Franchising is a growing industry all over the world. That it is blooming in Mexic should therefore come as no surprise. Today, Mexico has the ninth-largest franchise industry in the world, surpassed only by the United States, Japan, Canada, France, Germany, England, Italy and Brazil. The figures supplied by the Mexican Franchise Association clearly show the enormous growth of franchising in the last few years, and by so doing gives an indication of the potential of this method of doing business.

Total sales through franchised outlets in Mexico in 1997 amounted to USS 5, 062. 4 million, in 1998 to US$ 6, 012. 1 million and in 1999 to 6, 793. 7 million. 1 Of these, sales by local firms totalled USS 3. 083. 3 million in 1997, US$ 3, 591. 6 million in 1998 and the total sales estimated for 1999 amounted to USS 4, 168. 6 million. Foreign sales by local firms amounted to USS 96. 5 million in 1997, US$ 104 6 million in 1998 and USS 160. 5 million in 1999, whereas sales by foreign-owned enterprises amounted to USS 2, 075. 6 million in 1997, USS 2, 525. 1 million in 1998 and UUS$ 2, 785. 4 million in 1999. Of the sales by the foreign-owned enterprises, those from the United States took the lion’s share, with USS 1. 853. 6 million in 1997. US$ 2, 044. 1 million in 1998 and US$ 2, 377. 8 million in 1999.  

In 1999 it was estimated that there were 40 different types of franchise businesses in Mexico, the fastest growing being those in the service sector which accounted for 36% of franchises. In 1999 franchises represented an estimated 1. 5% of Mexico’s service sector gross domestic product (GDP). 2 Investments in franchises in 1997 were estimated at USS 180 million and it was foreseen that another USS 600 million would be invested between 1998 and 2000. Although the number of franchises of foreign origin is still very substantial, home-grown Mexican franchises have increased steadily since 1993 and in 1999 accounted for an estimated 58% of the market. 3 

When franchising began in 1989 there were 80 franchise companies. Ten years later there were more than 400 franchises operating in Mexico, with 60, 000 sales outlets, In 1996 1, 000 new outlets were opened, in 1997 1, 250 and in 1998 approximately 1, 600. There is however room for expansion: in 1999 75% of the franchises operating in Mexico were located in Mexico City and the surrounding metropolitan area, 11% were located in north-eastem Mexico, 5% in the western states and 9% in the rest of the country. Total franchise operations in 1997 accounted for 1, 750, 000 jobs, The Mexican Franchise Association in 1997 estimated that that year alone 35, 000 new jobs would be created through franchising. 4 Considering the role that franchising can play in economic development it is safe to say that it could become a very important tool in the development of regions at a distance from Mexico City, not the least because of its effectiveness as a form of business. Effectiveness is indeed one of the strengths of franchising and this is clearly to be seen in Mexico. In fact, it has been stated that the reason Mexican franchises are growing is because of the efficiency of their distribution systems, and the experience and knowledge of the franchisors that support the competitive position of the franchisees. 5

Franchising is a way of doing business to which a variety of legislation may apply: general contract law, agency law and the law regulating other distribution contracts, the law applicable to leasing and security interests, financial investments, intellectual property, competition law, fair trade practices law, corporate law, taxation, property law, the legislation on consumer protection and product liability, insurance law, labor law, the law regulating the transfer of technology and the legislation that regulates foreign investments, currency control regulations and import restrictions and/or quotas, and the legislation that regulates joint ventures -as well as of course franchise specific legislation where it exists. The extent to which any of the listed areas will apply to a given franchise will vary depending on the nature of the franchise and its structure. What is certain, is that it is of vital importance for a franchisor to be able to protect its intellectual property, including its know-how. In other words, it is important that adequate intellectual property legislation is not only in place, but that it is enforced and operates effectively. In general, it may be said that it is necessary for an adequate regulation of commercial relations to exist The legislation must favor the development of the industry, and, depending on what is being regulated, it may do so either by introducing an effective control where necessary (such as for example in the intellectual property area), or by not being too restrictive where this will hamper development.

