1- Martin & Co (UK) Limited v Cedra and Joseph Bitar.
In this case, the High Court in London in July 2015 considered a claim by Martin & Co which is a property lettings franchise, seeking an injunction against a franchisee whose franchise agreement had been terminated. The franchisee argued that the franchisor should have required franchisees to comply with their franchise agreements and the franchisor’s failure to do so entitled him to terminate and continue to trade without having to comply with the post termination non compete covenant. The court did not have to make a final decision on this point but indicated that it thought that the evidence produced by the franchisee was very thin and, accordingly, awarded the franchisor the injunction it sought requiring the ex franchisee to comply with the non compete covenant.
The court held that the franchisor would suffer loss that could not be compensated if an injunction were not granted and referred with approval to the 2014 decision in Team2Clean Limited v Maftei and Sandhu in which the court held that the balance of convenience – one of the tests in deciding whether to grant an injunction – usually favours the franchisor seeking the grant of an injunction because a failure to grant an injunction would damage a franchisor’s reputation and goodwill and the franchisor would suffer loss that could not be compensated if an injunction were not granted.
2- Startwell Ltd v Energy Global Brand Management Limited
In a case decided in the High Court in London in February 2015 an Irish franchisee brought a claim for 2 million euros against a UK based franchisor claiming damages for misrepresentation and breach of a number of master franchise agreements.
The principal interest in this case related to the franchisor’s application for security for costs which is an order requiring an opponent to pay monies into a ring fenced account to secure an award of costs in favour of a party to litigation if that party is successful in court. In the English courts the successful party is entitled to receive a substantial percentage of its legal costs from the losing party.
The franchisor submitted an application on the basis that it had reason to believe that the master franchisee would be unable to pay the franchisor’s costs if ordered to do so. In exercising its discretion to award security the court had regard to whether:
- The master franchisee’s claim was bona fide and not a sham.
- The master franchisee had reasonably good prospects of success.
- The application for security by the franchisor was being used oppressively so as to stifle a genuine claim.
- The master franchisee’s lack of funds had been brought about by any conduct by the franchisor.
The court, having considered the elements set out above, ordered the master franchisee to pay £80,000 into court.
3- Oven Clean Domestic Limited v Helen Read
In Oven Clean Domestic Limited v Helen Read the High Court in London in January 2015 had to consider a post termination non compete covenant in a franchise agreement. The covenant was entirely standard in that it lasted for 12 months and applied within the franchisee’s territory. The court was in no doubt that it would be enforceable. The franchisee was not legally represented although the franchisor was and incurred legal costs of the injunction application totalling £22,000. Since the judge found in favour of the franchisor, and the judge thought the legal costs incurred were entirely reasonable, the judge awarded the franchisor costs of £20,000 which the franchisee was required to pay – litigation in England is expensive!
4- Thorney Park Golf Limited v Myers Catering Limited
In January 2015 the Court of Appeal decided a case on the construction of the clause setting out the duration of the franchise agreement. The court had to decide whether the franchise agreement had been granted for an initial term of three years terminable after the end of the three year period by either party on four months notice or whether it was for a fixed term of three years, but terminable at any time during the three year term by either party on four months notice.
The court considered that since the agreement itself identified the initial term of three years as being required in order for the contract to be reasonable, then the right of either party to give notice immediately would conflict with that provision and so the contract should be interpreted as giving the parties the right to terminate only after the expiry of the three year period.
It is important to note that the English courts are not concerned with establishing the actual intention of the parties when constructing a contractual provision. Instead the courts seek to establish what a provision would mean to an objective informed third party.
John Pratt, IDI franchising expert for UK
