All questions

Franchise law

i Legislation

There is no specific franchise legislation enacted in Hong Kong. However, there are a number of consumer protection laws that would be relevant to a franchise and basic common law principles would also apply:

  1. the Consumer Goods Safety Ordinance requires manufacturers, importers and suppliers to ensure that consumer goods meet the general safety requirement;
  2. the Control of Exemption Clauses Ordinance prevents the supplier of goods or services from the exclusion or restriction of particular liabilities in its contractual terms;
  3. the Sales of Goods Ordinance provides that goods for sale must be of merchantable quality, fit for purpose as described on the package or by the seller, and must correspond with any samples on display;
  4. the Supply of Services (Implied Terms) Ordinance sets out the implied terms applicable to all service contracts, for example reasonable care and skill, performance within a reasonable time and that a reasonable charge should be paid;
  5. the Trade Descriptions Ordinance prohibits false trade descriptions in respect of goods and services made in consumer transactions; and
  6. the Unconscionable Contracts Ordinance empowers the court to give relief to consumers in respect of contracts relating to the sale of goods or supply of services found to be unconscionable.

Statutory and common law in relation to intellectual property will also be relevant with regard to activities relating to franchises.

ii Pre-contractual disclosure

There are no specific pre-contractual disclosure requirements. The HKFA has published a Code of Ethics, which states that a franchisor should provide to the prospective franchisee full and accurate written disclosure of all information material to the franchise relationship within a reasonable time prior to execution of the agreement. A franchisee should provide full and frank disclosure of all information material to facilitate the franchisor's selection of a franchisee.

Under Hong Kong law, however, a misrepresentation is a ground for rescission of a contract or the award of damages. This is where one party – the representor – makes a false representation to another – the representee – to induce the representee to enter into a contract. Under Hong Kong common law, if the representation was made fraudulently or negligently, the representee may also claim for damages suffered as a result of entering into the contract. Under the Misrepresentation Ordinance, the representee may also claim for damages despite the absence of fraud.

In a franchise context, the key elements required for a franchisor or a franchisee to bring such a claim against the other party are: (1) the misrepresentation was an untrue statement of fact or law; (2) the statement induced it to enter the contract; and (3) it has suffered a loss as a result of the entering into of the contract.

iii Registration

There are no franchise registration requirements.

iv Mandatory clauses

There are no mandatory clauses specific to franchise agreements.

v Guarantees and protection

There is no legislation or mandatory legal requirement under Hong Kong law relating to guarantees and protection. It is for the parties to agree whether guarantees from the principle owner or parent company are required.