There are no specific laws in Singapore governing franchising. However, despite that, in general, franchising disputes are not common in Singapore. If there are disputes, these are usually solved amicably between the parties, and hardly any make it to the courts or to arbitration.
This phenomena can be attributed to the excellent body of laws found in Singapore. The general laws relating to the conduct of business apply to franchising in Singapore. This article will discuss briefly the laws which apply to franchising in Singapore.
Franchisor
Singapore has a very open policy and welcome franchisors. There are no special laws in relation to the franchising industry. Unlike some countries which require franchisors to comply with disclosure and registration requirements before they may commence franchising, Singapore has no such requirements. Singapore allows franchising by franchisors located off-shore in any country. It is not necessary for a foreign franchisor to have a physical presence in Singapore.
Franchisee in Singapore
In order to carry out business in Singapore, the franchisee has to be registered as a business or a company in Singapore with the Accounting & Corporate Regulatory Authority (“ACRA”). Registration may be done on-line at ACRA’s website at www.acra.gov.sg and payment may be made through credit card.
Alternatively, instead of registering a business or a company in Singapore, a foreign franchisee (being a foreign registered company) may also carry out the franchised business in Singapore by registering a branch in Singapore.
Franchising Agreement
Parties are free to negotiate the terms of the Franchising Agreement. The Agreement may be in any language, and may be governed by any law of the parties’ choice. The parties may also choose to have disputes resolved by court proceedings, arbitration or mediation. Agreements may be simply signed by the parties, and there is no need for witnesses, notarization or legalization. There is no requirement to stamp the Agreement or register it with any authority.
Enforceability of Franchise Agreement
The general laws of Singapore may affect the enforceability of the Franchise Agreement, for example:
- a) Competition Act
The Competition Act came into force on 1 January 2005. Although some of the provisions of the Act are not effective till later 1 January 2006 or later, the provisions of the Act have retrospective effect and apply to agreements made before the effective date of the Act or the relevant provisions.
Any agreement which has the object or effect of preventing, restricting or distorting competition within Singapore is prohibited. Such agreements will be void to the extent that they prevent, restrict or distort competition.
Examples of anti-competitive practices include:
- - direct or indirect fixing of purchase or selling prices
- - limitation or control of markets, technical development or investment
- - application of dissimilar conditions to equivalent transactions with other trading partners, resulting in a competitive disadvantage to one partner
- - making the conclusion of a contract subject to supplementary obligations which have no connection with the subject matter of the contract
There are exemptions to and exclusions from the strict application of the prohibitions in the Competition Act. If the Franchise Agreement satisfies the criteria laid down by the exemptions or falls within the exclusions, it can be exempted from complying with the requirements of the Competition Act, and clauses such as the control of selling prices by the franchisor may still be allowed.
- b) Unfair Contract Terms Act Cap. 396
This Act provides that certain contractual terms which are unfair will not be enforceable. It provides that a person may not exclude or restrict liability for death or personal injury resulting from negligence. In the case of other losses or damage, a person cannot exclude or restrict liability unless it is reasonable to do so.
- c) Others
Besides specific statutory provisions, the common law relating to enforceability of contracts also apply in Singapore.
- (i) Clauses prohibiting the franchisee from carrying out similar or competitive businesses during or after the term of the franchise are prima facie void unless they are reasonable (taking into consideration all the circumstances) to protect the franchisor’s interest. Factors such as the period and geographical scope of the restriction compared with the franchise term and the territory granted to the franchisee are relevant in considering whether the clause is reasonable.
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(ii) Misrepresentation by a franchisor may result in the Franchise Agreement being void. The misrepresentation must be of certain facts which had produced a misunderstanding, and the misunderstanding must have been one of the reasons which had induced the franchisee to enter into the contract. A false statement (whether made innocently or fraudulently) does not, by itself, give rise to a cause of action. An example of misrepresentation is when the franchisor has represented that its trade mark is registered and that the franchisee will not infringe a third party’s trade mark when in fact the franchisor is facing infringement proceedings.
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Trade Marks used in the Franchise
It is not mandatory to register trade marks used in the franchise but it is advisable to do so as the trade marks usually are the most valuable assets in the franchised concept. One of the main reasons for registration of the trade marks is that the use of a registered trade mark does not amount to trade mark infringement, so the franchisee’s use of the registered trade mark will be unlikely to attract objections from a third party.
Payment of Royalties to Franchisor
Franchisees may make royalty payments to a franchisor without having to comply with any formalities. There is no requirement for approval from any authority, and royalties may be freely converted to foreign currency for payment to a foreign franchisor. However, withholding taxes are payable by local franchisees on royalties to be paid to a non-resident franchisor. The current rate of withholding tax is 10%, but this may be varied by mutual Agreements on the Avoidance of Double Taxation between Singapore and the franchisor’s home country.
Singapore has entered into comprehensive agreements for the Avoidance of Double Taxation with many countries, including Australia, Canada, China, France, Germany, Italy, Japan, Korea and United Kingdom. Limited agreements have been entered into with countries such as Hong Kong and USA. For more information, please see the website of the Inland Revenue of Singapore at http://www.iras.gov.sg/ESVPortal/tax_resources/treaties/index.asp#Comprehensive_avoidance
Conclusion
Singapore’s open economy, transparent legal system and multi-racial society makes it an ideal location for foreign franchisors to test out a foreign franchise concept in Asia. Singapore’s population is conversant in English, and this makes it easier for foreign franchisors to communicate with local franchisees, yet at the same time, the foreign franchisor can rely of the reaction of Singapore’s multi-racial society to gauge the acceptance of the franchised concept amongst the different races.
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Woon Chooi has been practicing in the areas of Intellectual Property and Information Technology for over 20 years. She has very varied experience in her area of practice, and is recognised as being one of the pioneers in the field of intellectual property in Singapore. She has also won many accolades, including being recognised as a leading Practitioner in the Asialaw Leading Lawyers’ survey, and the International Who’s Who of Professionals. She helped to set up and is currently the honorary legal adviser for the Franchising and Licensing Association, Singapore (FLA), and is the Vice President of the Asian Patent Attorney’s Association (Singapore Group)
Ms Yew Woon Chooi | Advocate & Solicitor, Registered Patent Agent |
RODYK & DAVIDSON LLP is Singapore’s oldest legal practice. Established in 1861 and with offices in Singapore and Shanghai, Rodyk is a full service law firm with practices in corporate, finance, intellectual property & technology, litigation & arbitration, and real estate. Through its exclusive membership in two premier legal networks, Rodyk provides regional and international representation.
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