Description
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of Anglo-French derivation - from franc - meaning free, and is used both as a noun and as a (transitive) verb.
COUNTRY REPORT SWEDEN Franchising
prepared by
A N D E R S T H Y LI N Thylin Advokatbyrå AB Kungsgatan 29, 2 tr, SE 111 56 Stockholm (S W E D E N ) Last update: May 2010
1.
LEGAL SOURCES. What are the rules governing commercial franchising agreements (if any) in your country? Franchise agreements that are offered to prospective franchisees in Sweden are governed by the Franchise Disclosure Act1. There are no specific statutory rules that regulate the franchisor-franchisee relationship, but the Contracts Act 2 sets forth general principles on private and commercial agreements. The Contracts Act relies on the freedom of contractprinciple. The Sale of Goods Act3 may be applicable by analogy on franchise sales. It also sets forth general principles on commercial agreements. Other acts where one may find general principles on commercial relationship agreements (such as franchising) include the Commercial Agency Act 4 and the Commission Agency Act5. Reported case law from the public courts involving franchising specifically deals with enforcement of arbitration agreements and if a franchisee should be deemed an employee. There is also an act on unfair marketing practices between businesspersons 6. This act does not govern relationships but provide means to prohibit the future use of unfair contract terms in commercial agreements. As mentioned in the Swedish country report on commercial agency agreements, preparatory legislative materials (“travaux préparatoires”) are important when interpreting Swedish law. Although not binding as such, they are in practise determined important when arguing legal points. The preparatory legislative materials to the Franchise Disclosure Act consist in the main of a bill7.
1 2 3 4 5 6 7
sw: lagen (2006:484) om franchisegivares informationsskyldighet sw: lag 1915:218 om avtal och andra rättshandlingar på förmögenhetsrättens område sw: Köplag (1990:331) sw: lagen (1991:351) om handelsagentur sw: Kommissionslag (2009:865) sw: lag (1984:292) om avtalsvillkor mellan näringsidkare sw: Prop 2005/06:98
IDI Project - Country report form on franchising SWEDEN
The Swedish Franchise Association8 has adopted and adapted a Swedish version of the European Franchise Federation’s Code of Ethics, discussed in several other of IDI’s country reports on franchising. The preparatory legislative materials to the Franchise Disclosure Act assumed that the Code of Ethics would be deemed standard practice in the franchise industry (hence, binding unless the parties have contracted otherwise). However, there is no case law to support this conclusion. 2. 2.1 NOTION OF FRANCHISING CONTRACT. General notion of franchise contracts. Which agreements are normally qualified as franchising agreements in your country? Any relationship between a distributor and a principal where the parties operate under the same brand (wholly or partially), where the principal transfers knowhow which is substantial, kept confidential and identified and where the principal provides technical and/or commercial support would be deemed a franchise agreement under disclosure law and anti-trust law. However, there are industries where the parties do not consider their business franchised, such as auto dealerships (even though the criteria above are present). 2.2 Agreements which are covered by special rules on pre-contractual disclosure. Which are the agreements to which special rules on pre-contractual disclosure (if any) apply? Under § 2 of the Franchise Disclosure Act, a franchising agreement is an agreement whereby one business entity or businessperson (franchisor), against remuneration, allows another business entity or business person (franchisee), to use the franchisor’s unique business concept regarding marketing and sales of products or services. Such an agreement will be regarded as a franchise agreement only if the franchisee is obligated to use the franchisor’s marks or other intellectual property rights and the franchisor is obligated to check that the franchisee complies with the agreement. 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? Under Swedish law, there are few situations in which a franchisee could be considered an employee of the franchisor. It would have to be rather obvious attempts to circumvent labor law, such as if the franchisee previously was employed by the franchisor, if the franchisee only have the franchisor as his customer, if he assumes no or very little financial risk, when his remuneration is determined by the time he puts into the business and where the franchisee has no tax certificate. 2.4 Distinctive criteria with respect to distributorship contracts. According to the law of your country, how are franchising contracts distinguished from distributorship contracts? There are no particular distinctions between franchise contracts and distribution contracts since such distinction is relevant only in antitrust or disclosure situations.
8
sw: Svenska franchiseföreningen (www.franchiseforeningen.se)
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2.5
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 franchisor 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 yes, does this modify the nature of the franchising agreement? It is possible (and practice in some systems) to put contractual products at the franchisee’s disposal, like a commission agent. It would also be possible to have a franchise system organized as a commercial agency relationship. This does not mean that the contract ceases to be a franchise agreement. However, it would also be an agreement that is governed by the Commission Agency Act or the Commercial Agency Act, as the case may be.
3. 3.1
PRE-CONTRACTUAL DISCLOSURE OBLIGATIONS. Rules on disclosure in general. Which rules govern precontractual disclosure obligations in your country? The Franchise Disclosure Act governs precontractual disclosure. The Code of Ethics also include a disclosure obligation.
3.2
The general rules on precontractual liability. Which disclosure obligations arise in your country out of general rules on precontractual liability (if any)? The Contracts Act, the Sale of Goods Act and general contract principles all include rules that prevent fraudulent behaviour and intentional withholding of material information from the other contracting party. The principle of caveat emptor applies however, and general rules of liability do not comprise any obligations to provide pre contractual disclosure.
