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Franchise

2008
in 28 jurisdictions worldwide
Contributing editor: Philip F Zeidman

Published by
Getting the Deal Through
in association with:
Akademia Rozwoju Systemów Sieciowych Sp z oo

Alban Tay Mahtani & de Silva

Allen & Overy LLP

Al Sarraf & Al Ruwayeh


- & Tomotsune
Anderson Mori

Angara Abello Concepcion Regala & Cruz Law Offices

Archer & Angel

Bahas Gramatidis & Partners

Bowman Gilfillan

CNCM Curado Nogueira Costa Mendes & Associados

DLA Piper

Goldman Antonetti & Cordova

Gómez-Acebo & Pombo Abogados

Gonzalez Calvillo SC

Heinonen & Co Attorneys-at-Law Ltd

Jurvneshservice Law Firm

Lapointe Rosenstein LLP

Lee & Ko

Lehman Lee & Xu

Mason Sier Turnbull

Nörr Stiefenhofer Lutz ooo

Rödl & Partner

Stewart Germann Law Office

Streichenberg and Partner Attorneys at Law

Wong Jin Nee & Teo


CNCM – Curado, Nogueira, Costa Mendes & Associados portugal

Portugal
Pedro da Costa Mendes
CNCM – Curado, Nogueira, Costa Mendes & Associados – Sociedade de advogados RL

Overview tion with a commercial register office; and


• communicate with the tax authorities, social security and
1 What forms of business entities exist that would be relevant to the typical
labour authorities.
franchisor?

There are four types of corporate entities: general partnership


4 What restrictions apply to foreign business entities and foreign investment?
companies, private limited liability companies, public limited
companies and limited co-partnership companies. Controls on foreign investment in Portugal have been greatly
European companies (societas europaea) may be incorpo- relaxed following Portugal’s access to the European Community
rated in Portugal, having their headquarters in Portugal or with in 1986.
the participation of companies governed by Portuguese company At present, there are no legal rules limiting the shape that
law. foreign investment operations may assume. Foreign individuals
The two most common forms are the private limited lia- or companies wanting to engage in continued business activities
bility company (sociedade por quotas) and the public limited in Portugal can carry out their investments through the same
company (sociedade anónima). There is also legislation that forms of business organisation of those available to Portuguese
regulates companies with regard to activities in the following investors.
areas: financial markets, holding companies, regional devel- The Portuguese system does not discriminate in respect of the
opment, real estate management and investment, group pur- national origin of investment. Both foreign and domestic invest-
chasing, risk capital, money and exchange market mediation, ments are limited only in relation to certain economic activities.
property management, investment companies, leasing, sport, Foreign investment operations are currently not subject to
factoring, financial credit, credit purchasing and the single-pro- any special authorisation from or communication to any Portu-
prietor limited responsibility enterprises. guese authority.
Under Foreign Investments Law, there are a few fields that,
despite the deregulation, still require prior authorisation from the
2 What laws and agencies govern the formation of business entities?
Portuguese authorities. Investments subject to prior authorisation
The main laws that govern the formation of business entities include defence, television, radio, gambling, mining, telecommu-
are: nications, private security, weapons and explosives, distribution
• the Commercial Company’s Code; of water for public consumption, mail services, railway transport,
• the Commercial Code; maritime ports, etc.
• the Commercial Registry Code. Foreign-owned companies, Portuguese branches and premises
of foreign companies have access to domestic credit under the
The agencies dealing with the formation of business entities are same conditions as Portuguese companies.
the various Commercial Registries throughout the country and
the National Registry of Legal Persons (Registo Nacional de Pes-
5 Briefly describe the aspects of the tax system relevant to franchisors. How are
soas Colectivas, RNPC).
foreign businesses and individuals taxed?
Business entities may also be entirely incorporated online by
way of electronic means. The Portuguese tax system currently in force dates back to the
late 1980s and has been adopted to harmonise national legisla-
tion with the various tax directives adopted within the European
3 Provide an overview of the requirements for forming and maintaining a
Union.
business entity.
The tax system comprises a set of state and local taxes levied
The major steps to incorporate a Portuguese company are as on income, net wealth and expenditure together with other taxes
follows: imposed on certain particular acts or situations.
• decide on the type of company (eg, private limited company In addition, the system also provides for social security
or public limited company) to be incorporated; contributions of both employers and employees, included self-
• obtain approval from the RNPC for the company’s name; employed workers.
• draft the incorporation agreement and the company’s articles The most important taxes currently in force in Portugal are
of association; the following:
• register the incorporation agreement and articles of associa- • individual income tax (imposto sobre o rendimento das pes-

