FRANCHISING AND THE LEGAL NATURE OF FRANCHISE

10 March 2023

FBK&PARTNERS

FRANCHISING

- What is Franchising?

Franchising is the granting of the franchisee of a brand to independent investors, in return for a certain financial cost, by providing support for the management and execution of the business under certain conditions. Franchise literally means “concession.”

Franchising is a business model where a company (the franchisor) grants the right to use its brand, products, services, and operating system to another person or company (the franchisee) in exchange for an initial fee and ongoing royalties. The franchisee operates a business under the franchisor’s brand name and receives support and guidance from the franchisor in areas such as marketing, training, and operations.

- What are the Advantages of Franchising?

While providing advantages such as growth and increase in business volume for the franchisor, it increases profits without the need for businesses to make payments such as entrance fees. In this way, it allows them to develop and grow at a very low cost.

For the franchisee, there are many advantages such as continuous training and technology support, advertising and promotion. In addition, those who will open a private business for the first time will have the advantage that they can manage a business at a lower cost without facing a difficult and complex process.

- Legal Nature of Franchising Agreement

The franchise agreement is not regulated in the Code of Obligations. This contract, like other contracts, is subject to freedom of contract, provided that it is within the framework of the rules of law. Within the scope of this contract, both parties have mutual obligations to fulfill.

For example, while the franchisor is under the obligation to make the business and marketing system available to the franchisee, the franchisee is under the obligation to make and support the release of goods and/or services on its own behalf and account, the obligation to use the intellectual and industrial elements in the production, business and marketing system and to contribute to the continuation of their legal and actual existence, and especially to inform the franchisor of any infringement thereof, the obligation to comply with the production, business and marketing principles contained in the system and determined by the franchisor, and the obligation to pay a fee. In this case, it can be said that it is a contract that imposes obligations on both parties.

Since the obligations that are the subject of franchise agreements are not fulfilled immediately by fulfilling the obligation, but by spreading over the duration of the contract, there is a continuous debt relationship. Since there is a continuous debt relationship within the scope of the franchise agreement, the termination of the agreement will not be terminated by the fulfillment of the debt, but a fixed-term franchise agreement will be terminated automatically upon the expiration of the contract period agreed by the parties, and an indefinite-term franchise agreement will be terminated by ordinary termination notice.

To summarize briefly, franchising is currently a business model in which one company gives another person or organization the right to use its brand name, products and services in exchange for a certain fee and royalties. The franchisee benefits from the existing company’s brand recognition, business model and support from the franchisor, while the franchisor grows its business through the franchisee’s efforts

Franchising can be a great opportunity for entrepreneurs looking to start a business, but it is important to conduct thorough research and understand the terms and obligations of the franchise agreement before signing the franchise agreement.

ARBITRATION AS AN ALTERNATIVE DISPUTE RESOLUTION METHOD

9 March 2023

FBK&PARTNERS

ARBITRATION

Arbitration is a dispute resolution method in which disputes between the parties are resolved by arbitrators appointed by the parties themselves, rather than by the official judicial bodies of the state, provided that they are within the scope of the matters permitted by law to be resolved by arbitration.

Arbitration is especially used to resolve commercial and investment disputes. Arbitration requires at least two parties and an arbitration agreement. These parties may be real person or legal entity.

What are the Conditions for the Validity of the Arbitration Agreement?

The primary condition is that the parties should have a common will to arbitrate. Their willingness to arbitrate must be clearly and unequivocally expressed, otherwise arbitration agreements will not be valid.

The dispute that is the subject of the arbitration agreement must be a specific or determinable dispute. The subject of the dispute must be arbitrable. For example, article 408 of the CCP (Code of Civil Procedure) explicitly stipulates that disputes arising from real rights over immovable property or from transactions that are not subject to the will of both parties are not arbitrable.

The process of arbitration typically begins when one of the parties files a request for arbitration. The other party is then notified and given the certain time to respond. If the parties agree to arbitration, they shall select an arbitrator or arbitral tribunal to hear their dispute. The arbitrator will then hold a hearing at which evidence is presented and the disputes of the two parties are discussed and the dispute is decided in a decision that will be binding on the parties.

For some disputes, arbitration is a condition, whereas for some disputes, the parties have the right to choose whether to submit to arbitration.

Arbitration is divided into two categories as mandatory and voluntary, depending on whether it is obligatory for the parties to resort to arbitration.

In mandatory arbitration, the will of the parties is not taken into account. In mandatory arbitration, arbitration was stipulated as a condition for the resolution of the dispute. If it is depends on the will of the parties to resort to arbitration there is voluntary arbitration here.

In mandatory arbitration, the dispute will be resolved by an arbitrator or arbitral tribunal which is prescribed by law. In voluntary arbitration, the parties are free to choose the arbitrator or arbitrators as well as to apply for arbitration. However, they are bound by the arbitrator’s decision.

Arbitration is also divided into domestic arbitration and international arbitration. If there is no “foreign element” in the relationship between the parties, domestic arbitration is resorted to. A legal act, deed or transaction is considered to have an element of foreignness if it is related to more than one legal system. For example, if the parties agree on a place outside of Turkey as the seat of arbitration, even if both parties are Turkish, there will be an element of foreignness and this will be sufficient for the arbitration to be international.

In the event that the parties have not agreed on the rules of procedural law to be applied in the arbitration agreement, either the provisions of the Code of Civil Procedure regarding arbitration or the provisions of the International Arbitration Law shall apply, depending on the nature of the dispute. Matters relating to arbitration are regulated under Articles 407-444 of the Code of Civil Procedure No. 6100. The provisions of the Code of Civil Procedure No. 6100 on arbitration shall apply to disputes that do not involve a foreign element and where the place of arbitration is determined as Turkey.

One type of international arbitration is investment arbitration. Investment arbitration is a dispute resolution mechanism used in international law to resolve disputes between foreign investors and the host state in which they have invested. The most important international resource in terms of investment arbitration is the ISCID Convention.

Investment arbitration typically arises when a foreign investor has invested in a host state, and the host state takes actions that the investor believes violate their rights under a bilateral or multilateral investment treaty or a contract between the investor and the state. These actions may include expropriation of the investor’s property, breaches of contract, discriminatory treatment, or failure to provide adequate protection and security.

The claim is typically heard by an arbitral tribunal, which is a panel of one or more arbitrators who are selected by the parties or appointed by an institution such as the International Centre for Settlement of Investment Disputes (ICSID) or the Permanent Court of Arbitration (PCA).

Arbitration has several advantages.

One of the main advantages is that arbitration can be concluded much faster than official judicial bodies of the state proceedings.

The arbitration process can usually be resolved within a few months, whereas state court cases can take years to resolve.

Arbitration is also generally less costly than formal state judicial bodies.

The cost of an arbitration hearing is generally lower than in other jurisdictions and there are fewer procedural requirements to be met.

Can Arbitral Awards be Appealed?

Arbitral awards are not subject to appeal in terms of content. This means that the courts cannot review whether the award is correct and proper.

Procedurally, it is possible to file a lawsuit for an annulment award in the country where the arbitration takes place.

There are prescribed conditions for an annulment action. The primary ones are that the award was rendered after the expiration of the arbitration period, the award was rendered on an issue that was not requested, and the notice for the hearing was not timely served.

As can be seen, arbitration is a dispute resolution method that has various types and has many advantages. Considering within the scope of cost, time and procedures, in case of any dispute, it may be much more efficient to resolve disputes through arbitration within the scope of issues where the law in dispute allows to resort to arbitration.