Having substantial experience in advising a number of large
franchise projects that appeared in the Kazakhstani market over the
last years, we take the liberty of giving a number of simple but
efficient recommendations to foreign franchisors.
When a foreign franchisor enters Kazakhstan, he normally uses
its standard franchise agreement governed by (foreign for
Kazakhstan) law which he is familiar with. But what he should do in
the first place is to adapt the document to mandatory requirements
of Kazakhstani law that contains 'imperative' provisions,
which are effective irrespective of the law governing the
For example, there is a provision stating that a franchisor may
not determine price for goods, works or services being sold by
franchisee or establish upper or lower level of such price. This
means that even if you entered into an agreement containing such a
provision, the court would declare it invalid.
Franchise models may be based on determining consumer prices by
a franchisor. And this is not prohibited by law of many countries
(e.g. Russia). And when entering the Kazakhstani market, a
franchisor would try to implement the same model, but would face
limitations by local laws.
That is why, before sending a draft agreement to a potential
franchisee, you should get advice from Kazakhstani lawyers to
understand which of your standard provisions would work in
Kazakhstan and which would not.
Another important aspect of which a foreign franchisor should
think in advance is that as a rule, a franchise includes transfer
of a right to use intellectual property objects, such as a trade
mark or a service mark. Before you grant rights to a Kazakhstani
franchisee, you should yourself obtain rights to those objects in
Kazakhstan, such rights require registration. Accordingly, until
you become a registered owner, legally you cannot grant a right to
use a trade mark or a service mark in Kazakhstan.
That may entail very practical implications. For example, when a
franchisee pays royalty to a franchisor under an unregistered
right, it appears that the payment does not have legal grounds.
Apparently, its lawfulness may be disputed by tax authorities or a
bank's currency controllers.
It should also be noted that under Kazakhstani law not only the
right to a trade/ service mark itself but also a license agreement
granting the right to use this IP object must be registered. This
registration is possible only after the right to the IP object is
Another consideration is that the registration procedures would
take time. Registration of a trade mark in practice takes 8-12
months; registration of a license agreement under an already
registered trade mark takes about 3-4 months. This timing should be
taken into account in planning franchise projects.
One more important thing is a dispute resolution procedure in a
franchise agreement. Foreign court decisions rendered in a vast
majority of countries would not be enforceable in Kazakhstan. In
Kazakhstan, foreign judgments are enforced only on the basis of
reciprocity, and for that a treaty for reciprocal recognition and
enforcement of court decisions is required.
Because of that, in dealings with a Kazakhstani franchisee, a
foreign franchisor should not insist on jurisdiction of his
country's courts. At least, until he makes sure that there is
such a treaty between our countries. Ignorance may lead to a
situation where a court decision made in favour of a franchisor may
appear simply unenforceable against a Kazakhstani franchisee. A
solution is to include an arbitration clause in a franchise
agreement that would allow enforcing arbitral award on the basis of
one of the international treaties, such as the 1958 New York
Convention on the Recognition and Enforcement of Foreign Arbitral
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.
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An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
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