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soas singulares, IRS); dividends are also exempt from withholding tax.
• corporate income tax (imposto sobre o rendimento das pes- The company receiving the dividends must, however, prove
soas colectivas, IRC); that it meets the conditions for the exemption prior to the pay-
• value-added tax (imposto sobre o valor acrescentado, IVA); ment of dividends by means of an official statement issued by the
• local property tax (imposto municipal sobre imóveis, IMI); tax authorities of its country of residence.
• property transfer tax (imposto municipal sobre imóveis, If the two-year detention period has not yet expired at the
IMT); and time when dividends are paid, such payment will be subject to
• stamp tax. withholding tax but the non-resident company may ask for a
refund after the two years have passed.
Corporate income tax (IRC)
Corporate income tax is regulated by the Corporate Income Tax
6 Are there any relevant labour and employment considerations for typical
Code (CIRC) approved by Decree-Law 442-B/88 of 30 Novem-
franchisors? What is the risk that a franchisee or employees of a franchisee
ber 1988 as amended and is levied on income and capital gains
could be deemed employees of the franchisor? What can be done to reduce
earned by companies in Portugal.
this risk?

Tax assessment The franchisee is an autonomous collaborator and therefore


IRC is assessed on a financial year basis which normally matches, does not act under the juridical dependence of the franchisor,
although in some cases may differ, from the calendar year. although it must follow certain instructions and directions per-
The IRC system is a system of self-assessment and the annual taining to the business concept (in this sense, the franchisee has
tax returns must be submitted to the tax authorities by the last limited independence).
working day of May or, if the tax year is different from the However, the juridical subordination, one of the main char-
calendar year, by the end of the fifth month after the relevant acteristics of the employment contract, should not exist in fran-
year end. chise agreements.
Tax losses can be carried forward for six years. Carry back In addition, the franchisee assumes the legal and economic
losses are not allowed. risk of its activity, bearing its own expenses (at least, the vast
The statutes of limitations period (ie, the period during which majority of its expenses) and collects its profit margin (less royal-
the tax authorities may challenge companies’ tax self-assess- ties and service fees). On the other hand, the employee under an
ments) is generally four years. employment contract normally receives his or her remuneration
in full, irrespective of the fulfilment or non-fulfilment of his or
IRC general rates her tasks. It has been, however, pointed out by jurisprudence that
• Resident entities or permanent establishments of non-resident variable remuneration may also exist in an employment contract
entities whose main activity is of a commercial, industrial or for certain kinds of activities.
agriculture nature: 25 per cent (a municipal surcharge up to The Portuguese Labour Code defines an employment con-
1.5 per cent over taxable profit is, however, levied by many tract as the contract by which a physical person undertakes, in
local authorities). exchange of remuneration, to perform a certain activity for other
• Resident entities with registered offices, effective manage- persons under their authority and direction.
ment place or permanent establishment in Madeira: 22.5 per It is then clear that if the franchisee is a legal person there
cent. cannot be an employment contract as the latter only applies to
• Resident entities with registered offices, effective manage- physical persons. However, there are certain examples in which
ment place or permanent establishment in the Azores: 17.5 jurisprudence lifted the ‘corporate veil’ to admit that the legal
per cent. entity as service provider was only used to cover a real employer-
• Resident entities whose main activity is not one of a com- employee relationship.
mercial, industrial or agriculture nature: 20 per cent. Difficulties in determining whether somebody is performing a
• Resident entities whose taxable income is assessed by means certain activity under franchise applicable rules or under employ-
of the simplified assessment system: 20 per cent. ment law may arise, however, in relation to activities where there
• Non-resident entities without permanent establishment in is a certain degree of (technical) autonomy in the performance
Portugal: 25 per cent (only available for entities with a total of work. For instance, the case of the travelling salesmen, insur-
annual turn over below €149,639.37). ance agents and sales agents, which, in spite of promoting the
conclusion of contracts, perform their activity under the rules
Other taxes per type of expenses: and principles of employment law.
• confidential or non-documented expenses: 50 per cent or 70 The key issue is then determining whether juridical subordi-
per cent; nation is present (and autonomy is absent) in a certain contrac-
• representation and entertainment expenses: five per cent; tual relationship by referring to certain indicia that are used to
• company cars costs: five per cent or 15 per cent. construct the legal concept.
In this respect, the Portuguese Labour Code establishes (arti-
Inter-company dividends cle 12) that an employment contract is presumed to exist when:
Under the CIRC there is a tax exemption on dividends that com- • the person in question is a part of the organisational struc-
panies resident in Portugal place at the disposal of companies ture of the beneficiary of the activity and such activity is per-
resident in other European Union member states, provided that formed under the subordination and direction of the latter;
the former has had a continuous shareholding in the latter of a • the work is performed in a certain place controlled by the
minimum of 15 per cent for at least two years and complies with beneficiary of the activity, with respect to a pre-defined time
any additional requirements under the Parents and Subsidiaries schedule;
Directive (Directive No. 90/435/CEE of July 23). In such cases,

