within a reasonable term, or
has committed another breach within a year of receipt of the
written notice from the franchisor. Further, if the franchisee
becomes insolvent (bankrupt) the franchise agreement must be
dissolved.
The earlier termination of franchise agreement is subject to
mandatory registration with Rospatent. Absent registration, the
earlier termination will not be effective and enforceable against
third parties.
12.6 Unjustified earlier termination
What is the effect of an unlawful earlier termination of
a franchising con-tract under the law of your country?
In case a party to the contract did not send the notice on
termination of contract as established by the law or sent the
notice later than the prescribed 6 months before termination, the
contract will remain valid and all the rights and obligations of
the parties will continue.
In case a party to the contract sent the notice on termination
not later than 30 days before the termination, but did not pay a
cancellation compensation within the agreed term, the non-breaching
party is entitled to request from the breaching party to execute
the initial obligation.
In case the franchisor/franchisee repudiated from the contract
on the grounds which are not provided by the law or contract, such
termination will be null and void. The contract as well as all the
rights and obligations of the parties will remain in force.
12.7 Compensation for unjustified earlier
termination
Please, explain if there are legal rules (or principles
established by case law) for calculating the amount of compensation
for unjustified earlier termination.
According to Article 393 (1) of the Civil Code a debtor shall be
obliged to compensate the creditor for losses caused by the failure
to perform or improper performance of an obligation. Losses imply
the expenses that the person whose right had been violated incurred
or will have to incur in order to restore the violated right, the
loss or damage of his property (actual damages), as well as lost
revenues this person could have received under the normal course of
business, had his right not been violated (lost profits). If the
breaching party made profits in consequence of this, the
non-breaching party has the right to demand that, besides other
losses, the lost profits be recovered in the amount of no less than
such profits (Article 15 (2) of the Civil Code).
12.8 Possible other cases of illicit termination by the
franchisor
Are there other types of protection of the franchisee
provided either by law or by case-law in your country protecting
the franchisee at the end of the contractual
relationship?
As noted above, in certain cases, a cancellation compensation
must be provided and paid in exchange for termination. If the
terminating party is in breach of can-cellation compensation
clause, termination can be challenged by the other party, and the
contractual relations shall resume after the effective court
decision. No other (financial) types of protection of the
franchisee and its investments are provided by the law.
Are Courts in your countries entitled to apply the
principle of good faith and fair dealing, challenging the
franchisor’s termination of the contract and possibly granting
damages to the franchisee?
Yes, these principles are always assessed and applied by local
courts.
If so, under which circumstances and how do they assess
and calculate damages?
N/A
Is there a notion of “abuse of law or “abuse
of economic dependence” in your jurisdiction?
No.
Does it apply to franchising contracts? If yes, under
which circumstances and how do they assess and calculate
damages?
N/A
13. Goodwill Compensation (Indemnity)
Does the law or jurisprudence of your country recognise
a goodwill compensa-tion to the franchisee?
Russian law does not recognize a goodwill compensation to the
franchisee payable at the end of the contract which is due even
where the contract termination has been lawful.
14. Limitation of Action
Does your legislation provide limitation periods (or
similar systems) for the ex-ercise of the rights of the parties
under a franchise agreement and which is their
duration?
Limitation periods do vary depending on the circumstances as
well as types of actions. More specifically, the general (main)
limitation period is three years, however, there are certain
special periods, such as one-year and ten-year terms, which are set
forth by the law (Article 181 of the Civil Code).
Can the limitation periods be contractually modified
according to your law?
Limitation period cannot be contractually modified.
15. Applicable Law
15.1 Legal sources
What are the rules of your legal system concerning
applicable law to fran-chising contracts?
Pursuant to Article 1210 (1) of the Civil Code, the contracting
parties are free to choose the relevant governing law, which is
applicable to their rights and obligations, when entering into a
contract or afterwards. The agreement for the choice of applicable
law must be express or implied from contractual provisions or set
of circumstances of the matter (Article 1210 (2) of the Civil
Code). Therefore, the franchise agreement may be governed by the
applicable foreign or national law, as agreed between the
parties.
