Pirtek (UK) Ltd v Joinplace Ltd (t/a Pirtek Darlington) & Ors

A post-termination restraint in a franchise agreement may fall outside the Chapter I prohibition where it is essential to prevent the franchisor’s know-how and assistance benefiting competitors. The assessment is case-specific and depends on the know-how and assistance actually provided, not merely on the agreement’s wording. A restraint may also be valid at common law where it is reasonably necessary to protect goodwill. The court should assess the restraint as a whole. A former franchisee’s over-the-counter business may compete with a franchisor’s business even without a mobile service. A company knowingly participating in the former franchisee’s breach may be liable for inducing breach of contract and, where the necessary intention is established, conspiracy by unlawful means.

Pirtek (UK) granted Joinplace and its guarantor, Ian Vickers, a ten-year franchise for the manufacture and supply of replacement hydraulic hoses in County Durham. The agreement contained a one-year restraint on competing within the territory after termination. Joinplace ceased trading, and Vetech Limited began trading from the same premises using Joinplace’s stock and equipment. Pirtek (UK) obtained an injunction against Mr Vickers and Vetech.

At trial, Pirtek (UK) abandoned its monetary claims. Vetech and Lynn Garratt pursued compensation under the cross-undertaking in damages and a claim for malicious prosecution. The issues included the validity of the restraint under the Competition Act 1998 and common law, Mr Vickers’s breach, Vetech’s liability, recoverable loss and malicious prosecution.

1. Validity under competition law. The restraint was outside the Chapter I prohibition. Applying Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis [1986] 1 CMLR 414, the relevant question was whether the restraint was essential to prevent know-how and assistance supplied by the franchisor being used to aid competitors. That required a case-specific assessment of the know-how and assistance actually provided. Pirtek (UK)’s technical training, business assistance, IT system and operating manual justified the restraint.
2. The court rejected a minute analysis of whether the former franchisee could devise a slightly different competing business. The restraint, viewed as a whole, was not too wide for competition-law purposes. The alternative argument on appreciable effect on trade was unnecessary to the result, but the court indicated that the restraint was likely to have an appreciable effect within County Durham. The Competition Act 1998 provisions on exemption were likewise considered only as an alternative. The UK-wide restraints were excessive and were to be ignored or blue-pencilled.
3. Common law validity. The one-year restraint limited to County Durham was reasonably necessary to protect Pirtek (UK)’s goodwill and provide a breathing space to establish or support replacement franchise arrangements. The fact that Pirtek (UK) did not ultimately appoint a replacement franchisee was irrelevant.
4. Breach and Vetech’s liability. Although Vetech was owned and controlled by Ms Garratt, Mr Vickers was intended to be its principal source of technical and business skill. Vetech’s planned and actual over-the-counter hose business was similar to, and competed with, Pirtek (UK)’s business. Mr Vickers therefore breached the restraint. Vetech knew of the restraint and that his participation breached it. It was at least liable for inducing breach of contract and was also liable for conspiracy by unlawful means.
5. The injunction was properly granted. Vetech had no recoverable loss under the cross-undertaking because it could not have traded profitably without Mr Vickers’s prohibited assistance. The malicious-prosecution claim was wholly unfounded. The injunction had served its purpose and was discharged; Pirtek (UK) required no further relief, and Ms Garratt and Vetech’s cross-claim was dismissed.

First-instance judgment. The judgment does not state any prior appellate decision.