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• the person in question is remunerated in relation to the Laws and agencies that regulate the offer and sale
amount of time spent in the performance of the activity or if of franchises
such person is under the economic dependence of the benefi-
9 What is the legal definition of a franchise?
ciary of that activity;
• the tools for the job are mainly supplied by the beneficiary There is no legal definition of a franchise. However, doctrine
of the activity; and and court decisions have been using several similar definitions,
• the performance of work has been executed for an uninter- of which we prefer the following short version:
rupted period of more than 90 days. In a franchise contract, the franchisor licenses another party
(the franchisee) to use (under a certain consideration by way
There are also external indicia, mostly relating to external for- of, namely but not limited to royalties and other service fees)
malities such as, but not limited, to the personal tax regime its trade marks, brand names, insignia, manufacturing processes
chosen and the social security regime to which the person is and commercial techniques in a certain territory, under the con-
subjected to. trol and supervision of the franchisor.
Adding to the blurring of borders between legal concepts, the
Portuguese Labour Code goes even further in stating (article 13)
10 Which laws and government agencies regulate the offer and sale of
that contracts, having as their object the performance of work
franchises?
without juridical subordination, are subjected to employment
principles (namely but not limited to personality rights, equality, There is no franchise-specific law in Portugal.
non-discrimination, security, health and hygiene at work), when- The franchise contract is a non-denominated contract, not
ever the person performing the work should be considered under typified in written law and, therefore, does not have specific
the economical dependence of the beneficiary of the activity. rules. Franchise agreements are governed by the provisions
There are no judicial decisions concerning these aspects of agreed between the parties to a franchise contract, the general
franchise-labour interrelations. However, in a recent court deci- rules of contract, the general rules of civil, commercial and con-
sion where the question raised was whether someone was an sumer protection law and also rules from denominated contracts
agent or an employee, the Portuguese Supreme Court of Justice provided that analogy so justifies, in principal the rules contained
(the highest court of appeal) considered that in agency law, namely those relating to the termination of the
it is not of a labour nature the relationship where a person franchise contract. European Regulations concerning franchise
undertook to promote, in a certain area, the sale of products are also applied.
of a company and to collect sales proposals in the name and There are no government agencies that regulate the offer and
on the account of such a company in exchange of receiving sale of franchises, besides the Competition Authority (Autori-
as consideration a certain commission on the amount of sales, dade da Concorrência), the mandate of which is to prevent anti-
by using its own means of transportation, freely organising the competitive practices and promote market transparency.
performance of its work, choosing which clients to visit and
when to visit them, bearing its own expenses, being able to use
11 Describe the relevant requirements of these laws and agencies.
the services of third parties engaged by him, not receiving any
remuneration on account of holidays, nor holidays nor Christ- As a general rule, a contract is formed with the parties’ mutual
mas special pay, whilst issuing invoices and receipt in relation to consent expressed in offer and acceptance. All other general rules
commissions due and received and being registered in the Tax on offer, acceptance and conclusion of contracts apply.
Department as “services provider”. Other basic principles are the principle of freedom of con-
tract, the principle of pacta sunt servanda and the principle of
culpa in contraendo.
7 How are trademarks and know-how protected?
The Competition Authority closely follows EC case law and
To protect their trademarks, foreign and domestic franchisors doctrine concerning franchise applicable regulations. Portuguese
may register national trademarks in Portugal, designate interna- anti-trust law closely follows EC regulations and case law.
tional trademarks for Portugal or file for a European Community
trademark.
12 What are the exemptions and exclusions from any franchise laws and
Know-how is generally protected under authorship and
regulations?
copyright rules. Franchisors are advised to enter into confidenti-
ality agreements and non-disclosure agreements to protect their Portuguese law does not provide for any exemptions, exclusions
know-how. or exceptions in relation to franchise laws and regulations.

