Guiding Opinions of Beijing on the Application of Law in the Trial of Disputes over Commercial Franchise Contracts

 2018-06-20  65


· Document Number:No.49 [2011] of the Higher People’s Court of Beijing Municipality

· Area of Law: Contract

· Level of Authority: Local Judicial Documents

· Date issued:02-24-2011

· Effective Date:02-24-2011

· Status: Effective

· Issuing Authority: Higher People's Court of Beijing Municipality

 

Notice of the Higher People's Court of Beijing Municipality on Issuing the Guiding Opinions of the Higher People's Court of Beijing Municipality on Several Issues Concerning the Application of Law in the Trial of Disputes over Commercial Franchise Contracts
(February 24, 2011, No.49 [2011] of the Higher People's Court of Beijing Municipality)
The No.1 Intermediate People's Court and the No.2 Intermediate People's Court of Beijing Municipality; and the people's courts of all districts and counties:
The Guiding Opinions of the Higher People's Court of Beijing Municipality on Several Issues Concerning the Application of Law in the Trial of Disputes about Commercial Franchise Contracts, which were deliberated and adopted at the 1st meeting of the Judicial Committee of the Higher People's Court of Beijing Municipality on February 14, 2011, are hereby issued to you for your earnest compliance and implementation. If you have any problem, please report it to the No.3 Civil Tribunal of the Higher People's Court without delay. For any discrepancy between any opinions mentioned in these Guiding Opinions and any law, regulation or judicial interpretation, the said law, regulation or judicial interpretation shall prevail.
Guiding Opinions of the Higher People's Court of Beijing Municipality on Several Issues Concerning the Application of Law in the Trial of Disputes about Commercial Franchise Contracts
To properly handle disputes about commercial franchise contracts and unify the standards for trying and deciding such cases, in light of the judicial practices, these Guiding Opinions are formulated pursuant to the General Principles of the Civil Law of the People's Republic of China, the Contract Law of the People's Republic of China, the Regulation on the Administration of Commercial Franchises and other relevant laws and administrative regulations.
Article 1 The term “commercial franchise” (hereinafter referred to as “franchise”) refers to business operations by which an enterprise owning a registered trademark, logo, patent or any other business resource (hereinafter referred to as “franchiser”) confers the said business resource to any other business operator (hereinafter referred to as “franchisee”) by means of contract, and the franchisee undertakes business operations under the uniform business model as stipulated by the contract and pays franchise fees to the franchiser.
The basic features of franchise are that: 1. the franchiser owns a registered trademark, logo, patent or any other business resource; 2. the franchisee uses the franchiser's business resource under a specific business model upon the franchiser's authorization; and 3. the franchisee pays franchise fees to the franchiser.
Article 2 Business resources include registered trademarks, logos, patents, names, trade secrets, overall business images with unique features, unregistered trademarks which have been firstly used and formed certain influence, and other business resources that may form certain advantages in market competition.
A franchiser owns a business resource as long as it acquires the business resource by original acquisition or transfer, or it acquires the exclusive right to use the business resource, including the right to sub-license the business resource.
Article 3 The nature of a franchise contract shall be determined mainly on the basis of the content of the contract as agreed on by both parties. Generally, neither the contract name nor a clause similar to “this contract is not a franchise contract” changes the nature of the contract.
If there is any discrepancy between the actual performance of a contract and the corresponding stipulation thereof, the actual performance shall be deemed as a variation of the stipulation, and can be used as a basis for determining the nature of the contract along with other stipulations of the contract.
Article 4 Where one party concerned to a contract registers and operates business in the name of a branch office or affiliate company of the other party, if the party concerned claims that the contract is not a franchise contract on that ground, the nature of the contract shall be determined by comprehensively considering the stipulations and actual performance of the contract.
Article 5 The parties concerned may stipulate the franchise cost by directly setting forth the amount thereof in the franchise contract or in the form of reward points of payments for goods, a percentage of profits, training expenses, etc.
Where a franchise contract stipulates that the franchisee shall pay franchise fees for business resources to the franchisor in a lump sum and also stipulates that the franchisee shall pay franchise fees for business resources to the franchisor by installments at a certain proportion of its operating income, such stipulations are valid.