3.3
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? Under the Franchise Disclosure Act, a franchisor must provide the prospective franchisee with written information on the contents of the franchise agreement and other conditions that are necessary for a prospective franchisee to understand the franchise, taking all circumstances into consideration. The information must be clear and understandable. The information must comprise at least of the following items. 1. a description of the business that the franchisee will operate; 2. information on other franchisees of the franchisor and the scope of their businesses; (the general understanding is that by “scope”, the act refers to each franchisee’s turnover) 3. information on the consideration that the franchisee must pay to the franchisor and other financial conditions for the business; (by “other financial conditions”, the act mainly refers to fees, but it may also mean mark-up on products, kick-backs from suppliers and, if the franchisor is involved in the financing of the franchisee, the terms of such financing) 4. information on intellectual property rights that will be granted to the franchisee; 5. information on the products or services that the franchisee is obligated to purchase or rent;
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6. information on restrictions on competition during and after termination of the franchise agreement; 7. information on the term of the franchise agreement, terms for amendment and renewal of the franchise agreement as well as termination and financial consequences for the franchisee upon termination, and 8. information on how disputes are resolved and how costs of disputes will be paid Other than the eight points above, there are no requirements as to the specifics of the information that must be included in the disclosure document. Whether the information given in the disclosure document is adequate or not will be determined by taking into account the minimum standards of the act and by considering general principles and applying relevant industry practice. In this context, the bill to the act also indicate that the recommendations on disclosure published by the Swedish Franchise Association and UNIDROIT’s model law on franchising may serve as guidance as to the details of what the disclosure document must include. In this respect, it is of interest that the Swedish Franchise Association has removed its previous recommendations on disclosure from its website. It is the author’s opinion that there has yet to develop any industry practice for practitioners to make any assumptions as to the extent of the information that must be disclosed. No new recommendation has been published and to my knowledge, the Swedish Franchise Association do not intend to publish any recommendations in the near future. The bill to the act sets forth that the disclosure document must be assessed in each particular case and that circumstances pertaining to the individual franchisee are to be considered when determining whether the franchisor has complied with the act. 3.4 Consequences of the non-respect of the rules regarding pre-contractual disclosure. What are the consequences of the non-observance of the rules on precontractual disclosure? Interestingly, non-disclosure does not affect the validity of the franchise agreement, nor does it entitle the franchisee to terminate the franchise agreement to be awarded damages. Instead, the main remedy is an action for specific performance. The procedural rules provide that any action under the act must be submitted to the Swedish Market Court9. The Swedish Market Court applies the rule that a losing party must pay the winning party’s costs of the proceedings. The procedure is as follows. On petition from a legitimate claimant, a franchisor that has entered into a franchise agreement without having fulfilled its obligation to provide the disclosure document in due time before the franchise agreement was entered into may be ordered by the court to provide a disclosure document. As a general rule, the order must be combined with a fine if the franchisor does not comply with the order. The fine is payable to Government and so payable only after application and separate proceedings with the relevant local district court. At these proceedings, the order to provide the disclosure document will not be tried, but only if the franchisor has complied with the order or not. General procedural rules on costs apply. There are no other remedies (criminal or civil) available under the act. Hence, the act cannot be invoked directly to terminate the franchise agreement or to claim damages. However, the preparatory legislative materials have suggested that non-compliance with the act or non-sufficient information to the Franchisee
9
sw: Marknadsdomstolen
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in general should be taken into consideration when deciding if a contract or its application in a particular case should be deemed void or mitigated under article 36 of the Contracts Act. This means that a franchisee could invoke the Franchise Disclosure Act by analogy to have the franchise agreement or a single contract clause deemed void or mitigated in a dispute. Hence, the act may have an indirect effect on the parties’ legal relationship. 3.5 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? The disclosure requirements of the Franchise Disclosure Act are rules that aim to prevent unfair marketing practices. Therefore, the requirements must be observed by any franchisor marketing franchises in Sweden, regardless of choice of law of the franchise agreement. 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? There are no statutory rules or case law that obligates the franchisor to have tested the business system prior to selling franchises. Under the Code of Ethics, however, a franchise system is assumed to be tested prior to selling franchises. 5. 5.1 FORMALITIES REGARDING THE FRANCHISING CONTRACT AND ITS MODIFICATIONS. Formalities required by law. Is any formality (written form, notarisation, registration, etc.) required for the validity of a franchise contract in your country? If yes, what are the consequences of the non observance of the above formalities? Written form. There are no formal requirements for a franchise contract to be valid under Swedish law. 5.2 Contractual requirement of written form for modifications. In case the contract requires the use of writing for possible future amendments, what are the consequences of non observance? There is no reported case law that has dealt with a situation where the agreement provides for amendments to be made in writing and one of the parties contend that the provision has been super ceded by the parties’ oral or continuative conduct. The courts would in a situation like this apply general principles on interpreting agreements, which would mean that a party would be allowed to prove that the agreement was amended. 5.3 Specific acceptance of onerous conditions contained in non-negotiated contracts. There are no specific provisions on form for accepting onerous conditions, but in general, no such provision could be enforceable if not spelled out (or referred to) in the agreement.
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5.4
Form requirements and applicable law. How is the law governing the form of the franchising contract to be determined under the law of your country? Since Sweden submits to the EU Parliament and Council Regulation no 593/2008, the law which is most favourable to a valid contract would govern if a franchise contract was validly entered into.
6. 6.1
OTHER PROVISIONS WHICH MAY HAVE AN IMPACT ON FRANCHISING. Antitrust rules. Are there any antitrust rules which should be taken into consideration when drafting (or carrying out) a franchising contract? EU competition rules applies in Sweden and there are no Swedish specific antitrust rules that are important when drafting a franchise contract, other than the application of the de minimis rule. In Sweden, a market share of 15 per cent or more would be deemed to have noticeable effect on the market. An interesting conflict between laws should be mentioned in this context. The new Marketing Act 10 provides that it is prohibited to market “circa”, “recommended” or “from”-prices towards end customers. This imposes a Catch 22 situation since franchise systems are cautioned not to set forth exact prices in its marketing; such marketing could be construed as price fixing (cf. the IDI report on EU Competition law). There is no quick fix to settle this conflict.
6.2
Other rules. Which other rules of general nature should be considered when dealing with franchising? Other rules of general nature to be considered when drafting and carrying out franchise agreements are in the main 36 § Contracts Act. Under this provision, a contract clause may be mitigated or disregarded in its entirety if the clause is unfair (another translation would be unreasonable) taking the content of the contract into account, the circumstances when the contract was entered into, later circumstances and other circumstances. When deciding if the contract clause should be mitigated or disregarded, particular consideration must be made to the need for protection of consumers or others that have an inferior position. There is sufficient case law involving § 36 Contracts Act to determine that the Supreme Court has been extremely wary to mitigate a contract between businesspersons, even if there is a clear superior/inferior relationship. Nevertheless, it is good to be aware of this rule.