8 What are the relevant aspects of the real estate market and real estate law? 13 In the case of a sub-franchising structure, who must make pre-sale
disclosures to sub-franchisees? If the sub-franchisor must provide disclosure,
Portuguese law does not discriminate between domestic and for-
what must be disclosed concerning the franchisor and the contractual or
eign prospective buyers or lessees of real property.
other relationship between the franchisor and the sub-franchisor?
Leasing of real estate by foreign persons is not subject to any
restrictions under Portuguese law. There are no legal provisions determining specific pre-sale dis-
Real estate brokers are subject to specific regulations closure obligations with regard to franchisors or sub-franchisors
(including but not limited to an obligation to issue a money and no respective case law is available.
guarantee) and may only operate if duly authorised by relevant In principle, the sub-franchisor must provide disclosure of
government authority. relevant matters for an informed decision to be made by the
franchisee-to-be, following the general rule pursuant to which
whoever negotiates with another party to conclude a contract, in

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the preliminary pre-contractual period as well as in the formation 19 In addition to any laws or government agencies that specifically regulate
of the contract, must act in accordance with good faith rules or be offering and selling franchises, what are the general principles of law that
liable for the damages effectively caused to the other party. affect the offer and sale of franchises? What other regulations or government
This liability obliges the defaulting party to indemnify, as a agencies or industry codes of conduct may affect the offer and sale of
general rule, the negative interest (or trust) of the other party, as franchises?
to be able to reinstate the latter to the position it would have been
As there are no specific franchise laws or government agencies
in if the deal had not occurred.
that specifically regulate offering and selling franchises, see ques-
As a result, the parties have an obligation to communicate,
tion 11.
transmit and clarify matters that concern the viability of the
conclusion of the contract (and the contract itself), the foreseen
obstacles and risks. 20 What other actions may franchisees take if a franchisor engages in
fraudulent or deceptive practices in connection with the offer and sale of
franchises? How does this protection differ from the protection provided
14 What is the compliance procedure for making pre-contractual disclosure in
under the franchise sales disclosure laws?
your country? How often must the disclosures be updated?
Franchisees can file a law suit before the civil courts based on
There is no compliance procedure for making pre-contractual
culpa in contrahendo (pre-contractual liability) on the part of
disclosure in Portugal – only the general rule of good faith.
the party that should have disclosed relevant and material infor-
mation.
15 What information must the disclosure document contain? In addition, franchisees can file a law suit before the civil
courts based on disrespect of good faith rules applicable to the
See question 14.
execution of contracts.
In the case of fraudulent practices, in addition to the above, a
16 How do the relevant government agencies enforce the disclosure franchisee may apply for a judgment before the criminal courts,
requirements? as fraud is a typified criminal offence.
As there are no specific franchise sales disclosure laws, the
Not applicable.
query as to how protection against fraudulent or deceptive prac-
tices in connection with offer and sale of franchises differs from
17 What actions can franchisees take to obtain relief for violations of disclosure the protection provided under the franchise sales disclosure laws
requirements? What are the legal remedies for such violations? How are is not applicable.
damages calculated? If the franchisee can cancel or rescind the franchise
contract, is the franchisee also entitled to reimbursement or damages?
Legal restrictions on the terms of franchise contracts
Franchisees can file a law suit before the civil courts based on culpa
and the relationship between parties involved in a
in contrahendo (pre-contractual liability) on the part of the party
franchise relationship
that should have disclosed relevant and material information.
The defaulting party may be liable for the damages effectively 21 Are there specific laws regulating the ongoing relationship between
caused to the other party in the case of negligence, tort or wilful franchisor and franchisee after the franchise contract comes into effect?
misconduct.
There are no specific laws regulating the ongoing relationship
This liability obliges the defaulting party to indemnify, as a
between franchisor and franchisee after the franchise contract
general rule, the negative interest (or trust) of the other party, as
comes into effect.
to be able to reinstate the latter to the position it would have been
The franchise contract is a non-denominated contract, not
in if the contract had not been concluded.
typified in written law and, therefore, does not have specific
Under general civil law, in cases of intentional or negligent
rules. The franchise agreement is subject to the provisions agreed
non-disclosure of information as to the subject of the contract, the
between the parties to a franchise contract, the general rules of
non-disclosing party may be liable for damages and loss of profit
contract, the general rules of civil, commercial and consumer pro-
and other indirect losses. Moreover, if a defaulting party causes
tection law and also rules from denominated contracts provided
an error on the part of the other party as to the subject of the
that analogy so justifies, in principal the rules contained in agency
contract, the contract may be rescinded by the prejudiced party.
law, namely, termination of the franchise contract. European
Regulations concerning franchise are also applied.
18 In the case of sub-franchising, how is liability for disclosure violations shared
between franchisor and sub-franchisor? Are individual officers, directors and
22 Do other laws affect the franchise relationship?
employees of the franchisor or the sub-franchisor exposed to liability? If so,
what liability? Besides the Civil Code and Commercial Code rules, agency law
(in cases where analogy is justified) and the anti-trust law shall
The franchisor may also be liable for failure to disclose relevant
also be applied, as well as consumer protection law, intellectual
information to the sub-franchisor, in accordance with above men-
property laws (and also unfair competition rules) and copyright
tioned principles. Individual officers and directors of the fran-
rules, advertising laws, the general contractual conditions rules,
chisor or the sub-franchisor may be exposed to liability only to
other commercial laws (Bankruptcy Act, corporate laws, etc) and
the extent that they have not fulfilled rules concerning corporate
data protection laws also affect the franchise relationship.
managerial functions. Employees may be exposed to liability only
to the extent that they have not fulfilled rules relating to their
own employment relationship (ie, if they have acted without the
employer’s authority).

