September 06 2011
There is no specific law in Sweden that governs the rights and obligations of parties to franchise agreements. Consequently, Swedish judges must find support for their solutions to franchise disputes based on the wording of individual franchise agreements and on general contract and commercial principles. The same can be said of distribution contracts in Sweden.
In a 2009 distribution contract dispute, the Supreme Court ruled in favour of the distributor. The matter at hand involved the immediate termination of a distribution contract initiated by the supplier, although the supplier did not claim that the distributor had failed to meet its obligations under the terms of the agreement. The agreement did not have a definite term and did not include a notice period for termination. The court had to decide whether the distributor had, as it argued, a right to a termination notice period despite the fact that the contract contained no such provision, and if so, how long the termination notice period should have been.
After the court had outlined the facts – that there was no specific law on distribution agreements and that there was no termination notice period agreed between the parties to the contract – it considered laws governing similar business arrangements (eg, agency agreements), earlier legal decisions and the fact that distribution agreements are often international agreements. According to the court, the latter fact made it possible to look outside Sweden for guidance. The court studied Belgian law on distribution agreements (the only regime in Western Europe which had a specific law on distribution agreements at the time), the US Uniform Commercial Code and the Draft Common Frame of Reference (a pan-European academic set of model rules in relation to the harmonisation of European contract law). Based on these studies, the court ruled that the distributor had been entitled to a termination notice period, and determined that the length of the notice period in the case at hand was to be three months. The supplier had to pay damages to the distributor.
As most franchise models (and the agreements governing those models) also involve distribution, and as most franchise agreements can be seen as international contracts, this decision has a bearing on franchise disputes – that is, a Swedish judge can look at solutions adopted in similar franchise disputes by considering laws and precedents outside Sweden. This decision gives legal counsels on both sides the opportunity to support their arguments based on laws and precedents made in foreign countries. However, this position has yet to be tested.
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