7. 7.1
THE FRANCHISEE'S OBLIGATION NOT TO COMPETE. Non competition during the contract. If there is no contractual provision prohibiting the franchisee to sell competing goods or to engage with competing franchising networks, does it mean that the franchisee is free to act for competitors of the franchisor? As a general rule, the franchisee is free to act for competitors of the franchisor if no contract to the opposite. However, there are general contract principles of loyalty that a franchisee would have to observe, even if the contract did not provide for an explicit non-competition clause. In this author’s opinion however, I
10
Marknadsföringslagen (2008:486)
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find it hard to believe a court would enforce a claim on non-competition unless such written provision was in place. To what extent are contractual non-competition clauses admissible? Non-competition clauses are admissible under Swedish law. Is it possible extend the franchisee's non competition obligation to non competing goods? In general terms, it is possible to extend the franchisee’s non competition to encompass non competing goods, provided, of course, such non-compete provision is not in breach of competition law. 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 yes, is this obligation subject to specific conditions (i.e. time limit, territorial extension, etc.)? It is possible to set forth an undertaking for the franchisee not to compete postagreement, provided such undertaking is not in breach of competition law. It is very difficult to assess the specific conditions of such post-term non-compete provision since each case would be assessed individually. As a main rule, at least a one year non-competition period would be enforceable, subject however to exceptions which must be assessed individually. 8. 8.1 EXCLUSIVITY. 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 competition with the franchisee? As a main rule, the franchisor would be free to appoint other franchisees in the same area as a previous franchisee if nothing else is set forth in the franchise agreement. In lack of such exclusivity clause, a franchisor would also be entitled to sell products and/or services in competition with its franchisee. Please note however, that there still is an obligation of the franchisor to act loyally, as mentioned on franchisees above, section 7.1. 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? A franchisor that has granted territorial exclusivity to a franchisee would be prohibited to sell products and/or services within that territory and also be prohibited to appoint another franchisee or other distributor in the territory. There is no case law on this point in Sweden. 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? There is no reported case law in which a franchisor has been held responsible for acts of the franchisee. Provided that the franchisee clearly acts as an independent entity (or person) with respect to employees and customers, no liability for the franchisor would be assumed. Only if the franchisor assumes a direct contract relationship (or be deemed to have assumed such relationship) would liability to this effect be a risk.
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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? There are no rules of case law which would limit the franchisor’s right to impose a specific conduct upon a franchisee. 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? An obligation to sell only from the franchised outlet would be lawful under Swedish law. 10.3 Prohibition to change the place of the outlet. Would a prohibition to change the place of the outlet without the franchisor's approval be valid under your law? A prohibition to change the place of outlet without the franchisor’s approval would be enforceable under Swedish law. 10.4 Use of Internet. Is the franchisor free, under the law of your country, to sell through the Internet in competition with his franchisees? As a main rule, a franchisor is free to sell through the Internet in competition with its franchisees, provided of course, such sales would not construe a breach of any exclusivity clause in the franchise agreement. 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)? Under competition law, the franchisor is not entitled to prohibit the franchisee to sell through Internet. The franchisor may however most likely limit the franchisee’s rights to promote the franchised business on Internet by means of requiring the franchisee to design the website to the franchisor’s liking and possibly also limit the franchisee’s right to use the trade marks and other marks. 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? Limitations as to which customers the franchisee may sell to are enforceable under Swedish law, provided of course, such limitation complies with competition law. 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? Any agreement or concerted practices that would mean that the franchisor fixed the resale prices the franchisee charged to its customers is prohibited. Even so, there is a decision from the Competition Authority11 which allowed a mobile ice cream vending system to fix prices because of the obvious advantages of scale
11
sw: Konkurrensverket
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that the price fixing meant for the effectiveness of distribution. Under competition law, a franchisor is entitled to set maximum prices. 11. USE OF THE FRANCHISOR'S TRADEMARKS AND SYMBOLS. 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 termination? If a franchisee would use the franchisor’s trademarks but not conform to the franchisor’s instructions of use, that could be construed as a material breach of agreement. That would however depend on the specific circumstances of the situation. 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? Clauses, which require the franchisee to remove and cease using the franchisor’s trademarks after termination of the contract, are enforceable. 12. CONFIDENTIALITY. Is the franchisee obliged to treat the information received from the franchisor as confidential? Under the Protection of Business Secret Act 12 at least some of the know-how provided by the franchisor to the franchisee would probably be deemed a business secret under the act. Such information may not be used or disclosed under the act. 13. TERM AND TERMINATION OF THE CONTRACT. 13.1 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? It is possible to choose between a contract for a fixed term and contract for an indefinite period. The main differences between the two contract terms would be that a contract for a fixed term would terminate on end date and that the indefinite contract would continue until terminated by either party. 13.2 Contract for a fixed period (without automatic renewal clause) which continues 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 performed after its term? If a contract concluded for a fixed term (not containing an automatic renewal clause) continues to be performed after its term, the franchise relationship would most definitely continue until terminated by either party. The question is which of the following situations would occur: • a new contract, to which the clauses of the previous contract do not apply;
12
sw: lag (1990:409) om skydd för företagshemligheter
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• •
continuation of the same contract converted into a contract for an indefinite period; renewal of the expired contract for the same period.
This question has not been dealt with in case law and no conclusive answer can be given. In the author’s opinion, all three options are plausible. 13.3 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 yes, 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 period if the period agreed in the contract is considered too short? There is no legislation in Sweden which requires a minimum notice period when terminating a franchise agreement. If the parties have agreed on a short notice period in the franchise agreement, the courts will most likely uphold such clause unless there are reasons to apply 36 § Contracts Act to the notice period. In recent case law in a distributorship case (where no notice period was agreed), the Supreme Court ruled that a three-month notice period was deemed a reasonable notice period in a relationship that had carried on for several years. 13.4 Form of the notice of termination and effectiveness. Is there a form (e.g. registered letter) that must be respected for the termination notice to be effective? There is no form that must be respected for a termination notice to have effect. Is the termination considered to have been validly given when it is sent or when it is received? Short of contract terms on this, the termination is deemed to be effected when it has or should have been received. If the addressee is a company, is there a specific person to whom the notification must be made in order to be effective? There is no specific person to which a notice must be addressed to, but for the notice to have effect, it must have or should have reached a person authorized to bind the company. There is still no need to address the notice to a specific person provided that the form of notice in normal situations should have reached an authorized person. In case the form imposed by law or prescribed in the contract has not been respected, what are the consequences? If the form of termination set forth in the agreement has not been respected, the notice may or may not have effect. The question has not been dealt with in case law and would have to be answered taking all circumstances into account. 13.5 Earlier termination. Which reasons can normally justify earlier termination by the franchisee and/or by the franchisor? In general, a material breach of contract is deemed such a breach of contract that the other party reasonably should not have to suffer and still remain in the