15.2 Applicable law in the absence of
choice
If there is no choice of law by the parties, which
criteria are used by the courts of your country for determining the
applicable law in case of a fran-chising contract with a foreign
counterpart?
In the absence of a choice of law provision in the franchise
agreement, the law of the country where the franchisee has been
authorized to use the franchised system and IP rights shall be
applied (Article 1211 (6) of the Civil Code). Also, in cases where
such use has been permitted on 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.
15.3 Effectiveness of a choice of law excluding the law
of the franchisee’s country
Is it possible to submit the contract with a franchisee
belonging to your country to the law of a foreign
country?
Yes, it is possible. However, the enforcement aspect has to be
primarily assessed.
16. Jurisdiction and Enforcement of Foreign Judgments
16.1 Legal sources
What are the rules of your legal system concerning
jurisdiction as well as recognition and enforcement of foreign
decisions?
A court judgment obtained from another jurisdiction may be
enforceable in Russia, provided that recognition and enforcement of
the foreign court judgment is stipulated by both the relevant
international treaty to which Russia is a party and federal law.
Russia is a signatory to many multilateral and bilateral
international treaties for recognition and enforcement of foreign
judgments. Absent the relevant international treaty, a Russian
court may recognise and enforce a foreign judgment on the basis of
the international principle of reciprocity and comity (comitas
gentium).
The Civil Procedure Code provides for certain formal and
mandatory requirements for recognition and enforcement of foreign
judgments. These include the following criteria:
- effectiveness of the court judgment under the law of the
jurisdiction in the territory on which it has been issued; - compliance with the statutory three-year period for filing a
motion for recognition and enforcement of the foreign court
judgment; and - consistency of the foreign court judgment with the Russian
public policy.
If these requirements are not met, a Russian court may refuse to
recognise and enforce a foreign judgment.
16.2 Jurisdiction without a choice of jurisdiction
clause
If there is no valid jurisdiction clause, is a
franchisee of your country enti-tled, under the procedural rules of
your country to bring a claim before his courts against a foreign
franchisor?
If there is no valid jurisdiction clause in the contract, a
Russian franchisee is entitled to bring a claim against a foreign
franchisor before the Russian court in case:
1) the defendant is present or resides in the territory of the
Russian Federation, or the defendant’s property is located in
the territory of the Russian Federation;
2) a managing body, a representative or branch office of the
foreign person is located in the territory of the Russian
Federation;
3) a dispute arises from a contract, which is performed or should
be performed in the territory of the Russian Federation.
There are other events established by Article 247 of Civil
Procedure Code which may determine the Russian jurisdiction.
If there is no valid jurisdiction clause, is a
franchisor of your country enti-tled, under the procedural rules of
your country to bring a claim before his courts against a foreign
franchisee?
If there is no valid jurisdiction clause in the contract, a
Russian franchisor is entitled to bring a claim against a foreign
franchisee before the Russian court in case:
1) the defendant is present or resides in the territory of the
Russian Federation, or the defendant’s property is located in
the territory of the Russian Federation;
2) a managing body, a representative or branch office of the
foreign person is located in the territory of the Russian
Federation;
3) a dispute arises from a contract, which is performed or should
be performed in the territory of the Russian Federation.
There are other events established by Article 247 of Civil
Procedure Code which may determine the Russian jurisdiction.
16.3 Effectiveness of a jurisdiction clause in favour of
foreign courts.
Do judges of your country have exclusive jurisdiction to
settle disputes concerning franchisees, who carry out their
activity between the bounda-ries of your country?
No.
Would a clause included in a contract between a foreign
franchisor and a franchisee of your country under which a foreign
court has jurisdiction on disputes arising out of the contract be
valid and effective in your country?
Yes, it would be valid in the Russian Federation.
Would the answer change if the franchisee is an
individual?
Franchisee is always a business entity or entrepreneur.
16.4 Recognition – enforcement
Is it possible to recognise and enforce a foreign
judgment against citizens of your country?
