Legal restrictions on franchise contracts and the relationship between the parties

Franchise relationship laws

Are there specific laws regulating the ongoing relationship between franchisor and franchisee after the franchise contract comes into effect?

There is no legislation specific to franchise in Norway. Depending on each franchise relationship, there may be a number of relevant laws, regulations and guidelines to be considered.

Relevant laws to be taken into consideration are, inter alia: the Contracts Act, the Norwegian Sale of Goods Act, the Competition Act, the Working Environment Act, the Holiday Act, the Personal Data Act, the Norwegian Marketing Practices Act, the Tenancy Act and the Act Relating to Product Liability.

Operational compliance

What mechanisms are commonly incorporated in agreements to ensure operational compliance and standards?

It is common to include both inspection and audit rights for the franchisor.

Amendment of operational terms

May the franchisor unilaterally change operational terms and standards during the franchise relationship?

It depends on the contract and whether the parties have agreed that the franchisor shall have this right. Note, however, that the duty of loyalty and good faith, as well as the Contract Act, will set limitations on new terms that are deemed unreasonable.

Other laws affecting franchise relations

Do other laws affect the franchise relationship?

Relevant laws to be taken into consideration are, inter alia: the Contracts Act, the Norwegian Sale of Goods Act, the Competition Act, the Working Environment Act, the Holiday Act, the Personal Data Act, the Norwegian Marketing Practices Act, the Tenancy Act and the Act Relating to Product Liability.

Policy affecting franchise relations

Do other government or trade association policies affect the franchise relationship?

No.

Termination by franchisor

In what circumstances may a franchisor terminate a franchise relationship? What are the specific legal restrictions on a franchisor’s ability to terminate a franchise relationship?

The terms for the franchisor’s right to terminate with or without cause will usually be stated specifically in the franchise agreement, alongside a specification as to whether either basis for termination gives the right to immediate termination or the termination subject to a notice period, which is usually between six and 12 months.

If the franchise agreement does not include a clause regarding termination rights, the franchisor may terminate the agreement with immediate effect upon a material breach of the contract by the franchisee.

Termination by franchisee

In what circumstances may a franchisee terminate a franchise relationship?

The terms for the franchisee’s right to terminate with or without cause will usually be stated specifically in the franchise agreement, alongside a specification as to whether either basis for termination gives the right to immediate termination or the termination subject to a notice period, which is usually between six and 12 months.

If the franchise agreement does not include a clause regarding termination rights, the franchisee may terminate the agreement with immediate effect upon a material breach of the contract by the franchisor.

Renewal

How are renewals of franchise agreements usually effected? Do formal or substantive requirements apply?

It varies from chain to chain, but automatic renewal is not customary. It is customary that the renewal is conditional on the franchisee having fulfilled certain formal requirements, such as no breach of the agreement, that the lease agreement for the premises is valid for the renewal period and that the franchisee signs the then applicable chain agreement. Both formal and substantive requirements usually apply.

Refusal to renew

May a franchisor refuse to renew the franchise agreement with a franchisee? If yes, in what circumstances may a franchisor refuse to renew?

There is no legislation or regulation limiting the franchisor’s right to refuse the franchisee renewal of the franchise agreement. The fundamental principle of Norwegian contract law is contractual freedom, hence the franchise agreement will set out the limitations, if any. For example, the franchisee may have an option to renew for a certain number of years or periods of years. If there are no such provisions in the franchise agreement, the franchisor may decide to deny or offer the franchisee a renewal at its sole discretion.

Transfer restrictions

May a franchisor restrict a franchisee’s ability to transfer its franchise or restrict transfers of ownership interests in a franchisee entity?

It is common to include a clause in the franchise agreement granting a right for the franchisor to freely approve or veto a transfer of the franchise to a new franchisee. Similarly, change-of-control clauses are common in franchise agreements, usually requiring the consent of the franchisor or granting the franchisor the right to terminate the franchise agreement upon transfer of the voting power in the franchisee.

Fees

Are there laws or regulations affecting the nature, amount or payment of fees?

No, the parties enjoy full contractual freedom in this regard. Note, however, that the duty of loyalty and good faith, as well as the regulations in the Contract Act regarding revision or invalidity of contracts owing to unreasonable terms or fraud, may affect the terms and amounts of the fees and payment obligations.

Usury

Are there restrictions on the amount of interest that can be charged on overdue payments?