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contract relationship and the breaching party is aware of this. Typical material breaches of contract are non performance of essential obligations under the contract, such as payment of fees. Can a party terminate the contract for a breach which such party has tolerated in the past without complaining? In general, a party cannot terminate a contract for a breach which the party has tolerated in the past. For the suffering party to terminate the contract in such situation, a notice of remedy of breach would have to be sent. 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»)? It is possible that a no waiver clause in the contract would change the above answer, but it is by no means certain. It would depend on the situation and all circumstances taken into account. 13.6 Unjustified earlier termination. What is the effect of an unlawful earlier termination of a franchising contract under the law of your country? An unlawful premature termination is a material breach of contract and provides the suffering party with two options: to demand the continued performance of the contract or to terminate the contract with immediate effect. It also provides the suffering party with a right to damages. 13.7 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. Under Swedish law, there are no specific legal rules or principles established by case law for calculating the amount of compensation for unlawful premature termination. Instead, general principles on contract law and damages prevail; the injured party is entitled to damages corresponding to the economic loss that the premature termination has caused. 14. GOODWILL COMPENSATION (INDEMNITY). Does the law or jurisprudence of your country recognise a goodwill compensation to the franchisee? Swedish law does not recognize the right to a goodwill compensation to a franchisee upon termination. 15. LIMITATION OF ACTION. Does your legislation provide limitation periods (or similar systems) for the exercise of the rights of the parties under a franchise agreement and which is their duration? Under the Limitations of Claims Act 13, there is a ten year period from the time of the claim to occur after which a claim is prescribed and cannot be invoked to make the debtor pay. Notifying the debtor under the act may renew the prescription period. In addition hereto but under general contract principles as well as analogies to the Sale of Goods Act and other acts, a claim must be notified to the other party as soon
13
Preskriptionslag (1981:130)
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as it has been known and under all circumstances within a reasonable period. Under the Sale of Goods Act (which may be applied by analogy), such period is a maximum of two years but may very well be shorter. Can the limitation periods be contractually modified according to your law? The prescription period under the Limitations of Claims Act cannot be contractually modified. The time period within a claim must have been brought can be modified by contract. 16. APPLICABLE LAW. 16.1 Legal sources. What are the rules of your legal system concerning applicable law to franchising contracts? Sweden has ratified the Rome I Convention. Hence, the choice of law will be determined in accordance with what is stipulated in the franchise contract. If a dispute between a Swedish party and a non-convention state party, the Rome I Convention will still determine choice of law. There is no jurisprudence in regards of franchising contracts in specific. 16.2 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 franchising contract with a foreign counterpart? In the absence of choice of law the franchising contract shall be governed by the law of the country with which it is most closely connected in accordance with the principles of the Rome I Convention. 16.3 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? In accordance with the Rome I Convention article 3, the parties are free to agree on the law to be applied on their contractual relationship. The law that has been chosen would therefore be applied, save for the possibility of ordre public exceptions, article 7 named convention. 17. JURISDICTION AND ENFORCEMENT OF FOREIGN JUDGMENTS. 17.1 Legal sources. What are the rules of your legal system concerning jurisdiction as well as recognition and enforcement of foreign decisions? The Brussels Convention14 is still in force for those territories within the EU that has not ratified the Brussels I Regulation. Both the Brussels I Regulation and the Lugano Convention15 are directly applicable as Swedish law. For cases in which the defendant is not domiciled in a contracting state the principles in the Code of Judicial Procedure16 chapter 10 regarding forum rules will be applied by analogy.
14 15
sw: Lag (1998:358) om Brysselkonventionen sw: Lag (1992:794) om Luganokonventionen 16 sw. Rättegångsbalken (1942:740)
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17.2 Jurisdiction without a choice of jurisdiction clause. If there is no valid jurisdiction clause, is a franchisee of your country entitled, under the procedural rules of your country to bring a claim before his courts against a foreign franchisor? A franchisee is entitled to bring a claim against a foreign franchisor. For more information on the subject, kindly see IDI’s Law and Jurisdiction Report. If there is no valid jurisdiction clause, is a franchisor of your country entitled, under the procedural rules of your country to bring a claim before his courts against a foreign franchisee? A franchisor may also be entitled to bring a claim against a foreign franchise. For information on the subject, kindly see IDI’s Law and Jurisdiction Report. 17.3 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 boundaries of your country? The courts in Sweden have no exclusive jurisdiction to settle disputes concerning franchisees but are instead obliged to comply with the applicable general rules regarding jurisdiction. Would a clause contained 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 in your country? A clause between a foreign franchisor and Swedish franchisee under which a foreign court has jurisdiction would be valid under Swedish law.17 17.4 Recognition - enforcement. Is it possible to recognise and enforce a foreign judgment against citizens of your country? It is possible to recognize and enforce a foreign judgment against Swedish subjects. In cases where the Brussels Convention or the Lugano Convention is applicable a judgment given in one contracting state will in accordance with named conventions be recognized and enforced in Sweden. As regards Denmark, Finland, Iceland or Norway, judgments from named states will be recognized and enforced in Sweden under the Recognition and Enforcement on Nordic Judgments on Private Law Act 18. If enforcement is possible, how long does the proceeding take? It is not possible to give an exact estimate on time frames since every proceeding differs from the other in terms of scope and difficulty, but approximately one year. 18. ARBITRATION. 18.1 Legal sources. Is your country part of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)? Sweden is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
17
The Brussels Convention article 23, the Lugano Convention article 17 and chapter 10 section 16 of the Code of Judicial Procedure. 18 sw. Lag (1977:595) om erkännande och verkställighet av nordiska domar på privaträttens område.
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Are there other rules applicable to international arbitration provided by the law or jurisprudence of your country? The Arbitration Act 19 contains rules regarding international arbitration. Furthermore, the rules provided by the Arbitration Institute of the Stockholm Chamber of Commerce are frequently used as well. 18.2 Arbitrability. Are franchising contracts considered a subject matter capable of settlement by arbitration, according to your legislation? Franchise contract disputes may be settled by arbitration. 18.3 Arbitration clauses. Would an arbitration clause providing for arbitration abroad, contained in a franchising agreement be valid in your country? Arbitration clauses providing for arbitration abroad would as a general rule be valid in Sweden. Would the courts of your country refuse jurisdiction with respect to a franchising contract containing such a clause? A Swedish court has no jurisdiction if the franchise agreement contains an arbitration clause (c.f. Arbitration Act section 4). However a domestic court could under certain circumstances try the validity of the arbitration clause itself. 20 18.4 Recognition of foreign awards. Would a foreign arbitration award dealing with a franchising agreement be recognised by the courts of you country? A foreign arbitration award dealing with a franchise agreement would be recognized by Swedish courts, provided the Convention on the Recognition and Enforcement of Foreign Arbitral Awards is applicable.
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19
20 E.g., NJA 1987 s. 639
sw: lag 1999:116 om skiljeförfarande
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doc_506706505.pdf
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of Anglo-French derivation - from franc - meaning free, and is used both as a noun and as a (transitive) verb.