There are no restrictions concerning the recognition and
enforcement of a foreign judgment against citizens of the Russian
Federation.
Russian commercial courts consider the cases on the recognition
and enforcement of foreign judgments with regard to disputes
involving businesses and entrepreneurs, including those arising
from franchising, if such recognition and enforcement are
stipulated in the international treaty where the Russian Federation
is a party, or in the federal law of the Russian Federation.
However, the Russian commercial court refuses to recognize and
enforce a foreign court judgment in full or in part, if:
1) the judgment has not entered into force, according to the law
of the state, on the territory of which it was adopted;
2) the party, against which the decision was adopted, was not
timely and properly notified on the time and place of the
proceedings, or could not give its explanations to the court for
other reasons;
3) according to an international treaty where the Russian
Federation is a party or a federal law, the proceedings fall under
the exclusive competence of a court in the Russian
Federation;
4) there is an effective court decision in the Russian Federation,
adopted following a dispute between the same persons on the same
subject matter and on the same grounds;
5) there is a case concerning a dispute between the same persons,
on the same subject matter and on the same grounds under
consideration of a court in the Russian Federation, which commenced
prior to the institution of proceedings in a foreign court, or if a
court in the Russian Federation was the first to accept an
application for its consideration;
6) the term for the enforcement of the foreign court judgment has
expired, and this term was not restored by the commercial
court;
7) the enforcement of the foreign court judgment would contradict
the public policy of the Russian Federation.
If enforcement is possible, how long does the proceeding
take?
If enforcement is possible, the proceeding may take about 4-8
months to be accomplished. Appeal proceedings are also
possible.
17. Arbitration
17.1 Legal sources
Is your country part of the Convention on the
Recognition and Enforce-ment of Foreign Arbitral Awards (New York,
1958)?
Yes, Russia is a signatory to the United Nations Convention on
the Recognition and Enforcement of Foreign Arbitral Awards 1958
(the New York Convention). Therefore, an arbitral award received
from another jurisdiction that is a signatory to the New York
Convention may be enforceable in Russia.
Are there other rules applicable to international
arbitration provided by the law or jurisprudence of your
country?
International arbitration is regulated in the Russian Federation
by the Law on International Commercial Arbitration dated 07.07.1993
No. 5338-1. Moreover, Russian Federation is a country part of the
European Convention on International Commercial Arbitration 1961.
Absent the relevant international treaty, a Russian court may
recognise and enforce an arbitral award on the basis of the
international principle of reciprocity and comity (comitas
gentium).
17.2 Arbitrability
Are franchising contracts considered a subject matter
capable of settle-ment by arbitration, according to your
legislation?
Yes, arbitration may be applied to franchising contracts,
provided there is an agreement of the parties (i.e. arbitration
clause).
If so, does this apply to all franchise agreements or
only to certain situa-tions (e.g. franchisees who are not
individuals)?
All franchise agreements.
17.3 Arbitration clauses
Would an arbitration clause providing for arbitration
abroad, included in a franchising agreement be valid and effective
in your country?
Yes, such arbitration clause will be valid in the Russian
Federation.
Would the courts of your country refuse jurisdiction
with respect to a franchising contract providing for such a
clause?
The Russian court may accept or refuse (depending on the
circumstances) the jurisdiction of a franchising contract
containing an arbitration clause.
17.4 Recognition of foreign awards
Would a foreign arbitration award dealing with a
franchising agreement be recognised by the courts of your
country?
The Civil Procedure Code provides for certain formal and
mandatory requirements for recognition and enforcement of arbitral
awards. These include the following criteria:
- effectiveness of the arbitral award under the law of the
jurisdiction in the territory on which it has been issued; - compliance with the statutory three-year period for filing a
motion for recognition and enforcement of the arbitral award;
and - consistency of the arbitral award with Russian public
policy.
If these requirements are not met, a Russian court may refuse to
recognise and enforce the arbitral award.
Originally published by International Distribution
Institute.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.