The truth of this may be seen in the development of franchising in Mexico. Franchising began to develop seriously in Mexico following the deregulation of foreign investments and the liberalization of the technology transfer law in 1990. A further boost came with the adoption of the 1991 Industrial Property Law6 which to a certain extent regulates also franchising. 7 The regulations providing more detailed requirements under the Industrial Property Law were adopted in 1994. 8 

In such a scenario, where there is a flourishing industry and where regulation already exists, what contribution is it possible for an inter-governmental organization such as UNIDROIT to make? 

UNIDROIT’s work on franchising has to date seen two distinct stages, each stage with its own distinct product as the outcome. Stage One which produced the Guide to International Master Franchise Arrangements and Stage Two which is producing the Model Franchise Disclosure Law.

Franchising was first drawn to the attention of UNIDROIT9 in 1985, when the then Canadian member of the Governing Council of the organization proposed that the Institute should consider drafting uniform rules for franchising. In those years UNIDROIT was engaged in the preparation of what were to become the UNIDROIT Conventions on International Financial Leasing and International Factoring, and the Council members saw the preparation of uniform rules on franchising as a natural development in the process of the preparation of uniform rules for the new types of agreement that were emerging at the time.  

As a result of a combination of factors (the opposition that existed at the time among the representatives of the franchisors -their lawyers mostly to any initiative that might lead to legislation, the need for the organization to concentrate its meager resources on projects that had begun earlier), for a number of years the work conducted by the Secretariat consisted mainly in the monitoring of national and international developments. Finally, at its 72nd session, heldin June 1993, the Governing Council of the Institute decided that the time had come for a Study Group on Franchising to be set up. The terms of reference of the Study Group as defined by the Governing Council were to examine different aspects of franchising and in particular disclosure of information between the parties before and after the conclusion of a franchise agreement and the effects of master franchise agreements on sub-franchise agreements, in particular in case of termination of the master franchise agreement. The Study Group was also requested to make proposals to the Council regarding any other aspects of franchising that might lend themselves to further action by the Institute and, as soon as practicably possible, to indicate the form of any instrument or instruments that might be envisaged.  

In this connection it is perhaps important to make an observation of a more general character. When inter-governmental organizations prepare international instruments they see it as their duty to ensure that the instruments are balanced and that they do not serve the interests of any pressure group. A first step in ensuring this is to work with experts from different backgrounds. The Study Groups UNIDROIT sets up are reflections of this principle, in that experts from different countries, who speak different languages and who have been trained in different legal systems, are invited to attend. Ideally, a balance between the members of the Group is attained. In practice this is not always so easy, and the Study Group on Franchising is a clear illustration of this.

Franchising is a relatively new phenomenon. Typically, it starts with franchise companies from abroad entering a country and expanding. When franchising as a consequence becomes better known as a way of doing business also local companies begin to franchise and soon the franchise industry is divided between foreign and local franchises. Gradually local franchises might even surpass foreign franchises in terms of expansion. Franchising originated in the United States and has spread from there -to Canada, to the United Kingdom, to Europe, Latin America and other continents. It is therefore only natural that those who are really expert in franchising, those who have dealt with it for twenty or thirty years or more, come from the United States, Canada and Britain. Only in recent years, with the spreading of franchising, have experts started to appear in other countries as well, in particular in Europe. Franchising is in other words a field that is still very much dominated by the English-speaking world, and consequently also by the common law. This reality is reflected also in the Guide and in the Model Law. although there are reasons why this does no harm -on the contrary.  

The first meeting of the Study Group was held from 16 to 18 May 1994. The Group examined both national and international franchising, analyzing selected problem areas in both and considering whether an international instrument prepared by UNIDROIT might satisfactorily deal with them.  

In relation to international franchising the Study Group focused its attention on the master franchise arrangement, which it was agreed was the type of arrangement most often used for international expansion. It considered in particular,  

• the nature of the relationship between the master franchise agreement and the sub-franchise agreements,  
• applicable law and jurisdiction,  
• the settlement of disputes,  
• problems associated with the three-tier structure of the relationship between franchisor, sub-franchisor and sub-franchisees, particularly in relation to termination, and 
• disclosure.  