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23 Do other government or trade association policies affect the franchise investments normally associated with the former).
relationship? Other cases for early termination foreseen in Portuguese
agency law may also be applied if the franchise contract is silent
Other government and trade association policies affect the fran-
on termination provisions.
chise relationship. Policies issued by the Office for Economic
According to Portuguese agency law there are only two rea-
Activity (Autoridade de Segurança Alimentar e Económica,
sons for an earlier termination of the contract: if the other party
ASAE), the Industrial Property Office (Instituto Nacional de Pro-
fails to carry out his or her obligations so gravely or seriously
priedade Industrial, INPI), the Competition Authority (Autori-
that the subsistence of the contractual link cannot be demanded;
dade da Concorrência), consumer protection associations and the
or if circumstances occur that make it impossible or seriously
Data Protection Authority (Comissão Nacional de Protecção de
hinder the fulfilment of the contractual scope in terms of not
Dados, CNPD) may affect the franchise relationship.
being demandable that the contract shall keep in force until the
convened term or the termination notice period (exogenous cir-
24 In what circumstances may a franchisor terminate a franchise relationship? cumstances not attributable to any of the parties).
What are the specific legal restrictions on a franchisor’s ability to terminate a
franchise relationship?
26 May a franchisor refuse to renew the franchise agreement with a franchisee?
The grounds for termination of a franchise agreement should be If yes, in what circumstances may a franchisor refuse to renew?
specified in the relevant franchise contract itself.
Unless otherwise provided for in the franchise agreement, if the
Mutual agreement may also terminate a franchise relation-
agreement was concluded for a definite period of time there is, in
ship.
principle, no obligation to renew the contract.
Contractual relationships entered into for an indefinite
However, if courts apply Portuguese agency law in an analo-
period of time may be subject to unilateral termination even if
gous way, Portuguese agency law states that, if a contract for
the franchise contract fails to contain provisions on termination.
a fixed term, which does not contain a clause for automatic
Generally, the adequate minimum notice period from notification
renewal, continues to be performed after its term, it is deemed
to actual termination of a contract in such case is not defined in
to have been ‘transformed’ (literal expression of the law) into a
Portuguese law. However, in accordance with case law, it is to be
contract for an indefinite period.
assessed as of reasonable duration with reference to the particular
case and circumstances at hand and applying in an analogous
way (where that is justified) and mutatis mutandi the provisions 27 May a franchisor restrict a franchisee’s ability to transfer its franchise or
contained in Portuguese agency law (case law increases the noti- restrict transfers of ownership interests in a franchisee entity?
fication period for unilateral termination in case of distribution
A franchisor may contractually restrict a franchisee’s ability to
contracts other than agency contracts, based on the heaviest
transfer its franchise or restrict transfers of ownership interests
investments normally associated with the former).
in a franchisee entity. Assignment of contractual position is only
Other cases for early termination foreseen in Portuguese
permitted, pursuant to Portuguese contractual law, if mutually
agency law may also be applied if the franchise contract is silent
agreed between the original contractors.
on termination provisions.
According to Portuguese agency law there are only two rea-
sons for an earlier termination of the contract: if the other party 28 Are there laws or regulations affecting the nature, amount or payment of fees?
fails to carry out his or her obligations so gravely or seriously
As a general rule the nature, amount and payment of fees may
that the subsistence of the contractual link cannot be demanded;
be freely negotiated between the parties. However, clauses which
or if circumstances occur that make it impossible or seriously
extremely and unreasonably prejudice one party may ultimately
hinder the fulfilment of the contractual scope in terms of not
qualify as provisions contra bonos mores and thus be considered
being demandable that the contract shall keep in force until the
null and void.
convened term or the termination notice period (exogenous cir-
cumstances not attributable to any of the parties).
29 Are there restrictions on the amount of interest that can be charged on
overdue payments?
25 In what circumstances may a franchisee terminate a franchise relationship?
There are no franchise-specific legal rules regarding interest on
The grounds for termination of a franchise agreement should be
overdue payments. However, courts may reduce an abusive and
specified in the relevant franchise contract itself.
excessive interest when the rate of interest is much higher that
Mutual agreement may also terminate a franchise relation-
the legal interest rate.
ship.
Contractual relationships entered into for an indefinite
period of time may be subject to unilateral termination even if 30 Are there laws or regulations restricting a franchisee’s ability to make
the franchise contract fails to contain provisions on termination. payments to a foreign franchisor in the franchisor’s domestic currency?
Generally, the adequate minimum notice period from notification
Transfer of funds to or from foreign countries is not subject to
to actual termination of a contract in such case is not defined in
special authorisations. Hence, payments to a foreign franchisor
Portuguese law. However, in accordance with case law, it is to be
may be made in the franchisor’s domestic currency.
assessed as of reasonable duration with reference to the particular
Nevertheless, for statistical purposes, the Bank of Portugal
case and circumstances at hand and applying in an analogous
must be notified, either by the intervening resident banks or
way (where that is justified) and mutatis mutandi the provisions
directly by the resident companies or individuals ordering or
contained in Portuguese agency law (case law increases the noti-
receiving international funds transfers above €12,500 within 10
fication period for unilateral termination in case of distribution
days from the date of the transfer.
contracts other than agency contracts, based on the heaviest

