Terminating a Franchise Agreement- 58th UIA Congress Florence Contract Law – Commission November 1st , 2014 Terminating a Franchise Agreement- What are the issues that a franchisor must look out for? Claudio Arturo Vienna, Austria

Which preliminary questions have to be considered when discussing a termination scenario? Applicable Law Jurisdiction Clause venue: state court vs. arbitration Will a court decision made according to 1. and 2. be enforceable in the country of residence of the franchisee or at least in the country where the franchisee's assets are located?

Ways of termination of a Franchise Agreement Expiration of its term (Ordinary) notice of termination according to terms set in the agreement Extraordinary termination for good cause - according to applicable law independent from contractual agreement, in Austria e.g. any cause that makes it unreasonable/unacceptable to continue the agreement - for causes that are expressly mentioned on in the agreement

Example of content of a termination clause State whether the list of important reasons is exclusively enumerated or "in particular" 1. With immediate effect, if 1.1 insolvency proceedings 1.2 default with a payment under this Agreement 1.3 default to pay to a Third Party 1.4 violation or attack of the Intellectual Property 1.5 Change of control 1.6 key person is no longer available 1.7 minimum turnover 2. After the expiry of a grace period of … with effect on ..., 2.1 no longer able to fulfill this Agreement for whatever reasons; 2.2 Non-compliance with Franchisor`s CI 2.3. Non-compliance with public authoritie's rules 2.4 Violation of non-competition clause 2.5 Violation of confidentiality agreements

Interests of franchisor for time after termination? - non competition - reputation - confidentiality - protection of the business concept - avoiding massive sale of branded products - investment recovery - setting scenery for new franchise partners other interests in the discussion ➨ Provisions in the Franchise Agreement in order to cover such interests: see following example

Examples of important clauses for time after termination in favor of Franchisor After termination for whatsoever reasons (expiry, termination, earlytermination, assignment) -> Franchisee should have e.g. the following obligations: 2.1 refrain from any use of the Intellectual Property 2.2 return to the Franchisor all documents and any other objects 2.3 irrevocably offers to the Franchisor the repurchase of all objects owned by him at the termination of this Agreement or thereafter acquired from the Franchisor [e.g. fashion store] 2.4 to recover or, respectively, to modify the objects [e.g. theme restaurant] 2.5 All claims for receivables of the Franchisor against the Franchisee become immediately payable 2.6 transfer of the customers to the Franchisor or a new distribution partner 2.7 enter into the rental agreement or may indicate a third party to enter 2.8 franchisee shall destroy all secret information 2.9 to keep all secrets and any other confidential information 2.10 pay back all investments according to calculation rule

Case decided by Austrian Supreme Court (4 Ob 321/87) “STEFANEL” Fashion Store – Italian Franchisor and Austrian Franchisee Franchisee sold Jeans of other suppliers (only in a very small number) which was not allowed according to the Agreement, as customers wanted bleached jeans and Franchisor could not deliver No good cause for extraordinary termination as violation was only insignificant and not unreasonable. =>Therefore recommendable to define expressly in the agreement such violations as good cause for termination

Thank you! Dr. Claudio Arturo PETSCH FROSCH KLEIN ARTURO Rechtsanwälte Esslinggasse 5, 1010 Wien T +43 1 586 2180, F +43 1 586 2235 claudio.arturo@pfka.eu