Article 6 To engage in franchise operations, the franchisor and the franchisee shall conclude a written franchise contract.
Where the franchisor permits the franchisee to operate the franchised business but it fails to do it in a written form, generally it does not affect the effect of the franchise contract.
Article 7 The franchisor shall handle the filing formalities at the commerce department within 15 days after the franchise contract is established for the first time.
The franchisor's failure to handle the filing formalities at the commerce department within the prescribed time generally does not affect the effect of the franchise contract.
Article 8 To operate the franchised business, the franchisor shall own at least two direct-sale stores which have been running for over a year. The franchise contract will not become null due to the franchisor's failure to meet the said condition.
The direct-sale stores owned by the franchisor refer to direct-sale institutions by which the franchiser uses its business resources to directly operate the franchised business.
Article 9 No entity, other than an enterprise, or individual may operate the franchised business as a franchisor. A franchise contract concluded by an entity other than an enterprise or individual shall be null.
Article 10 Where any law or administrative regulation has clearly provided that it needs to obtain approval to offer a franchised product or service or that it needs to satisfy any other specific condition to operate the franchised business, the franchise contract concluded by the franchisor and the franchisee shall be null if it avoids the restriction of the said provision, unless the franchisor or the franchisee has satisfied the said specific condition before the dispute arises.
Article 11 In case the business resource has an unrenewable legal term period, or has a renewable legal term period but is not renewed within the prescribed time limit, if the term of the franchise contract concluded by both parties exceeds the said legal term period, the part concluded beyond the legal term shall be null.
Article 12 In case the business resource is cancelled or declared invalid, the franchisor or the franchisee can rescind the franchise contract by law.
After the actual performance of the contract, if a party concerned claims for rescinding the franchise contract on the ground that the relevant business resource has been cancelled or declared invalid, the claim shall not be upheld, unless the franchisor has maliciously caused damage to the franchisee and shall pay damages or undertake other legal responsibilities for that.
Article 13 Where a party concerned to a franchise contract fails to perform the contract as agreed and makes it difficult to realize the fundamental purpose of the contract, the opposite party may rescind the contract under Article 94 or 96 of the Contract Law of the People's Republic of China.
The fundamental purpose is that the franchisee uses the franchisor's business resource under the guidance of the franchisor and operates the franchised business by a specific business mode.
Unless it is otherwise agreed on by the parties concerned, whether the franchisee makes profits is not the fundamental purpose of a franchise contract.
Article 14 Generally, the advertisements, brochures and other materials used by the franchisor in the course of promoting the franchised business shall be deemed as an invitation to offer. In particular, the explanations and promises made by the franchisor on the franchised business can also be deemed as elements of the contract if they have a significant impact on the conclusion of the franchise contract, and the franchisor shall take the liability for breach of contract if going against them.
Article 15 Whether the franchisor has practiced any fraud shall be determined by comprehensively considering the relevance of the information concealed, false information provided or business resource exaggerated by the franchisor for the purpose of the contract, its deviation from the true information, its impact on the conclusion and performance of the franchise contract, etc.
If the information or business resource directly related to the essential contents of the franchised business as concealed, falsified or exaggerated by the franchisor in the conclusion of contract is sufficient to lead the franchisee into signing the franchise contract, the franchisee may request for canceling or rescinding the contract.
Article 16 Where the franchisor conceals any information about any major change, provides any false information or exaggerates the business resource, which substantively affects the franchisee's operation of the franchised business, the franchisee may request for canceling or rescinding the contract.
Where the franchisor conceals any lawsuit, arbitration or administrative penalty which may directly affect the franchisee's decision to sign the franchise contract or may significantly affects the franchisee's realization of the purpose of the franchise contract, or provides any false information thereabout, the franchisee may rescind the contract according to law.