The Study Group reached the conclusion that the items examined in the course of its discussion on international franchising did not lend themselves to being dealt with in an international convention. Although nothing would actually prevent the elaboration of an international convention, the proposed subject-matters would require a considerable number of mandatory provisions. The stringent nature of an international convention would furthermore not permit the adaptations that a State might feel to be essential for it to adopt the convention. The combination of the mandatory nature of the provisions and the binding nature of the convention would not augur well for the adoption of a convention by the different nations of the world and the utility of such an instrument might therefore be seriously questioned. A broad consensus was instead reached on the fact that a guide would serve a useful purpose for international franchising and would be of invaluable assistance to business community and legal advisers alike.  

As concerns domestic franchising, the Study Group concentrated on the question of disclosure. In this context it examined,  

• the experience of countries which have, or have attempted, some form of regulation in this area,  
• the role of franchise associations and 
• the importance of the codes of ethics adopted by those associations 

The Study Group reached a lesser degree of consensus as regards whether any initiative should be undertaken in relation to domestic franchising, although there was consensus on the fact that the information gathered in the process of the preparation of the guide might be of considerable assistance in clarifying the issues involved. As regards the type of instrument to be adopted, the Study Group observed that one of the characteristics of franchising was that a large number of areas of law were involved, a majority of which had already been regulated. It would therefore be extremely difficult to justify adopting legislation specifically for franchising in relation to, for example, contract formation, choice of law and jurisdiction, or intellectual and industrial property. The number of areas in which regulation would be possible and effective was therefore considerably reduced. To all intents and purposes the only area that might usefully be regulated was disclosure. It was however agreed that the issues raised as a result of the three-tier structure of master franchise arrangements, such as for example the effects of the termination of the master franchise agreement or of its coming to an end on sub-franchise agreements, should also be considered, Furthermore, these were areas that were of more direct relevance to franchising and which might indeed be considered peculiar to it. The Study Group therefore decided to recommend to the Governing Council that this question be deferred, and that it be taken up again once work on the guide had been completed. The Governing Council accepted the proposals of the Study Group at its 74th session in 1995.

Work on the Guide started immediately following the acceptance of the recommendations of the Study Group by the Governing Council and was brought to fruition in a very short period of time: in February 1998 the Governing Council of UNIDROIT authorized the publication of the UNIDROIT Guide to International Master Franchise Arrangements, which appeared in September 1998.  

The Guide is a 300-page volume, the main emphasis of which is master franchising. It does however also consider simple unit franchising, which it describes in Annex 1. lt comprises some twenty chapters and three annexes, covering all the essential elements of a franchise, beginning with a description of fundamental concepts and elements, such as the difference between master franchise agreements and other commercial vehicles and the selection of the appropriate vehicle for expansion abroad. The volume then examines the nature and extent of the rights granted and the relationship between the parties, the term of the agreement and the conditions of renewal, financial matters, the role of the franchisor and of the sub-franchisor, the sub-franchise agreement, advertising and the control of advertising, the supply of equipment, products and services, intellectual property, know-how and trade secrets, system changes, the sale, assignment or transfer of the franchise, vicarious liability, indemnification and insurance, remedies for non-performance, the end of the relationship and its consequences, applicable law and dispute resolution, other generally used clauses, ancillary documents and regulatory requirements. The annexes cover general notions of franchising (the simple unit franchise), economic data on the development of franchising and legislation and regulations relevant to franchising. This last annex is updated on the UNIDROIT web site. This permits readers of the Guide to keep up to date as to developments and also permits the organization to provide a service without having to face the cost of the successive editions of the book that it would be necessary to issue as soon as developments take place.