COUNTRY REPORT SWEDEN Franchising
prepared by
A N D E R S T H Y LI N Thylin Advokatbyrå AB Kungsgatan 29, 2 tr, SE 111 56 Stockholm (S W E D E N ) Last update: May 2010
1.
LEGAL SOURCES. What are the rules governing commercial franchising agreements (if any) in your country? Franchise agreements that are offered to prospective franchisees in Sweden are governed by the Franchise Disclosure Act1. There are no specific statutory rules that regulate the franchisor-franchisee relationship, but the Contracts Act 2 sets forth general principles on private and commercial agreements. The Contracts Act relies on the freedom of contractprinciple. The Sale of Goods Act3 may be applicable by analogy on franchise sales. It also sets forth general principles on commercial agreements. Other acts where one may find general principles on commercial relationship agreements (such as franchising) include the Commercial Agency Act 4 and the Commission Agency Act5. Reported case law from the public courts involving franchising specifically deals with enforcement of arbitration agreements and if a franchisee should be deemed an employee. There is also an act on unfair marketing practices between businesspersons 6. This act does not govern relationships but provide means to prohibit the future use of unfair contract terms in commercial agreements. As mentioned in the Swedish country report on commercial agency agreements, preparatory legislative materials (“travaux préparatoires”) are important when interpreting Swedish law. Although not binding as such, they are in practise determined important when arguing legal points. The preparatory legislative materials to the Franchise Disclosure Act consist in the main of a bill7.
1 2 3 4 5 6 7
sw: lagen (2006:484) om franchisegivares informationsskyldighet sw: lag 1915:218 om avtal och andra rättshandlingar på förmögenhetsrättens område sw: Köplag (1990:331) sw: lagen (1991:351) om handelsagentur sw: Kommissionslag (2009:865) sw: lag (1984:292) om avtalsvillkor mellan näringsidkare sw: Prop 2005/06:98
IDI Project - Country report form on franchising SWEDEN
The Swedish Franchise Association8 has adopted and adapted a Swedish version of the European Franchise Federation’s Code of Ethics, discussed in several other of IDI’s country reports on franchising. The preparatory legislative materials to the Franchise Disclosure Act assumed that the Code of Ethics would be deemed standard practice in the franchise industry (hence, binding unless the parties have contracted otherwise). However, there is no case law to support this conclusion. 2. 2.1 NOTION OF FRANCHISING CONTRACT. General notion of franchise contracts. Which agreements are normally qualified as franchising agreements in your country? Any relationship between a distributor and a principal where the parties operate under the same brand (wholly or partially), where the principal transfers knowhow which is substantial, kept confidential and identified and where the principal provides technical and/or commercial support would be deemed a franchise agreement under disclosure law and anti-trust law. However, there are industries where the parties do not consider their business franchised, such as auto dealerships (even though the criteria above are present). 2.2 Agreements which are covered by special rules on pre-contractual disclosure. Which are the agreements to which special rules on pre-contractual disclosure (if any) apply? Under § 2 of the Franchise Disclosure Act, a franchising agreement is an agreement whereby one business entity or businessperson (franchisor), against remuneration, allows another business entity or business person (franchisee), to use the franchisor’s unique business concept regarding marketing and sales of products or services. Such an agreement will be regarded as a franchise agreement only if the franchisee is obligated to use the franchisor’s marks or other intellectual property rights and the franchisor is obligated to check that the franchisee complies with the agreement. 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? Under Swedish law, there are few situations in which a franchisee could be considered an employee of the franchisor. It would have to be rather obvious attempts to circumvent labor law, such as if the franchisee previously was employed by the franchisor, if the franchisee only have the franchisor as his customer, if he assumes no or very little financial risk, when his remuneration is determined by the time he puts into the business and where the franchisee has no tax certificate. 2.4 Distinctive criteria with respect to distributorship contracts. According to the law of your country, how are franchising contracts distinguished from distributorship contracts? There are no particular distinctions between franchise contracts and distribution contracts since such distinction is relevant only in antitrust or disclosure situations.
8
sw: Svenska franchiseföreningen (www.franchiseforeningen.se)
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2.5
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 franchisor 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 yes, does this modify the nature of the franchising agreement? It is possible (and practice in some systems) to put contractual products at the franchisee’s disposal, like a commission agent. It would also be possible to have a franchise system organized as a commercial agency relationship. This does not mean that the contract ceases to be a franchise agreement. However, it would also be an agreement that is governed by the Commission Agency Act or the Commercial Agency Act, as the case may be.
3. 3.1
PRE-CONTRACTUAL DISCLOSURE OBLIGATIONS. Rules on disclosure in general. Which rules govern precontractual disclosure obligations in your country? The Franchise Disclosure Act governs precontractual disclosure. The Code of Ethics also include a disclosure obligation.
3.2
The general rules on precontractual liability. Which disclosure obligations arise in your country out of general rules on precontractual liability (if any)? The Contracts Act, the Sale of Goods Act and general contract principles all include rules that prevent fraudulent behaviour and intentional withholding of material information from the other contracting party. The principle of caveat emptor applies however, and general rules of liability do not comprise any obligations to provide pre contractual disclosure.