There are no legislative restrictions on the amount of interest that can be agreed on overdue payments between professionals. However, the parties must agree on the rate and the principles for calculating the interest rate, if they want to use a higher percentage or a calculation principle deviating from the prescribed interest level in the Act relating to Interest on Overdue Payments, currently at 9.5 per cent. If the agreed interest is unreasonably high or the basis for calculating the interest is very unfavourable to one party, the court may deem the rate invalid and edit the agreement accordingly. Very rarely will the court deem an agreement as a whole invalid owing to one clause being found unreasonable and void.

Foreign exchange controls

Are there laws or regulations restricting a franchisee’s ability to make payments to a foreign franchisor in the franchisor’s domestic currency?

The parties are free to agree on other currencies than the local one, but unless the parties have made such agreement and the payments are carried out in Norway, the creditor is entitled to demand payment in the local currency, Norwegian kroner.

Confidentiality covenant enforceability

Are confidentiality covenants in franchise agreements enforceable?

Generally, yes. Note, however, that in the event of civil proceedings, a contractual confidentiality clause in a franchise agreement in itself is not sufficient to exempt the franchise agreement as evidence, unless the documents may be exempted pursuant to legal authority. Hence the parties will have to submit relevant documents they have available and offer witnesses to the court to fulfil their duty of disclosure pursuant to the Dispute Act, irrespective of confidentiality clauses.

Good-faith obligation

Is there a general legal obligation on parties to deal with each other in good faith during the term of the franchise agreement? If so, how does it affect franchise relationships?

Yes, the general principle of good faith and loyalty applies to all contractual relationships in Norway, including franchise relationships. The principle applies during negotiations and during the whole period of the franchise agreement.

Franchisees as consumers

Does any law treat franchisees as consumers for the purposes of consumer protection or other legislation?

Franchisees are not considered consumers pursuant to Norwegian law. If a relevant act distinguishes between consumers and professionals, a franchisee is considered a professional. Further, there is generally a presumption that the franchisee is a professional and has the capacity to take on the responsibility of a professional party.

Language of the agreement

Must disclosure documents and franchise agreements be in the language of your country?

It is preferable to conduct franchise agreements in Norwegian, but it is not a legislative requirement, and pursuant to the principle of contractual freedom, the parties may agree to use English as their contractual language. Franchise agreements in English will usually be supplemented with a presentation of the terms or an office translation in Norwegian stating that the English version shall take precedence.

Any disclosure documents to the public authorities should be in Norwegian (eg, corporate documents to be registered in the Register of Business Enterprises must be in Norwegian), but an additional office translation to English is usually accepted.

Acquisitions, mergers and joint ventures may be notifiable to the Norwegian Competition Authorities. Concentrations that are unlikely to affect competition in the affected market may be submitted through a ‘simplified notification’, in which case the notification can be written in English. If the conditions for the simplified procedure are not met, the notification must be written in Norwegian.

Restrictions on franchisees

Describe the types of restrictions placed on the franchisees in franchise contracts.

The fundamental principle of Norwegian contract law is contractual freedom. Consequently, there are no notable restrictions on specific provisions in relation to franchise contracts. However, competition law may hold anticompetitive provisions invalid. Further, the Working Environment Act sets out a specific prohibition against an employer entering into an agreement with other undertakings, including a non-solicitation clause of employees clause. However, a non-solicitation of employees clause may nevertheless be entered into in connection with negotiations on transfer of undertakings, and invoked during the negotiations and for up to six months after completion of the negotiations if they do not succeed. A non-solicitation clause of employees clause may also be entered into from the date of transfer of the undertakings and invoked for up to six months if the employer has informed all the affected employees in writing.

Competition law

Describe the aspects of competition law in your country that are relevant to the typical franchisor. How are they enforced?

Agreements, including franchising agreements, are regulated by the Norwegian Competition Act. Norway is a part of the European Economic Area (EEA) through its membership in EFTA. The regulations in the EEA, which mirror those of the EU, have been implemented into Norwegian legislation through special acts and regulations. Consequently, the Norwegian Competition Act is partly harmonised with EU competition rules, and in practice the material rules are identical to the rules in the EU.