One of the main considerations of the Study Group when it decided the structure of the Guide, its content and above all the amount of detail to include in the chapters, was the way in which the Guide might be most useful to its readers. The members of the Group had all too often come across prospective franchisees who did not sufficiently investigate the franchise they were considering buying, and franchise lawyers who did not fully understand the implications of the contracts they were called upon to negotiate. In the case of international franchising, a regrettable practice that the members of the Group were familiar with was for the lawyer of the franchisor to present a contract to his local counterpart with a take-it-or-leave-it attitude. In a majority of cases these contracts came from the United States and were therefore written in a style that was often unfamiliar to local counsel, in a foreign language and with an amount of detail that made it difficult to see the wood from the trees. Frequently, a number of very important provisions. such as those relating to the rights the franchisor reserved for himself to distribute the products through other channels of distribution, were buried under a mountain of words written in American legalese. The Study Group therefore felt it to be very important that the Guide assist local counsel in wading through the hundreds of pages of the contracts he or she suddenly was confronted with. The fact that a master franchise in most cases is regulated not just by a master franchise agreement, but by a number of ancillary agreements as well (for example leasing agreements), made it necessary to describe the whole arrangement for the Guide to be really and truly useful, and to do so in a manner that would help those confronted with the most detailed of contracts, namely with contracts of US provenance.  

The Guide therefore describes in some detail what someone who is confronted with a master franchise arrangement is likely to find. Clearly, not all arrangements will include everything described in the Guide, but the Group wanted to be sure that someone who was confronted with any or all of the features described would know how to deal with the matter Above all, that they would know what questions to ask to obtain more information, so that they would be able to better defend their rights. There was, in other words, a desire to level the playing field between the players.  

It is not always easy to write in a manner that sounds as objective as one intends to be, and indeed there have been those who have felt the Guide to be more an instruction book for the franchisor who wishes to expand abroad than a volume written for all the parties involved. This criticism is however not entirely justified. It is clear that if one describes a particular feature of some franchise agreements this may be taken as an instruction addressed to the franchisor, telling him what it is possible for him to do. On the other hand it may equally alert the sub-franchisor or the franchisee to something they should be very careful about.  

To take but one example: on page 38 of the English version of the Guide the last paragraph of Section B states:

 ＂It should be noted that the grant of trademark rights may be limited in the master franchise agreement to rights that are necessary for the sųbfranchisor to perform its functions as sub-franchisor, namely the granting of trademark sub-licences to the sub-franchisees and the right to use the trademarks in connection with the recruitment, appointment and supervision of sub-franchisees. «

A franchisor may certainly understand that this is something he is allowed to do, bhut it should also and more importantly tell the sub-franchisor that he must be vigilant as to the rights he is granted, that he must make sure that his rights extend also the actual operation of units, if that is what he intends to do considering that a master franchise in most cases covers not only the granting of franchise rights to sub-franchisees, but also the right to open and operate outlets. Furthermore, a sub-franchisee, who sometimes has to face competition not only from other sub-franchisees but also from the sub-franchisor, either because the sub-franchisor operates outlets himself or because he ha, reserved the right to distribute through other channels of distribution, will understand that he should find out what exactly the rights of the sub-franchisor are in relation to the trademarks.  

In summary, it may be said that what the Study Group felt to be of particular importance when it wrote the Guide, was to ensure that a lawyer using the Guide would be able to obtain the information he or she needs to obtain the best possible deal when negotiating an agreement, or, considering other possible users, that a judge or arbitrator would have sufficient information to understand the intricacies of the arrangement when deciding a case, or that a legislator would be able to have the information he or she needs when drafting legislation. In addition, the Guide might be used to train young lawyers and therefore be inserted in the course materials, as has indeed been proposed.  

At the same session as it authorized the publication of the Guide to International Master Franchise Arrangements the Governing Council of the Institute accepted a proposal by the Secretariat of the organization that the Study Group on Franchising should proceed with the preparation of a model law.

The proposal submitted by the Secretariat was based on the growing interest in the preparation of an international legal instrument demonstrated by some of the members of the Study Group, including a number of members who had been skeptical or even contrary to the initiative when it had first been proposed in 1986. This growth of interest was largely due to the increasing attention devoted to franchising by national legislators and the consequent proliferation of franchise laws. The members of the Study Group felt that the legislation that had been adopted in a number of countries demonstrated a certain lack of understanding of franchising and risked severely hampering its development. Considering the moves towards the adoption of franchise legislation that were underway in several countries, they feared that similar legislation might be adopted in these other countries and felt that this should, if possible, be avoided. If UNIDROIT prepared a model law, which by definition would be a balanced instrument considering the nature of the organization and the guarantees offered by its past history, this would make available to legislators an instrument that would promote and not hamper the development of franchising.  