3.3
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? Under the Franchise Disclosure Act, a franchisor must provide the prospective franchisee with written information on the contents of the franchise agreement and other conditions that are necessary for a prospective franchisee to understand the franchise, taking all circumstances into consideration. The information must be clear and understandable. The information must comprise at least of the following items. 1. a description of the business that the franchisee will operate; 2. information on other franchisees of the franchisor and the scope of their businesses; (the general understanding is that by “scope”, the act refers to each franchisee’s turnover) 3. information on the consideration that the franchisee must pay to the franchisor and other financial conditions for the business; (by “other financial conditions”, the act mainly refers to fees, but it may also mean mark-up on products, kick-backs from suppliers and, if the franchisor is involved in the financing of the franchisee, the terms of such financing) 4. information on intellectual property rights that will be granted to the franchisee; 5. information on the products or services that the franchisee is obligated to purchase or rent;
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6. information on restrictions on competition during and after termination of the franchise agreement; 7. information on the term of the franchise agreement, terms for amendment and renewal of the franchise agreement as well as termination and financial consequences for the franchisee upon termination, and 8. information on how disputes are resolved and how costs of disputes will be paid Other than the eight points above, there are no requirements as to the specifics of the information that must be included in the disclosure document. Whether the information given in the disclosure document is adequate or not will be determined by taking into account the minimum standards of the act and by considering general principles and applying relevant industry practice. In this context, the bill to the act also indicate that the recommendations on disclosure published by the Swedish Franchise Association and UNIDROIT’s model law on franchising may serve as guidance as to the details of what the disclosure document must include. In this respect, it is of interest that the Swedish Franchise Association has removed its previous recommendations on disclosure from its website. It is the author’s opinion that there has yet to develop any industry practice for practitioners to make any assumptions as to the extent of the information that must be disclosed. No new recommendation has been published and to my knowledge, the Swedish Franchise Association do not intend to publish any recommendations in the near future. The bill to the act sets forth that the disclosure document must be assessed in each particular case and that circumstances pertaining to the individual franchisee are to be considered when determining whether the franchisor has complied with the act. 3.4 Consequences of the non-respect of the rules regarding pre-contractual disclosure. What are the consequences of the non-observance of the rules on precontractual disclosure? Interestingly, non-disclosure does not affect the validity of the franchise agreement, nor does it entitle the franchisee to terminate the franchise agreement to be awarded damages. Instead, the main remedy is an action for specific performance. The procedural rules provide that any action under the act must be submitted to the Swedish Market Court9. The Swedish Market Court applies the rule that a losing party must pay the winning party’s costs of the proceedings. The procedure is as follows. On petition from a legitimate claimant, a franchisor that has entered into a franchise agreement without having fulfilled its obligation to provide the disclosure document in due time before the franchise agreement was entered into may be ordered by the court to provide a disclosure document. As a general rule, the order must be combined with a fine if the franchisor does not comply with the order. The fine is payable to Government and so payable only after application and separate proceedings with the relevant local district court. At these proceedings, the order to provide the disclosure document will not be tried, but only if the franchisor has complied with the order or not. General procedural rules on costs apply. There are no other remedies (criminal or civil) available under the act. Hence, the act cannot be invoked directly to terminate the franchise agreement or to claim damages. However, the preparatory legislative materials have suggested that non-compliance with the act or non-sufficient information to the Franchisee
9
sw: Marknadsdomstolen
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in general should be taken into consideration when deciding if a contract or its application in a particular case should be deemed void or mitigated under article 36 of the Contracts Act. This means that a franchisee could invoke the Franchise Disclosure Act by analogy to have the franchise agreement or a single contract clause deemed void or mitigated in a dispute. Hence, the act may have an indirect effect on the parties’ legal relationship. 3.5 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? The disclosure requirements of the Franchise Disclosure Act are rules that aim to prevent unfair marketing practices. Therefore, the requirements must be observed by any franchisor marketing franchises in Sweden, regardless of choice of law of the franchise agreement. 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? There are no statutory rules or case law that obligates the franchisor to have tested the business system prior to selling franchises. Under the Code of Ethics, however, a franchise system is assumed to be tested prior to selling franchises. 5. 5.1 FORMALITIES REGARDING THE FRANCHISING CONTRACT AND ITS MODIFICATIONS. Formalities required by law. Is any formality (written form, notarisation, registration, etc.) required for the validity of a franchise contract in your country? If yes, what are the consequences of the non observance of the above formalities? Written form. There are no formal requirements for a franchise contract to be valid under Swedish law. 5.2 Contractual requirement of written form for modifications. In case the contract requires the use of writing for possible future amendments, what are the consequences of non observance? There is no reported case law that has dealt with a situation where the agreement provides for amendments to be made in writing and one of the parties contend that the provision has been super ceded by the parties’ oral or continuative conduct. The courts would in a situation like this apply general principles on interpreting agreements, which would mean that a party would be allowed to prove that the agreement was amended. 5.3 Specific acceptance of onerous conditions contained in non-negotiated contracts. There are no specific provisions on form for accepting onerous conditions, but in general, no such provision could be enforceable if not spelled out (or referred to) in the agreement.
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5.4
Form requirements and applicable law. How is the law governing the form of the franchising contract to be determined under the law of your country? Since Sweden submits to the EU Parliament and Council Regulation no 593/2008, the law which is most favourable to a valid contract would govern if a franchise contract was validly entered into.
6. 6.1
OTHER PROVISIONS WHICH MAY HAVE AN IMPACT ON FRANCHISING. Antitrust rules. Are there any antitrust rules which should be taken into consideration when drafting (or carrying out) a franchising contract? EU competition rules applies in Sweden and there are no Swedish specific antitrust rules that are important when drafting a franchise contract, other than the application of the de minimis rule. In Sweden, a market share of 15 per cent or more would be deemed to have noticeable effect on the market. An interesting conflict between laws should be mentioned in this context. The new Marketing Act 10 provides that it is prohibited to market “circa”, “recommended” or “from”-prices towards end customers. This imposes a Catch 22 situation since franchise systems are cautioned not to set forth exact prices in its marketing; such marketing could be construed as price fixing (cf. the IDI report on EU Competition law). There is no quick fix to settle this conflict.
6.2
Other rules. Which other rules of general nature should be considered when dealing with franchising? Other rules of general nature to be considered when drafting and carrying out franchise agreements are in the main 36 § Contracts Act. Under this provision, a contract clause may be mitigated or disregarded in its entirety if the clause is unfair (another translation would be unreasonable) taking the content of the contract into account, the circumstances when the contract was entered into, later circumstances and other circumstances. When deciding if the contract clause should be mitigated or disregarded, particular consideration must be made to the need for protection of consumers or others that have an inferior position. There is sufficient case law involving § 36 Contracts Act to determine that the Supreme Court has been extremely wary to mitigate a contract between businesspersons, even if there is a clear superior/inferior relationship. Nevertheless, it is good to be aware of this rule.
