Thailand Franchise Basics (reproduced extract)

Thailand Franchise Basics

extract from an old BLB newsletter –

It is important to first and foremost appreciate that there is an absence of specific legislation with regards to franchising in Thailand, and much significance is given to the freedom to contract. Despite this general liberty, there are many stringent legal safeguards in place of which must be given thorough consideration.

In a categorization exercise, there are typically 6 main legal aspects inextricable from franchising:

Franchise Agreement – Localization

Franchise Agreements have to strictly adhere to Thai law. This dominantly involves compliance with the Thai Unfair Contract Terms Act B.E. 2522 (A.D. 1979) (“UCTA”), the Thai Civil & Commercial Code (“CCC”), the Trade Competition Act B.E. 2542 (A.D. 1999) and the various Thai Intellectual Property legislation.

There is an overarching catch-all requirement of ‘fair and reasonable’ in determining if a clause in question is enforceable per Thai law, criterion for exercise of discretion for such determination being contained in Section 10 UCTA.

Failure for proper localization may lead to unenforceable clauses, wholly void the agreement and be fatal to the franchise.

Intellectual Property Aspects of the Agreement – Registration

Patent Licenses are required to be in writing and submitted with the Thai Department of Intellectual Property (“DIP”) and in strict compliance with the Thai Patent Act and in particular the Ministerial Regulation No. 25 (1999) introduced in view of preventing contractual oppression by the party with more bargaining power. Otherwise, such Patent Licenses may be deemed void by virtue of Section 41 of the Thai Patent Act read together with Section 152 of the CCC.

Trademark Licenses on the other hand or franchise agreements containing Trademark Licensing provisions similarly need to be in writing and registered with the DIP, pursuant to Section 68 of the Thai Trademark Act.

Conversely, Trade Secrets which are similarly commonly intertwined with franchising agreements do not require registration but have to be clearly spelt out in the franchise agreement, embracing specific protection conferred by the Trade Secrets Act B.E. 2534 (A.D. 1991).

Tax Aspects – Implications

With respect to local franchisee – foreign franchisor royalties / franchise fees, the tax liabilities are generally 15% Withholding Tax as varied according to applicable double taxation treaties + 7% Value Added Tax + possible Stamp & Import Duties if any.

Precise methods of calculation have to be determined to properly discharge these liabilities.

Trade Competition Aspects – Restrictions

The TCA has significant bearing upon Thai Agreements and is of especial importance to franchise agreements. In matters such as price-fixing, confining the franchisee to one or more exclusive suppliers and/or exclusive lines of products and/or geographical exclusion – the TCA may render such terms and to an extreme the Franchise Agreement bad.

Trade Competition disputes may be adjudicated at first-instance by the Trade Competition Board.

Franchisor Security – Protection

There is an absence of statutory provision governing the securing of liens against personal property. Viz-a-viz a creditor’s claim in the case of a defaulting
franchisee, the franchisor is handicapped in preventing equipment and inventory that are unique to the franchise from being given to third-party.

It is a delicate balancing exercise between the fanchisor’s interests and the franchisee’s rights.

Leases (of real property) on the other hand are not automatically assignable unless the lease agreement expressly provides for. It is crucial that a franchisor ensures that franchise-related leases (e.g. retail space) of the franchisee expressly provides authorization from the landlord for assignments back to the franchisor and subsequently to a new franchisee.

In absence thereof, in the face of franchisee default – the franchisor is incapacitated from usurping possession of the franchise location.

Franchise Agreement – Enforcement

There are 3 main avenues for enforcement in Thailand which are Litigation, Mediation and Arbitration. In the case of a franchise relationship gone sour, parties may seek legal recourse in the form of damages, injunctions, Anton Piller orders, and other legal remedies.

Both the DIP and Central Intellectual Property & International Trade Court provide facilities for mediation which has seen notable success in recent years. Similarly, arbitration clauses are recognized and enforceable.

Away from the prospect of the lengthy, cumbersome and costly Court process, Thai Alternative Dispute Resolution may be a preferred avenue promising efficacious obtaining of, and effective results.

Other Fundamental Considerations

  • Thailand Foreign Business Restrictions
  • Franchise Due Diligence
  • Termination

Did you know? International Franchising –

Thailand is a member of over 10 International Free Trade Agreements.

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For more information on the foregoing, please contact the author JOEL LOO SEAN EE, the Bangkok-based Senior Regional Counsel at Kelvin Chia Thailand and a member of Kelvin Chia Partnership’s Regional Practice Group at Joel.Loo@KCPartnership.com.

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This article is published to provide general information only and is not offered as specific advice on any particular matter – This information is to be taken subject to proper consultation with a lawyer.

All written material on BANGKOK LEGAL BLOG (BLB) including this post are the Copyright of Joel Loo Sean Ee. Any attempt to plagiarize or reproduce these materials in whole or in part, in verbatim or in paraphrase, or in any other form that it can be conceivable that such attempt is being made is an offense in law and will be an invitation by offenders to face charges and prosecution in a Court of Law.

 

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