In consideration of the above, the Governing Council accepted the proposal put forward by the Secretariat and decided to authorize the Study Group on Franchising to proceed with the preparation of a model law. The proposal was finally endorsed by the General Assembly of the Institute at its 52nd session on 27 November 1998, in the context of the approval of the Work Programme for the triennial period 1999-2001.

Following the decisions taken by the Governing Council and General Assembly of the Institute, and in order to speed up the process to the greatest extent possible, a Draf. The Committee of the Study Group on Franchising was convened and met in Rome from 14 to 16 January 1999 to prepare a first draft of the future model law. This first draft was submitted to the Governing Council of the Institute at its 78th session in April 1999, and was examined in detail by the Study Group in Plenary at its Fourth Session on 9 and 10 December 1999. The Governing Council was seized of the text of the draft as revised by the Study Group at its 79th session, in April 2000. The Fifth Session of the Study Group is due to be held in December 2000. At that session the draft text of the model law, plus the Explanatory Report that is to accompany the text, will be finalized with a view to their submission to a Committee of Governmental Experts.  

As the Study Group in Plenary had not examined the question since its first session. The discussions at the Fourth meeting of the Study Group opened with a consideration of the decision to prepare a model law. Although a majority of the members of the Study Group were clearly in favor of the preparation of such an instrument for the reasons indicated above, a couple of members questioned the decision, as they feared that making an instrument available would stimulate Governments to adopt legislation. Instead, they suggested that UNIDROIT should proceed with what they termed the education of government officials and others involved in the legislative process. While not discarding this idea, the majority of the Study Group in the end came out strongly in favor of the preparation of a model law. It was however suggested that the introduction to the model law, which it is intended should form part of the Explanatory Report, should examine also the question of the different options open to legislators, and should briefly indicate factors that the latter would be invited to take into consideration when examining the desirability of legislation on franchising.  

The Study Group further examined the scope of the model law. The Drafting Committee had adopted as its own the conclusions reached earlier in the process, namely that the model law should be limited to disclosure, although it had also decided to include a couple of provisions that were not strictly speaking disclosure, but that were related to it. Proposals had been made for the broadening of the scope of the model law, above all in relation to the type of agreement it was intended to cover, as it was suggested that also agreements that were not officially called franchises, but that to all intents and purposes were franchises, should perhaps be covered by the model law. The majority of the Group however preferred not to deal with such cases, also because it was feared that agreements that were quite different, such as other types of distribution agreements or licenses, would then risk being interpreted as also coming under the law.  

As to the subject-matter dealt with, there was a clear majority in favor of limiting the model law to pre-contractual disclosure and against dealing with questions relating to the relationship between the parties, also in view of the considerable variations that existed between different types of franchises which considerably increased the difficulty to find common ground. The Study Group thus considered it preferable not to enter into a discussion of the issues raised in relation to the relationship between the parties to a franchise agreement. Disclosure on the other hand was different, as it was relatively simple to reach agreement on what should be disclosed, Furthermore, while constituting what apparently was only a small part of franchising, disclosure was crucial: a major issue in the majority of cases dealing with franchising was the allegation by the franchisee that the franchisor had not provided adequate information prior to the conclusion of the agreement, and the information that a franchisor provided prior to the conclusion of an agreement was essential for the prospective franchisee to be able to evaluate the franchise.  

As it stands at present, the model law is intended to apply to both domestic and international franchising, irrespective of the origin of the franchise, It is also designed to cover different types of franchise agreement, such as traditional unit agreements, master franchise agreements and development agreements. In this regard one point raised concerned the new types of hybrid franchise agreements that might be developed in the future. The Study Group felt that as formulated the provisions would be sufficient to cover also any new forms of franchise arrangement.

As indicated above, the Fifth meeting of the Study Group is due to be held in December 2000, At that meeting, the Study Group will examine the draft model law as revised at its Fourth meeting, together with the draft Explanatory Report, The Explanatory Report will offer a general explanation of each provision, including general considerations on how they are to be interpreted, as well as explain, where necessary, why the Study Group opted for the solution adopted in the text. The text of the model law and Explanatory Report as finalized by the Study Group will be submitted to a Committee of Governmental Experts which, it is anticipated, will meet in June or July 2001. Following the meeting of the Committee of Governmental Experts, and on condition that only one meeting of the Committee is necessary, the draft will be submitted to the Governing Council of UNIDROIT which will be called upon to authorize its publication. The model law will be published shortly thereafter.  