7. 7.1
THE FRANCHISEE'S OBLIGATION NOT TO COMPETE. Non competition during the contract. If there is no contractual provision prohibiting the franchisee to sell competing goods or to engage with competing franchising networks, does it mean that the franchisee is free to act for competitors of the franchisor? As a general rule, the franchisee is free to act for competitors of the franchisor if no contract to the opposite. However, there are general contract principles of loyalty that a franchisee would have to observe, even if the contract did not provide for an explicit non-competition clause. In this author’s opinion however, I
10
Marknadsföringslagen (2008:486)
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find it hard to believe a court would enforce a claim on non-competition unless such written provision was in place. To what extent are contractual non-competition clauses admissible? Non-competition clauses are admissible under Swedish law. Is it possible extend the franchisee's non competition obligation to non competing goods? In general terms, it is possible to extend the franchisee’s non competition to encompass non competing goods, provided, of course, such non-compete provision is not in breach of competition law. 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 yes, is this obligation subject to specific conditions (i.e. time limit, territorial extension, etc.)? It is possible to set forth an undertaking for the franchisee not to compete postagreement, provided such undertaking is not in breach of competition law. It is very difficult to assess the specific conditions of such post-term non-compete provision since each case would be assessed individually. As a main rule, at least a one year non-competition period would be enforceable, subject however to exceptions which must be assessed individually. 8. 8.1 EXCLUSIVITY. 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 competition with the franchisee? As a main rule, the franchisor would be free to appoint other franchisees in the same area as a previous franchisee if nothing else is set forth in the franchise agreement. In lack of such exclusivity clause, a franchisor would also be entitled to sell products and/or services in competition with its franchisee. Please note however, that there still is an obligation of the franchisor to act loyally, as mentioned on franchisees above, section 7.1. 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? A franchisor that has granted territorial exclusivity to a franchisee would be prohibited to sell products and/or services within that territory and also be prohibited to appoint another franchisee or other distributor in the territory. There is no case law on this point in Sweden. 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? There is no reported case law in which a franchisor has been held responsible for acts of the franchisee. Provided that the franchisee clearly acts as an independent entity (or person) with respect to employees and customers, no liability for the franchisor would be assumed. Only if the franchisor assumes a direct contract relationship (or be deemed to have assumed such relationship) would liability to this effect be a risk.
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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? There are no rules of case law which would limit the franchisor’s right to impose a specific conduct upon a franchisee. 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? An obligation to sell only from the franchised outlet would be lawful under Swedish law. 10.3 Prohibition to change the place of the outlet. Would a prohibition to change the place of the outlet without the franchisor's approval be valid under your law? A prohibition to change the place of outlet without the franchisor’s approval would be enforceable under Swedish law. 10.4 Use of Internet. Is the franchisor free, under the law of your country, to sell through the Internet in competition with his franchisees? As a main rule, a franchisor is free to sell through the Internet in competition with its franchisees, provided of course, such sales would not construe a breach of any exclusivity clause in the franchise agreement. 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)? Under competition law, the franchisor is not entitled to prohibit the franchisee to sell through Internet. The franchisor may however most likely limit the franchisee’s rights to promote the franchised business on Internet by means of requiring the franchisee to design the website to the franchisor’s liking and possibly also limit the franchisee’s right to use the trade marks and other marks. 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? Limitations as to which customers the franchisee may sell to are enforceable under Swedish law, provided of course, such limitation complies with competition law. 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? Any agreement or concerted practices that would mean that the franchisor fixed the resale prices the franchisee charged to its customers is prohibited. Even so, there is a decision from the Competition Authority11 which allowed a mobile ice cream vending system to fix prices because of the obvious advantages of scale
11
sw: Konkurrensverket
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that the price fixing meant for the effectiveness of distribution. Under competition law, a franchisor is entitled to set maximum prices. 11. USE OF THE FRANCHISOR'S TRADEMARKS AND SYMBOLS. 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 termination? If a franchisee would use the franchisor’s trademarks but not conform to the franchisor’s instructions of use, that could be construed as a material breach of agreement. That would however depend on the specific circumstances of the situation. 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? Clauses, which require the franchisee to remove and cease using the franchisor’s trademarks after termination of the contract, are enforceable. 12. CONFIDENTIALITY. Is the franchisee obliged to treat the information received from the franchisor as confidential? Under the Protection of Business Secret Act 12 at least some of the know-how provided by the franchisor to the franchisee would probably be deemed a business secret under the act. Such information may not be used or disclosed under the act. 13. TERM AND TERMINATION OF THE CONTRACT. 13.1 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? It is possible to choose between a contract for a fixed term and contract for an indefinite period. The main differences between the two contract terms would be that a contract for a fixed term would terminate on end date and that the indefinite contract would continue until terminated by either party. 13.2 Contract for a fixed period (without automatic renewal clause) which continues 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 performed after its term? If a contract concluded for a fixed term (not containing an automatic renewal clause) continues to be performed after its term, the franchise relationship would most definitely continue until terminated by either party. The question is which of the following situations would occur: • a new contract, to which the clauses of the previous contract do not apply;
12
sw: lag (1990:409) om skydd för företagshemligheter
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• •
continuation of the same contract converted into a contract for an indefinite period; renewal of the expired contract for the same period.
This question has not been dealt with in case law and no conclusive answer can be given. In the author’s opinion, all three options are plausible. 13.3 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 yes, 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 period if the period agreed in the contract is considered too short? There is no legislation in Sweden which requires a minimum notice period when terminating a franchise agreement. If the parties have agreed on a short notice period in the franchise agreement, the courts will most likely uphold such clause unless there are reasons to apply 36 § Contracts Act to the notice period. In recent case law in a distributorship case (where no notice period was agreed), the Supreme Court ruled that a three-month notice period was deemed a reasonable notice period in a relationship that had carried on for several years. 13.4 Form of the notice of termination and effectiveness. Is there a form (e.g. registered letter) that must be respected for the termination notice to be effective? There is no form that must be respected for a termination notice to have effect. Is the termination considered to have been validly given when it is sent or when it is received? Short of contract terms on this, the termination is deemed to be effected when it has or should have been received. If the addressee is a company, is there a specific person to whom the notification must be made in order to be effective? There is no specific person to which a notice must be addressed to, but for the notice to have effect, it must have or should have reached a person authorized to bind the company. There is still no need to address the notice to a specific person provided that the form of notice in normal situations should have reached an authorized person. In case the form imposed by law or prescribed in the contract has not been respected, what are the consequences? If the form of termination set forth in the agreement has not been respected, the notice may or may not have effect. The question has not been dealt with in case law and would have to be answered taking all circumstances into account. 13.5 Earlier termination. Which reasons can normally justify earlier termination by the franchisee and/or by the franchisor? In general, a material breach of contract is deemed such a breach of contract that the other party reasonably should not have to suffer and still remain in the
