Turkey has long been a relatively franchisor-friendly jurisdiction given that franchise agreements are not governed by a special law and that there are no statutory requirements on registration or pre-contractual disclosure.
Although the statutory framework remains the same, a recent decision of the Turkish Court of Appeals challenges the absence of disclosure requirements.
In a dispute on the termination of a franchise agreement, the Turkish Court of Appeals ruled1 that:
"the franchisor must provide all the information with respect to its registered marks, logos, symbols and names to the franchisee. If there are any problems on any aspect, that aspect must specifically be explained and the franchisor must notify the franchisee of all legal disputes it is a party to in relation to these matters."
The Court of Appeals concluded that the franchisee would be entitled to terminate the franchise agreement for just cause should the franchisor fail to provide this information prior to the conclusion of the agreement.
Save for the obvious fact that this is the only decision on public record regarding pre-contractual disclosure requirements, nothing in the decision of the Court of Appeals appears revolutionary at a first glance. A detailed review does, however, reveal the very first sign of a new trend that the Court of Appeals may be adopting on the matter. The language used by the Court of Appeals was a verbatim duplication of the language used by the Turkish Franchising Association (TFA) in its code of conduct that imposes "Principles of Clearness" for disclosures expected from franchisors.
The "Principles of Clearness" of the TFA were drafted on the basis of the U.S. Federal Trade Commission's Uniform Franchising Offering Circular and are binding on the members of the TFA but have no force of law applicable to non-members. Disclosure requirements set forth in the "Principles of Clearness" are not limited to disclosures on the trademarks and related disputes but cover a significant number of other topics with very broad language. Other items of disclosure include:
- financial and tax information of the franchisor (including annual accounts);
- names and professional experience of the members of management and board of directors;
- records of lawsuits against the franchisor; and
- details of the investment to be made by the franchisee.
What should franchisors do?
The decision of the Court of Appeals may be the first flare of a new era of disclosure requirements as franchisees may now argue that the "Principles of Clearness" of the TFA are mandatory between franchisee and franchisor. It would therefore be prudent for franchisors to give voluntary disclosure, considering particularly that the disclosure items are not onerous in nature compared with those of other jurisdictions.