As indicated above, the model law is confined to disclosure. It requires franchisors to provide prospective franchisees with the information they need to evaluate the franchise they are being offered. A proposal put forward was to require franchisees to disclose to franchisors. The members of the Study Group however feit that it was not necessary to provide franchisees with the same degree of protection as franchisees. In fact, it would be normal business practice for franchisors to ask prospective franchisees for information, as they would want to be able to assess their capabilities and reliability, as well as their financial conditions, before entrusting them with the development of a business that carried their trade name, As a consequence it was decided not to introduce a requirement that prospective franchisees disclose to the franchisor.

The requirements of the model law as presently drafted, in particular Article 6, are listed in great detail. How detailed the law should be was discussed at length by the Group, the members from the civil law countries having a distinct preference for a shorter text. In the end, the importance of each single item that was discussed was such that the text remained long and rather more in the common law style than a uniform law text would normally be. Clearly, the States that will meet in the Committee of Governmental Experts may decide to shorten the text, but this may not be necessary. As stated above. The text will be accompanied by an Explanatory Report, and this Explanatory Report will give the reasons for which the Study Group considers disclosure of a certain item important. At that point, it will be up to the legislature of each individual country to decide whether or not it is necessary to include a particular item, or whether it is for instance already adequately covered by other legislation applicable in the country. Should it decide that a particular item is not necessary, it will simply decide to omit it. That is the advantage of a model law: it is not necessary for a State that takes inspiration from the model law to accept and adopt everything it contains, it can omit what it deems to be inappropriate, and it can modify what does not fit into its legal system. The style in which the model law is written is therefore of less importance than in other texts such as conventions. What is important is its content and the reasons for which that particular content has been agreed.  

The draft, which comprises eleven articles in all, begins with an article specifying the scope of application of the law (Article 1). This article is written in such a manner that it can easily be adapted by a State adopting the model law. A list of definitions of the concepts used in the text follows (Article 2). While it is not common in all legal systems to list definitions in the texts of the laws, it was felt to be important to do so in this case, as there is considerable uncertainty as to the exact meaning of terms such as franchise the differences between Europe and North America as regards the inclusion of petrol stations under the concept of franchise are well known. The definition of a franchise contained in the model law furthermore assumes particular importance in Europe, where the franchising Block Exemption Regulation expired on 31 May 2000 and the nëw vertical restraints Block Exemption Regulation does not contain a definition of franchising. Even if it does apply to franchising and the accompanying Guidelines make that quite clear Although the franchising Block Exemption Regulation referred only to competition law aspects of franchise agreements, over the years the definition of franchising it contained came to be recognised as an authoritative definition. The definition of the model law may therefore come to fill the void left by the franchising Block Exemption Regulation.  

Article 2 furthermore makes it clear that master franchise agreements and development agreements are covered by the law when it states that a franchise includes the rights granted by a franchisor to a sub-franchisor under a master franchise agreement; the rights granted by a sub-franchisor to a sub-franchise under a sub-franchise agreement; and the rights granted by a franchisor to a party under a development agreement.  

Article 3 lists cases in which the franchisor would be exempt from the duty to disclose, including, for example, cases of assignment or other transfer of a franchisee’s rights and obligations under an existing franchise agreement where the assignee or transferee is bound by the same terms as the assignor or transferor (Article 3(B)), and cases where the franchisee is very large (Article 3(E)) or where the franchisee commits to a total investment in excess of a certain amount (Article 3 (D)).  

Article 4 states that disclosure must be provided in writing(Article 4(1)). Any format may however be used, as long as the document meets the requirements of the model law （Article 4(2)). This is clearly a reference to the Uniform Franchise Offering Circular prepared by the North American Securities Administrators Association (NASAA). Article 5 specifies when the disclosure document must be delivered to the prospective franchisee （Anicle 5(1)), and also indicates how often and when the document must be updated （Article 5(2)).  

