Russian Federation
Answer ... See question 4.2. In addition to the essential terms listed, franchising agreements usually contain the following terms:
- parties (names, addresses and registration details);
- duties and covenants (eg, compliance with operational manuals, product quality assurance, site selection);
- confidentiality;
- exclusivity of the franchise;
- term (definite or indefinite);
- territory;
- the right of the franchisee to grant sub-franchises;
- termination (right of unilateral termination, reasons of termination) and post-termination obligations;
- governing law and jurisdiction; and
- the languages in which the franchising agreement is drawn up and the language that prevails in case of discrepancies.
Russian Federation
Answer ... By default, international franchising agreements are governed by the law of the country for which the franchise is granted (or, if it is granted for several countries, the country where the franchisor resides or has its main place of business).
The parties may agree on the application of local or foreign law. However, the following must be borne in mind:
- Mandatory rules of Russian law apply irrespective of the chosen law. Such rules can be expressly stipulated or recognised as such due to their extraordinary importance (eg, if they are aimed at protecting the public interest associated with the fundamentals of Russian’s economic, political or legal system).
- Foreign law will not apply if the consequences of its application would obviously contradict the fundamentals of the Russian legal system.
- If all circumstances concerning the essence of the parties’ relationship relate to only one country, the choice of foreign law cannot affect the mandatory norms of that country.
- The application of Russian public law (eg, tax, competition) cannot be excluded or replaced by the parties with relevant provisions of foreign law (see also questions 1.1 and 1.2)
The choice of a foreign jurisdiction will be recognised by the local courts, although the enforcement of foreign state court decisions might be difficult in Russia due to the absence of relevant international treaties. However, arbitral awards obtained in other countries which have signed the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 are enforceable in Russia, and vice versa.
See also question 15.1.
Russian Federation
Answer ... The franchisor has the right to receive remuneration from the franchisee and to repudiate the agreement in the event of the following breaches by the franchisee:
- non-compliance with quality requirements;
- gross violation of the franchisor’s instructions; or
- failure to pay remuneration to the franchisor.
The Civil Code obliges the franchisor to provide all necessary technical and commercial documentation and information, as well as instructions relating to the rights contracted to the franchisee.
The franchise agreement may also establish the following obligations:
- to arrange for the state registration of the licence;
- to provide continuous technical and advisory assistance, including training for the franchisee’s employees;
- to exercise control over the quality of the franchisee’s goods, services or works; and
- to refrain from providing similar sets of exclusive rights to third parties within the area assigned to the franchisee, or from conducting own activities within this territory.
Subject to any special conditions included in the franchise agreement, the franchisor may also demand from the franchisee the opening of a certain amount of franchise units or impose certain non-compete obligations (see question 7.5).
Russian Federation
Answer ... The Civil Code provides for the following rights of the franchisee under the franchise agreement:
- the right to use a selection of exclusive rights, which necessarily includes a trademark or service mark, and avail of the business reputation and commercial experience of the franchisee;
- the right to receive from the franchisor all necessary technical and commercial documentation and information, as well as instructions relating to the contracted rights;
- a preferential right to conclude an agreement for a new term upon the expiry of the initial term, provided that the franchisee has duly performed its duties; and
- the right to demand termination of the agreement and compensation for damages if the franchisor changes the trade name that is part of the exclusive rights granted to the franchisee. If the franchisee decides not to terminate the franchise agreement, it may demand a commensurate reduction in the remuneration due to the franchisor.
See also question 5.4 regarding the obligations of the franchisee.
The following rights of the franchisee are optional and may be amended by the franchise agreement:
- the right to sell sub-franchises on the terms and conditions agreed with the franchisor;
- the right to receive from the franchisor continuous technical and advisory assistance, including training for the franchisee’s employees; and
- the right to demand a commensurate reduction in the remuneration if, during the term of the franchise agreement, the exclusive right expires or is terminated, but the franchise agreement remains in effect.
Russian Federation
Answer ... The franchisor may provide instructions to the franchisee in order to ensure that the latter uses the franchisor’s exclusive rights in a way which is consistent with that of the franchisor. The franchising agreement can also include an obligation for the franchisee to agree with the franchisor on the location of commercial premises and their external and interior decoration.
In addition, Russian law explicitly allows for the imposition of the following non-compete obligations on a franchisee:
- to refrain from competing with the franchisor on the territory for which the franchising agreement is concluded regarding commercial activity which the franchisee conducts through the use of the licensed exclusive rights;
- not to acquire similar rights under franchising agreements with competitors or potential competitors of the franchisor;
- to sell goods, perform works or render services at the prices established by the franchisor, and/or within the agreed territory; and
- to refrain from selling similar goods, performing works or rendering services under the trademarks and trade names of third parties.
