In a recent decision of the Commercial Court – Vinegy International (PVT) Ltd v Richmond Mercantile Ltd FZC [2016] EWHC 525 (Comm), [2016] All ER (D) 150 (Mar) the court had to consider an exclusive supply contract – not a franchise agreement – but the case raised interesting issues which are relevant to franchise agreements and indeed other types of distribution agreements.
In the Vinegy case the supplier terminated the supply contract on the basis of breaches by its customer and commenced arbitration proceedings. The arbitral body found that the customer had committed three repudiatory breaches (including breaches of the exclusivity and non payment of invoices) and that, as a result, the supplier had lawfully terminated the contract. The customer subsequently brought court proceeds claiming that the arbitral tribunal’s findings were wrong in law.
The customer’s argument was that the supply contract, as would be the case in franchise agreements, contained an express term relating to termination which required the giving of 20 days notice to remedy a breach before termination and the supplier had failed to give such notice. The supplier argued that that clause was irrelevant because it was not terminating pursuant to the contract but by virtue of its common law right.
The court found in favour of the supplier and held that the obligation to give the customer a period in which to cure a default did not apply to termination at common law for repudiatory breach. The court also found that no term could be implied into the contract to oblige notice of breach to be given or the giving of a cure period.
In view of the court’s decision franchisors will be in a stronger position to rely on repudiatory breach to terminate their franchise agreements.
John Pratt, IDI franchising country expert for UK