Article 6 is the core provision of the model law. It lists in great detail the information that a franchisor should provide a prospective franchisee with, It divides the items into Two distinct groups, the first of which contains the information that the disclosure document must contain (Article 6(1)), the second of which indicates further information that the disclosure document should contain, but which may be omitted if the contract itself provides it in adequate detail (Article 6(2)). In other words. paragraph (1) refers to information that is normally not included in the franchise agreement, such as a description of the business experience of the franchisor, including the length of time the franchisor has run a business of the type to be operated by the franchisee and the length of time the franchisor has offered franchises for the same type of business as that to be operated by the franchisee (Article 6(1)(E)(i) and (ii)), relevant details concerning any bankruptcy. insolvency or comparable proceeding involving the franchisor and/or any person who has senior management responsibilities for the franchisor’s business operations in relation to the franchise (Article 6(1)(H)) or information as to the treätment of revenue or other benefits that may be directly or indirectly received by the franchisor or any of the afliliates of the franchisor from any supplier of goods and/or services to the franchisee （Article 6(1)(M)(iv)). Most of the information requiring disclosure under paragraph (1) is information regarding the franchisor and the franchise network, it does not relate to the rights and duties of the parties. Only the provision relating to the goods and/or services that the franchisee is required to purchase or lease may be considered in some way to concem the actual rights and duties of the franchisee.  

Paragraph (2), on the other hand, requires disclosure of information that is normally dealt with in the franchise agreement itself, as in most cases it is of the greatest importance to the relationship. The reason it is listed in this paragraph despite the fact that it will in most cases be contained in the agreement itself, is that in the experience of the members of the Group it is not always adequately dealt with. An example is the information that is provided on the training programmes that the franchisor will make available to the franchisee all too often the franchisor does not provide sufficient information (for example, for how many weeks it will last, how many hours it will take up, who the instructors will be, what kind of information and skills will be transmitted, who will pay for what). Paragraph (2) therefore lists, inter alia, the nature and extent of the exclusive rights granted, if any, including exclusive rights relating to territory and/or to cuustomers （Anicle 6(2)(D)), a description of the initial and on-going training programmes (Article 6(2)(B)), the conditions under which the franchise agreement may be terminated by the franchisor and the effects of such termination (Article 6(2)(E))、the conditions under which the franchise agreement may be terminated by the franchisee and the effects of such termination (Article 6(2)(F)), the limitations imposed upon the franchisee, if any, in relation to territory and/or customers (Article 6(2)(G)), in-term and post-term non-com. pete covenants (Article 6(2)(H)), any reservation by the franchisor of rights relating to intellectual property (Article 6(2)(1)), fees (Article 6(2)(J) and (K)), and restrictions or conditions imposed on the franchisee in relation to the goods and/or services that the franchisee may sell (Article 6(2)(L)).  

Together, the two paragraphs require the franchisor to provide information on all the component parts of what is normally considered a franchise: the intellectual property, the control rights of the franchisor and the rights and obligations of the parties, as well as any other information that a prospective franchisee might require to make an informed decision as to the franchise. In addition, paragraph (3) provides that in the case of a master franchise the sub-franchisor must not only provide the prospective sub-franchisee with information relating to itself, it must also pass on certain information relating to the franchisor that it has received from the franchisor.  

Article 7 deals with the confidentiality of the information that a prospective franchisee receives relating to the franchise or the franchisor, and Article 8 indicates that a franchisor may as a condition for its signing the franchise agreement require the prospective franchisee to acknowledge in writing the receipt of the disclosure document.  

Article 9 deals with an issue that has given rise to a number of problems, namely the language in which the disclosure document is written. It was long the practice for both the contract and the documentation provided by the franchisor to be in the franchisor’s language, which in most cases would have been English considering the prevalence of American franchises. While it is true that where the agreement is a master franchise agreement it is highly likely that the sub-franchisor will be a sophisticated and experienced entrepreneur with considerable knowledge of foreign languages, this is not necessarily the casé in traditional unit franchising. It is therefore of the utmost importance that the documentation be made available in the franchisee’s language. It is clear that there may be a number of borderline cases, for example where the sub-franchisor is a national of a country different from the country in which it is to operate, or of the country of the franchisor. These cases are also catered for in the article, which provides that the disclosure document must be written in the official language of the principal place of business of the prospective franchisee or in the mother-tongue of the franchisee. An additional reason for the requirement that the documents be in the language of the place where the franchise is to be operated is of course that often certain registration requirements apply to the contract, to the disclosure document or at least to some collateral documents, such as the licenses for the intellectual property rights. It is therefore logical that also the disclosure document (and for that matter the agreement itself) be in the local language.  