At the same time, discriminatory conditions – for example, those requiring the franchisee to sell goods or provide works and services only to clients which are located or reside in a given territory – are not allowed and shall be deemed null and void.
As a general rule, restrictions imposed on the franchisee must comply with Russian competition law. For instance, obligations that would constitute an abuse of a dominant market position are prohibited.
Russian Federation
Answer ... All participants in civil law relations must act in good faith regarding the establishment, exercise and protection of civil law rights and the performance of obligations. This rule is generally implied.
As a general rule, both when establishing and fulfilling obligations and following their termination, the parties must:
- act in good faith;
- consider each other’s rights and legitimate interests;
- cooperate to the extent necessary; and
- provide necessary information.
The abuse of rights – for example, exercising civil rights with the exclusive intention of harming another person, circumventing the law with unlawful aims or otherwise knowingly exercising civil rights in bad faith – is prohibited.
One important implication of these fundamental civil law principles relates to the concept of estoppel, which can generally be defined as a legal restriction on contradictory behaviour. For instance, a party cannot refer to the invalidity of a contract based on circumstances of which it was aware when it expressed its will to enter into the contract. By way of example, according to existing court practice, a franchisee may not claim that the franchising agreement is invalid and refuse to perform it, or demand the return of funds paid to the franchisor due to the absence of state registration of the agreement, if the parties have begun to execute it (eg, the franchisee has paid the fees established by the franchising agreement, or the franchisor has started to provide consulting and other support to the franchisee).
Russian Federation
Answer ... Upon the expiry of the term of the franchise agreement, a franchisee which has duly performed its obligations has a preferential right to conclude an agreement for a new term. If the franchisor refuses to conclude the franchise agreement with the franchisee for a new term, but, within one year of the expiration date of the previous agreement, enters into a franchise agreement on the same conditions with a third party, the franchisee may commence court proceedings to demand the transfer of the rights and obligations of the new franchisee to itself and/or the reimbursement of damages incurred due to the franchisor’s refusal to renew the agreement.
Russian Federation
Answer ... An agreement concluded for an unlimited term can be terminated by either party, through sending written notice to the other party at least six months in advance, unless a longer term is established in the franchise agreement.
If the franchise agreement provides for a fixed term or if no validity term is specified, either party may terminate the franchise agreement by sending written notice to the other party at least 30 days in advance, if the franchise agreement provides for the possibility of termination in the event of payment of a monetary sum as a form of compensation.
The franchisor may also terminate the agreement if the franchisee has committed any of the following breaches and does not cure such breach within a reasonable timeframe following receipt of written notification of the franchisor, or has committed such a breach repeatedly within one year:
- non-compliance with quality requirements;
- gross violation of the franchisor’s instructions and directions intended to ensure compliance with the character, manner and conditions of the use of the provided exclusive rights; and
- failure to timely pay remuneration to the franchisor.
The agreement automatically terminates in the event of:
- termination of the franchisor’s rights to the trademark, service mark or trade name granted to the franchisee, unless this is replaced by another IP right; or
- the bankruptcy of one of the parties.
The termination of a franchising agreement is subject to state registration.
See also question 7.4 regarding the consequences of changing the trade name of the franchisor.
Russian Federation
Answer ... There are no restrictions on the repatriation of money out of Russia, including franchise fees payable to foreign franchisors. The parties may also agree on payments not only in roubles, but also in a foreign currency of their choice.
Nevertheless, certain Russian currency control requirements should be considered when transferring money from Russia to foreign countries. Franchise agreements must be registered with the Russian bank of the Russian party which makes or receives payments under the franchise agreement if the payment exceeds RUB 3 million. Usually, the bank will require that the agreement be provided in a Russian or a bilingual version.
If the payments to be made under the franchise agreement do not exceed the limit, there is no need to register the agreement, but the bank may require the submission of the agreement and other documents confirming payment and fulfilment of the agreement (eg, invoices, acts of acceptance).
In general, the Russian currency regulations have been streamlined in recent years and can now be regarded as additional paperwork, rather than a substantial obstacle to payments by Russian franchisees to foreign franchisors.
However, if a foreign franchiser has its seat in a country which is blacklisted by the Financial Action Task Force on Money Laundering (eg, Mauritius, Jamaica, Syria), payments to the foreign franchiser can be thoroughly audited by Russian banks.
Russian Federation
Answer ... Royalties paid under a franchising agreement are recognised as income of a foreign franchisor received in Russia from the use of intellectual property and are thus subject to Russian withholding tax.
However, most double taxation treaties to which Russia is a party provide that royalties are exempt from Russian withholding tax or subject to a reduced tax rate (usually 10%).
The privileges under double taxation treaties are applicable if the foreign franchiser presents a tax residency certificate and documents confirming beneficiary ownership on the royalty to the Russian franchisee. Such documents should be provided annually before the Russian franchisee pays royalty to the foreign franchisor.