The European Commission’s Block Exemption Regulation on Vertical Agreements is incorporated into the Norwegian Regulation on application of the Competition Act section 10(3) on vertical agreements and concerted practices, and is particularly relevant to franchise agreements. If the franchise agreement falls under the Block Exemption Regulation, the application of competition law is precluded. The applicability of the Block Exemption Regulation presupposes that: the market share held by the supplier does not exceed 30 per cent of the relevant market on which the supplier sells the contract goods or services; and the market share held by the buyer does not exceed 30 per cent of the relevant market in which the buyer purchases the contract goods or services.

Article 5 of the Block Exemption Regulation sets out that a non-compete obligation can only be legally enforced for up to five years. If certain conditions are met, however, it can be enforced for the entire term of the contract and for another year after termination of the agreement. In order for the extended time period to apply, the obligation must concern competing goods or services, be limited to the geographic area from which the buyer has operated during the contract term, and be indispensable to protect know-how transferred by the supplier to the buyer.

Nevertheless, the Commission generally considers exclusivity clauses in franchising agreements justified if the franchise entails a significant transfer of know-how from the franchisor to the franchisee, and the noncompete obligation is necessary to protect said transfer of know-how.

 

Enforcement of competition law in Norway

Competition law cases are heard by the ordinary courts. However, in the case of a potentially anticompetitive merger or acquisition, the Norwegian Competition Authority enforces the competition rules based on notifications from the undertakings in question. Notification is mandatory if the transaction entails a permanent change of control, and the involved undertakings exceed the turnover thresholds in the Norwegian Competition Act.

The competition rules in Norway do not materially differ from the European Union Merger Regulation (EUMR, Council Regulation (EC) No. 139/2004). However, there is a special provision that allows the NCA to impose notification on and forbid a minority acquisition that significantly restricts competition. Consequently, the NCA may intervene in relation to transactions that do not fall within the scope of the EUMR.

Courts and dispute resolution

Describe the court system. What types of dispute resolution procedures are available relevant to franchising?

The judiciary in Norway is hierarchical, with district courts at first instance, courts of appeal at second instance and the Supreme Court as the ultimate court of appeal. The local conciliation boards hear certain types of civil cases, based on the value of the dispute and whether both parties have engaged legal counsel. These ordinary courts will hear all cases relevant to franchising, unless the parties have agreed otherwise or a special authority is the competent instance, that is, the Norwegian Competition Authority. As a general rule, all court decisions on civil matters, including commercial matters, are publicly available.

The ordinary courts (except the Supreme Court) will offer and advocate mediation, either out-of-court mediation or judicial mediation. However, mediation is not compulsory for matters relevant to franchising. If the parties agree to mediation, it is solely up to the parties to reach a solution, the mediator holds no authority to settle the dispute.

Further, the parties may agree to solve potential disputes by arbitration, which may be chosen for commercial disputes as the parties can agree that the solution shall be subject to confidentiality.

Arbitration – advantages for franchisors

Describe the principal advantages and disadvantages of arbitration for foreign franchisors considering doing business in your jurisdiction.

The advantages of arbitration are in general the same for foreign and domestic franchisors: the possibility of agreeing on privacy and confidentiality, flexibility for the parties involved, influence on appointment of arbitrator and the efficiency of the process. Furthermore, when the parties agree to settle a dispute through arbitration, they avoid ordinary court proceedings, although the arbitration decision still has effect as a legally enforceable judgment that can be enforced by means of the general legal enforcement procedure in Norway.

The Arbitration Act of 2004 sets out the applicable provisions for Norwegian arbitration and has a special provision stating that foreign arbitration awards can be recognised and enforced in Norway. In many aspects it is based on the 1985 UNCITRAL Model Law on International Commercial Arbitration.

Norway is a party to the UN Convention of 10 June 1958 on the recognition and enforcement of foreign arbitration decisions (the New York Convention). The convention is acceded to by about 125 countries, including the countries Norway has the most trade with. This implies that foreign arbitration decisions can be enforced in Norway without instituting special legal proceedings in the Norwegian courts.

There are no disadvantages specific to foreign franchisors compared with domestic ones. As for arbitration in general, the cost is considerably higher than legal proceeding in the ordinary courts, but most important are the restrictions on appealing against the judgment. An arbitration award may only be brought before the ordinary courts based on annulment actions.

National treatment

In what respects, if at all, are foreign franchisors treated differently from domestic franchisors?

Pursuant to Norwegian law, there is no legal distinction as to whether a franchisor is domestic or foreign.

Law stated date

Correct on

Give the date on which the above content is accurate.

29 April 2020