Article 10 specifies remedies that are available to the franchisee if the franchisor fails to hand over the disclosure document within the period of time specified in Article 5 （paragraph (1)), or if the disclosure document contains a misrepresentation or an omission of a material fact (paragraph (2)). The remedy the franchisee is entitled to exercise in accordance with these two paragraphs is termination. Paragraph (3) indicates the time limits within which the right to terminate must be exercised, and paragraph (4) adds the proviso that the right to terminate in accordance with paragraphs (1) and (2) does not derogate from any other right the franchisee may have under the applicable law, The Study Group did consider adding other remedies, in particular the right to damages, but decided against it, as it felt that all possibilities were adequately covered by the general statement that the right to other remedies available under the applicable law would not be impaired.  

The last article, Article 11, is more a transitional provision in that it provides that the law applies to franchise agreements entered into after the coming into force of the law, as well as to renewed or extended franchise agreements entered into before the coming into force of the law.  

The Model Law is designed to assist above all the legislators of countries that have decided to adopt legislation for the first time. The Study Group entrusted with its preparation selected the area it felt to be the most important for legislative purposes and in relation to which it felt that it would be possible to reach agreement and prepared an instrument that reflects the experience of the members of that Group. The area is disclosure, and the information the model law requires to be disclosed is information that the members of the Group either would themselves like to have when they operate as lawyers, or which they have seen abused in some way.  

It is true that the model law is far more detailed than legislation usually is in countries that belong to the Civil Law tradition, but, as indicated above. countries that take inspiration from the model law will be able to decide the extent to which they wish to fo. llow the model and what details to include or exclude. There is of course nothing to prevent the model law being used as a source of inspiration for modifications to existing laws, or for their integration. So as to permit readers to test this last possibility by comparing the provisions of the Mexican legislation and those of the Draft Model Law, and thereby to evaluate whether they feel that any of the provisions in the model law might usefully be adopted, a table is annexed to this paper listing the provisions of the Draft Model Law and the corresponding provisions of the Mexican legislation. It should of course be borne in mind that the Mexican legislation does not cover only disclosure.  

There is one further use that the law might have, and that is as a point of reference when an evaluation has to be made as to whether or not a franchisor has provided adequate infor. mation. While not being fully as detailed as the American statutes, the model law does list a considerable number of items that are of importance to a prospective franchisee in the evaluation of the franchise it is considering buying. When a case comes to court, a judge might be only too happy to have a document to consult that lists the items that are of importance and which explains why. Considering that the model law will have been prepared by top-level experts in the field and that it will be issued by an intergovernmental organization, there should be no doubt as to the objectivity of the instrument.  

Franchising is a very dynamic field. It develops quickly, and in many directions. It has been said that there is no form of business activity that cannot be franchised, and the number of different areas into which franchising has spread would appear to confirm the truth of this. The rapid expansion of franchising in Mexico is not an exception. How can the two instruments UNIDROIT has prepared play a role in this development?.  

A few words will be sufficient: 

The Guide provides information to all those who use it, first and foremost to the lawyers of the operators, Knowledge improves conditions and promotes healthy franchising. The spreading of the Guide not only in English but also in other languages will therefore help those who are contemplating franchising or who are already engaged in franchising.  

The Model Law makes a clear statement about what information is important for a prospective franchisee to be able to decide whether or not to acquire a franchise, and by so doing provides guidance above all to legislators but also to judges. It sets an international standard for pre-contractual disclosure of information.  

Both the Guide and the Model Law are products UNIDROIT offers the international community in the hope that they will promote a healthy franchising industry and fair conditions for the parties. Time will show whether it has succeeded.