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On the other hand, under anti-money laundry regulations ogy) foresee that either party may terminate the agreement, acting
resident banks intervening in transfer of funds must obtain proper in good faith and providing reasonable notice to the other party.
full identification of the entities involved in the transfer and, in
certain cases, must even request additional information to such
35 Describe the aspects of competition law in your country that are relevant to
entities, namely relating to origin and destiny of funds, justifica-
the typical franchisor. How are they enforced?
tion for the transfer and identification of the beneficiaries.
Under Portuguese antitrust law, franchise contracts of which the
effect is appreciably to prevent, distort or restrict competition in
31 Are confidentiality covenants in franchise agreements enforceable?
the whole or a part of the national market are prohibited (unless
Confidentiality covenants in franchise agreements are enforcea- considered justified), in particular those which:
ble. One party may seek an interim measure to ensure compliance • fix purchase or selling prices or interfere with their establish-
with confidentiality obligations and the breach of confidential- ment by free market forces, thus causing them to artificially
ity covenants in franchise agreements entitles the non defaulting rise or fall;
party to be indemnified for damages effectively incurred and loss • fix other transaction conditions effected at the same or dif-
of profit. ferent stages of the economic process;
• limit or control production, distribution technical develop-
ment or investments;
32 Is there a general legal obligation on parties to deal with each other in good
• share out markets or sources of supply;
faith? If so, how does it affect franchise relationships?
• systematically or occasionally apply discriminatory pricing
The contracting parties to a franchise agreement are subject to or other conditions to equivalent transactions;
the obligation to act in accordance with the principles of good • directly or indirectly refuse to purchase or sell goods or
faith derived from Civil Code provisions. This obligation has rel- services; and
evance at various stages within the framework of the contractual • subject the signing of contracts to the acceptance of addi-
relationship, including the pre-contractual disclosure require- tional obligations which, by their nature or according to
ments and the execution of the contract itself. commercial usage, have no connection with the subject of
such contracts.
33 Must disclosure documents and franchise agreements be in the language of
The above practices may be considered justified when they con-
your country?
tribute to improving the production or distribution of goods
Disclosure documents and franchise agreements need not be in and services or promoting technical or economic development
Portuguese but it is recommended that the parties sign a special provided that, cumulatively, they offer the users of such goods
declaration in the franchise agreement (written in its mother lan- or services a fair part of the benefit arising therefrom; do not
guage if different from that of the contract), in which a party impose on the parties in question any restrictions that are not
specifies that it fully understands what is written in the contract. indispensable to attain such objectives; do not grant the parties
(or one of them) the opportunity to suppress the competition in
a substantial part of the goods or services market in question. In
34 What restrictions are there on provisions in franchise contracts?
addition, the above referred to practices are considered justified
All restrictions provided for by EC Regulations are directly appli- when, though not affecting trade between EC member states,
cable in Portugal. they satisfy the remaining application requirements of an EC
The parties can establish the pacts, clauses and conditions Regulation. However, the Competition Authority may withdraw
they want, as long as they are not contrary to law, morality or the benefit above referred to, if, in a particular case, it ascertains
public order. that a practice covered by it has effects incompatible with the
The duration of the agreement shall depend on the provisions general admissible effect mentioned above.
agreed by the parties. Nevertheless, if the term is extremely long Portuguese competition law does not provide for further
or indefinite, the Civil Code and agency law (if applicable by anal- block exemption benefits for vertical restraints.

