On 16 May 2011 the Draft Law On Amending Civil and Commercial Codes of Ukraine (regarding commercial concession(1) agreements) No. 8515 was registered with the Parliament of Ukraine.
The Draft Law introduces amendments to Article 1118 (2) of the Civil Code of Ukraine and Article 367 (2) of the Commercial Code of Ukraine concerning authorities responsible for state registration of franchise agreements. Under the Draft Law franchise agreement shall be registered by the central body of executive power in the sphere of intellectual property, i.e. the State Service of Intellectual Property of the Ministry of Education, Science, Youth and Sport of Ukraine.
Presently, under the Civil and Commercial Codes the state registration of the franchise agreement shall be carried out by the authorities that held state registration of the franchisor. If the franchisor is registered abroad, the franchise agreement shall be registered by the body that performed state registration of the franchisee. However, as the state registration procedure is not regulated, the responsible authorities usually refuse to register franchise agreements.
The amendments introduced by the Draft Law are seen as desirable and shall facilitate the franchise agreements state registration in Ukraine. The same amendments were suggested earlier by the Draft Law of On Amending Certain Legislative Acts of Ukraine (regarding state registration of commercial concession agreements) No. 2334 that was adopted by the Parliament in the first reading on 15 June 2010. It was further revised and amended by the Committee on Legal Policy while preparing the Draft Law for the second reading taking into account comments and suggestions submitted by the MPs. However, the said Draft Law was further voted down by the MPs in the second reading held in the Parliament on 21 October 2010 and was excluded from agenda.
The Draft Law also sets forth minor amendments to Article 1122 of the Civil Code of Ukraine designed to fix some textual mistakes made while drafting the provisions of the said Article on terms and conditions of the franchise agreements to be deemed as null and void. As of today the Draft Law was distributed among the MPs for their review.
Under Article 1118 (2)-(4) of the Civil Code and Article 367 (2)-(3) of the Commercial Code (a) the franchise agreement, (b) amendments thereto and (c) termination thereof shall be subject to the state registration. Failure to register the franchise agreement does not entail either its nullity or invalidity. At the same time, Civil and Commercial Codes establish the following consequences of non-registration of franchise agreements:
- Parties to franchise agreement may refer thereto in their relations with the third persons only after its state registration.
The courts of Ukraine recognize that under the general rule established by Ukrainian law, the agreements subject to state registration shall be deemed as concluded from the moment such registration is performed. However, the case law confirms that due to the absence of the registration procedure, franchise agreements may not be registered with the competent authorities as the latter are not entitled to perform such registration under the law. Thus, franchise agreements may be still considered as concluded from the moment the parties agree upon all the essential conditions thereof. Thus, Ukrainian legislation recognizes unregistered franchise agreement as having force for the parties thereto and giving rise to their respective rights and obligations under such agreements. However, it should be noted that in some recent cases the courts did consider the fact whether the parties to franchise agreement applied to the competent authorities for the registration and received an official written refusal of the competent authorities to register the franchise agreement. At the same time, the courts directly confirmed that parties to franchise agreement may refer to it in relations with the third persons only after its state registration. According to the existing case law, for the purposes of franchise agreements the third persons are defined very broadly, i.e. as any persons, except for the parties to such agreement, including other natural persons, legal entities, state and municipal agencies etc.
- Absence of state registration of franchise agreement shall not divest parties of the right to refer to such agreement in case a dispute arises.
The available case law confirms that the courts considered disputes between the parties to the franchise agreement even in cases when such agreement was not registered with the state authorities.
In one of the recent cases the cassation court directly confirmed that the appellate court violated the effective legislation when refused to accept the claims of one party against another party to franchise agreement based on non-registration of such agreement. Moreover, the cassation court ruled that the appellate court had to examine whether the relevant registration procedure existed and the parties were able to register the agreement.
Nataliya Mykolska , IDI franchising Country Expert for Ukraine
(1) Whereas the Ukrainian legislation names the franchise agreement as the commercial concession agreement, the parties to it being named as the title holder (for franchisor) and the user (for franchisee), in order to avoid any misunderstanding we will use international terminology.