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contract relationship and the breaching party is aware of this. Typical material breaches of contract are non performance of essential obligations under the contract, such as payment of fees. Can a party terminate the contract for a breach which such party has tolerated in the past without complaining? In general, a party cannot terminate a contract for a breach which the party has tolerated in the past. For the suffering party to terminate the contract in such situation, a notice of remedy of breach would have to be sent. 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»)? It is possible that a no waiver clause in the contract would change the above answer, but it is by no means certain. It would depend on the situation and all circumstances taken into account. 13.6 Unjustified earlier termination. What is the effect of an unlawful earlier termination of a franchising contract under the law of your country? An unlawful premature termination is a material breach of contract and provides the suffering party with two options: to demand the continued performance of the contract or to terminate the contract with immediate effect. It also provides the suffering party with a right to damages. 13.7 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. Under Swedish law, there are no specific legal rules or principles established by case law for calculating the amount of compensation for unlawful premature termination. Instead, general principles on contract law and damages prevail; the injured party is entitled to damages corresponding to the economic loss that the premature termination has caused. 14. GOODWILL COMPENSATION (INDEMNITY). Does the law or jurisprudence of your country recognise a goodwill compensation to the franchisee? Swedish law does not recognize the right to a goodwill compensation to a franchisee upon termination. 15. LIMITATION OF ACTION. Does your legislation provide limitation periods (or similar systems) for the exercise of the rights of the parties under a franchise agreement and which is their duration? Under the Limitations of Claims Act 13, there is a ten year period from the time of the claim to occur after which a claim is prescribed and cannot be invoked to make the debtor pay. Notifying the debtor under the act may renew the prescription period. In addition hereto but under general contract principles as well as analogies to the Sale of Goods Act and other acts, a claim must be notified to the other party as soon
13
Preskriptionslag (1981:130)
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as it has been known and under all circumstances within a reasonable period. Under the Sale of Goods Act (which may be applied by analogy), such period is a maximum of two years but may very well be shorter. Can the limitation periods be contractually modified according to your law? The prescription period under the Limitations of Claims Act cannot be contractually modified. The time period within a claim must have been brought can be modified by contract. 16. APPLICABLE LAW. 16.1 Legal sources. What are the rules of your legal system concerning applicable law to franchising contracts? Sweden has ratified the Rome I Convention. Hence, the choice of law will be determined in accordance with what is stipulated in the franchise contract. If a dispute between a Swedish party and a non-convention state party, the Rome I Convention will still determine choice of law. There is no jurisprudence in regards of franchising contracts in specific. 16.2 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 franchising contract with a foreign counterpart? In the absence of choice of law the franchising contract shall be governed by the law of the country with which it is most closely connected in accordance with the principles of the Rome I Convention. 16.3 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? In accordance with the Rome I Convention article 3, the parties are free to agree on the law to be applied on their contractual relationship. The law that has been chosen would therefore be applied, save for the possibility of ordre public exceptions, article 7 named convention. 17. JURISDICTION AND ENFORCEMENT OF FOREIGN JUDGMENTS. 17.1 Legal sources. What are the rules of your legal system concerning jurisdiction as well as recognition and enforcement of foreign decisions? The Brussels Convention14 is still in force for those territories within the EU that has not ratified the Brussels I Regulation. Both the Brussels I Regulation and the Lugano Convention15 are directly applicable as Swedish law. For cases in which the defendant is not domiciled in a contracting state the principles in the Code of Judicial Procedure16 chapter 10 regarding forum rules will be applied by analogy.
14 15
sw: Lag (1998:358) om Brysselkonventionen sw: Lag (1992:794) om Luganokonventionen 16 sw. Rättegångsbalken (1942:740)
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17.2 Jurisdiction without a choice of jurisdiction clause. If there is no valid jurisdiction clause, is a franchisee of your country entitled, under the procedural rules of your country to bring a claim before his courts against a foreign franchisor? A franchisee is entitled to bring a claim against a foreign franchisor. For more information on the subject, kindly see IDI’s Law and Jurisdiction Report. If there is no valid jurisdiction clause, is a franchisor of your country entitled, under the procedural rules of your country to bring a claim before his courts against a foreign franchisee? A franchisor may also be entitled to bring a claim against a foreign franchise. For information on the subject, kindly see IDI’s Law and Jurisdiction Report. 17.3 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 boundaries of your country? The courts in Sweden have no exclusive jurisdiction to settle disputes concerning franchisees but are instead obliged to comply with the applicable general rules regarding jurisdiction. Would a clause contained 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 in your country? A clause between a foreign franchisor and Swedish franchisee under which a foreign court has jurisdiction would be valid under Swedish law.17 17.4 Recognition - enforcement. Is it possible to recognise and enforce a foreign judgment against citizens of your country? It is possible to recognize and enforce a foreign judgment against Swedish subjects. In cases where the Brussels Convention or the Lugano Convention is applicable a judgment given in one contracting state will in accordance with named conventions be recognized and enforced in Sweden. As regards Denmark, Finland, Iceland or Norway, judgments from named states will be recognized and enforced in Sweden under the Recognition and Enforcement on Nordic Judgments on Private Law Act 18. If enforcement is possible, how long does the proceeding take? It is not possible to give an exact estimate on time frames since every proceeding differs from the other in terms of scope and difficulty, but approximately one year. 18. ARBITRATION. 18.1 Legal sources. Is your country part of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)? Sweden is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
17
The Brussels Convention article 23, the Lugano Convention article 17 and chapter 10 section 16 of the Code of Judicial Procedure. 18 sw. Lag (1977:595) om erkännande och verkställighet av nordiska domar på privaträttens område.
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IDI Project - Country report form on franchising SWEDEN
Are there other rules applicable to international arbitration provided by the law or jurisprudence of your country? The Arbitration Act 19 contains rules regarding international arbitration. Furthermore, the rules provided by the Arbitration Institute of the Stockholm Chamber of Commerce are frequently used as well. 18.2 Arbitrability. Are franchising contracts considered a subject matter capable of settlement by arbitration, according to your legislation? Franchise contract disputes may be settled by arbitration. 18.3 Arbitration clauses. Would an arbitration clause providing for arbitration abroad, contained in a franchising agreement be valid in your country? Arbitration clauses providing for arbitration abroad would as a general rule be valid in Sweden. Would the courts of your country refuse jurisdiction with respect to a franchising contract containing such a clause? A Swedish court has no jurisdiction if the franchise agreement contains an arbitration clause (c.f. Arbitration Act section 4). However a domestic court could under certain circumstances try the validity of the arbitration clause itself. 20 18.4 Recognition of foreign awards. Would a foreign arbitration award dealing with a franchising agreement be recognised by the courts of you country? A foreign arbitration award dealing with a franchise agreement would be recognized by Swedish courts, provided the Convention on the Recognition and Enforcement of Foreign Arbitral Awards is applicable.
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20 E.g., NJA 1987 s. 639
sw: lag 1999:116 om skiljeförfarande
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