Contact: Pedro da Costa Mendes e-mail: costamendes@cncm.pt

Avenida da Boavista Tel: +351 2254 31000


3383, 8º Fax: +351 2254 31009
Torre Santander Website: www.cncm.pt
4100-138 Porto
Portugal

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In what is specific to the Portuguese legal regime, the Por- 36 Very briefly describe the court system. What types of dispute resolution
tuguese antitrust law states that insofar as it may affect the procedures are available relevant to franchising?
functioning of the market or the structure of competition, one
Disputes in connection with or arising out of franchise agree-
undertaking may not engage in abusive exploitation of the eco-
ments would be considered civil law disputes and thus be heard
nomic dependence on it of any supplier or client on account
and reviewed by the ordinary civil courts.
of the absence of an equivalent alternative. The following may
There are three levels of ordinary courts in Portugal:
be considered abusive, in addition to those mentioned above:
• judicial district courts (Tribunal Judicial de Comarca or Tri-
the unjustified cessation, total or partial, of an established com-
bunal de Comércio, where available);
mercial relationship, with due consideration being given to prior
• courts of appeal (Tribunal da Relação); and
commercial relations, the recognised usage in that area of eco-
• the Supreme Court of Justice (Supremo Tribunal de
nomic activity and the contractual conditions established.
Justiça).
An undertaking is understood as having no equivalent alter-
native when the supply of the good or service in question, in
particular that of distribution, is provided by a restricted number
of undertakings and the undertaking cannot obtain identical
conditions from other commercial partners within a reasonable
period of time.

128 Getting the Deal Through – franchise 2008