Article 17 Where the business license of either party concerned to a franchise contract is revoked during the contractual limit of time of the contract, which makes it unable to fulfill the contractual obligations, the other party may rescind the contract.
Where either party which is unable to fulfill the contractual obligations due to revocation of its business license conceals the fact and thus causes any loss to the opposite party, it shall pay damages or undertake other legal responsibilities for that.
Article 18 If the franchisor and the franchisee have stipulated in the franchise contract or otherwise agreed to that the franchisee may unilaterally rescind the contract within a certain time limit after the contract is concluded, such stipulation shall be valid.
Even if the franchisor and the franchisee have not stipulated in the franchise contract that the franchisee may unilaterally rescind the contract within a certain time limit after the contract is concluded, the franchisee is still entitled to unilaterally rescind the contract within a reasonable period of time after the contract is concluded, unless it has already actually used the business resource concerned.
Article 19 If the franchisee requests for returning the franchise fees that have already been paid when the franchise contract has not yet been established, has not come into force or is null due to the franchisor's fault or when the performance of the franchise contract is terminated due to the franchisee's fault, the amount of refund, the proportion and how to refund shall be reasonably determined by comprehensively considering factors such as the conclusion and performance of the contract, the actual operating period and the extent of fault of both parties.
Article 20 If the franchise contract is completely fulfilled, or the conditions for refund are satisfied even if it is not completely fulfilled, the franchisor shall refund the deposit or performance bond to the franchisee, unless the deposit or performance bond has been used to offset the franchise fees or any other debt of the franchisee.
If it is the franchisor's fault or it is not the franchisee's fault that has caused the failure of the franchise contract, or caused the contract to be nullified, cancelled or rescinded, the franchisor shall refund the deposit or performance bond to the franchisee.
In case the franchisor and the franchisee have clearly stipulated that the deposit or performance bond is earnest money, the Contract Law of the People's Republic of China and other relevant laws and administrative regulations are applicable.
Article 21 If a franchise contract has not yet been established, or has been nullified, cancelled or rescinded, unless it has been otherwise agreed on by the parties concerned, the franchisee shall stop using the relevant business resource which it has been permitted to use by the franchisor, and the franchisor may also request the franchisee to return or destroy the power of attorney, franchised use permit, franchised logo, technical data, tablet and other documents or materials related to the business resource.
If the franchisee is unable to return the above-mentioned documents or materials, it shall pay for the franchisor's losses resulting therefrom. However, the franchisee is permitted to not return those normally consumed by the franchisee in the course of operating the franchised business and does not have to pay for damages.
Article 22 If a franchise contract has not been established, has not come into force, has been nullified, cancelled or rescinded, the products or equipments provided by the franchisor to the franchisee shall be returned completely or at a discount, except for those normally consumed in the course of operating the franchised business.
Article 23 If a franchise contract has not been established, has not come into force, or has been nullified, cancelled or rescinded, the innocent party may request the faulty party to compensate for its actual losses resulting from the conclusion and performance of the contract. In light of the actual circumstances, the party in fault can be ordered to compensate for the losses suffered by the innocent party for being deprived of the opportunity to conclude contracts or gain other profits.
Article 24 Where a franchise contract is terminated because it has not been established, or has been nullified, cancelled or rescinded, or it is determined that it is not a franchise contract, the parties concerned shall fulfill the due diligence obligations with regard to confidentiality and safe keeping, etc. according to the contractual stipulations. Either party which violates the obligations and causes any loss to the opposite party shall compensate for damage or undertake other legal responsibilities.
Article 25 Where either party claims that the franchise contract has not been established, has not come into force or has been nullified or should be rescinded or revoked while the other party claims for its continuation, the parties concerned shall, before it is determined whether the contract has beenestablished, has not come into force or has been nullified or should be rescinded or revoked, be notified to incorporate the franchise fees, products or equipments and business resource into its claim, unless the party concerned insists on handling those matters separately.