Matters to be Attended to when Reviewing Franchise Agreement
Matters to be attended to when reviewing franchise agreement- In general, a franchisee enters into a franchise agreement based on a franchise contract that a franchiser prepares and provides. When the franchiser prepares the franchise contract, its terms and conditions shall not be contrary to the legitimate profits or reasonable expectations of the franchisee, and shall be in accordance with principles of fairness and equity (see Supreme Court Decision 93Da43873, December 9, 1994).
Fairness of franchise agreement- If a franchise agreement includes any of the following clauses in its terms and conditions, it shall be presumed to be unfair (Article 6(2) of the 「Act on the Regulation of Terms and Conditions」)
· A clause which is unreasonably unfavorable to a franchisee
· A clause which a franchisee would have difficulty anticipating in light of various circumstances, including the type of business or transaction that the franchise agreement represents
· A clause which is so restrictive of the essential rights of a franchisee under a franchise agreement that the purpose of the franchise agreement may not be achieved
Prohibition of exemption clause- Any of the following clauses in a franchise agreement concerning the liability of a franchiser shall be null and void (Article 7 of the 「Act on the Regulation of Terms and Conditions」).
· Clause which exempts a franchiser from liability for intentional or gross negligence on the part of the franchiser, its agents, or its employees
· Clause which limits, without a substantial reason, the extent of indemnification payable by a franchiser, or which passes a risk to be borne by the franchiser to a franchisee
· Clause which, without a substantial reason, excludes or limits the warranty liability of a franchiser, or tightens requirements imposed on a franchisee to exercise the rights under the warranty thereof
· Clause which excludes or limits the warranty for the subject-matter of a contract for which a business person has provided a sample, or has indicated the quality, performance, etc. without any considerable reason.
Predetermination of indemnity- Any clause in a franchise agreement which obliges a franchisee to pay unreasonably heavy loss, including but not limited to, excessive liquidated loss for delay, shall be null and void (Article 8 of the 「Act on the Regulation of Terms and Conditions」).
Cancellation and termination of agreement- Any of the following clauses in a franchise agreement concerning the cancellation or termination of a contract shall be null and void (Article 9 of the 「Act on the Regulation of Terms and Conditions」).
· Clause which excludes the right of a franchisee to cancel or terminate the contract under laws, or limits the exercise of such right
· Clause which grants a franchiser a right to cancel or terminate the contract which is not provided for by laws, and therefore might put a franchisee at an unreasonable disadvantage
· Clause which mitigates the requirements a franchiser must have to exercise the right to cancel or terminate the contract under laws, and therefore might put a franchisee at an unreasonable disadvantage
· Clause which, without a substantial reason, obliges a franchisee to pay excessive restitution due to cancellation or termination of a contract, or which unreasonably provides for a franchisee to waive their claim to restitution
· Clause which unreasonably reduces the restitution obligation of a franchiser or its duty to pay indemnity in the event of cancelling or terminating a contract
· Clause in a contract providing for a continuous creditor-debtor relationship which might put a franchisee at an unreasonable disadvantage by providing for a duration that is unreasonably short or long or by allowing implied extensions or renewals of the contract
Performance of obligations- Any of the following clauses in a franchise agreement concerning the performance of obligations shall be null and void (Article 10 of the 「Act on the Regulation of Terms and Conditions」).
· Clause which, without a substantial reason, gives a franchiser power to unilaterally determine or change the details of performance
· Clause which, without a substantial reason, allows a franchiser to unilaterally suspend the performance of his/her obligations or imputes performance of its obligation to a third party
Protection of rights and interests- Any of the following clauses in a franchise agreement concerning the rights and interests of a franchisee shall be null and void (Article 11 of the 「Act on the Regulation of Terms and Conditions」).
· Clause which, without a substantial reason, excludes or limits a franchisee's rights of defense, offset of damages, etc., which are provided for by laws
· Clause which, without a substantial reason, deprives a franchisee of the given benefit of time
· Clause which unreasonably limits a franchisee's right to enter into contracts with a third party
· Clause which, without any justifiable reason, allows a franchiser to divulge the confidential information of a franchisee it has obtained in the course of its business.
Expression of intent- Any of the following clauses in a franchise agreement concerning an expression of intent shall be null and void (Article 12 of the 「Act on the Regulation of Terms and Conditions」).
· Clause which provides that once a certain act of feasance or omission has occurred, a franchisee shall be deemed to have expressed or to not have expressed a certain intent
※ However, this shall not apply where a franchisee is separately notified that if he/she fails to express his/her intent within a given period, which is a considerable length of time, the franchisee shall be deemed to have expressed or not have expressed his/her intent, or where it is impossible to issue such notice due to unavoidable circumstances.
· Clause which imposes unreasonably strict restrictions on the requirements for or the way in which a franchisee may express his/her intent
· Clause which provides, without a substantial reason, that the intent of a franchiser, which may materially affect the interest of a franchisee, is deemed to have been communicated to the franchisee
· Clause which provides for an unreasonably long or indefinite term during which a franchiser may express its intent which may materially affect the interests of a franchisee
Obligations of agents- If a contract is entered into by the agent of a franchisee and the franchisee fails to perform his/her obligations, any clause in the terms and conditions of the contract which imposes on the agent an obligation to carry out the franchisee's obligations in whole or in part shall be null and void (Article 13 of the 「Act on the Regulation of Terms and Conditions」).
Prohibition of filing lawsuits- Any of the following clauses in a franchise agreement concerning the filing, etc. of lawsuits shall be null and void (Article 14 of the 「Act on the Regulation of Terms and Conditions」).
· Clause prohibiting a franchisee from filing a lawsuit that is unreasonably disadvantageous to the franchisee, or requires the franchisee to agree to jurisdiction
· Clause in terms and conditions which imposes the burden of proof on a franchisee without any justifiable reason