Stream Healthcare (London) Ltd v Pitman Education and Training Ltd

A franchisee cannot establish repudiation merely because the franchisor adopts a firm negotiating position concerning unpaid fees, especially where the franchisor remains willing to perform if the relationship is regularised. A contractual obligation to devise an alternative trade name arises only when the specified contractual preconditions are met, including a sufficiently cogent showing that use of the original name is inadvisable. The principle of non-derogation from grant cannot add obligations inconsistent with an express term governing the same subject. A failure of consideration is not total where contractual rights, promises or other benefits have been provided.

The claimant entered into a master franchise agreement with the defendant for five West African countries. It paid the first instalment of the franchise fee but did not pay the remaining £40,000, and never opened the Nigerian training centre.

The claimant alleged that the defendant had repudiated the agreement by failing to provide assistance, by not addressing alleged difficulties in using the Pitman name in Nigeria, and by linking continued cooperation to payment of debts. It also alleged total failure of consideration, derogation from grant and misrepresentation. The defendant denied liability and counterclaimed for the unpaid franchise fee.

1. Claim and counterclaim. The claimant’s claim failed. The defendant succeeded on its counterclaim for £40,000.
2. Clause 7. The franchisor’s obligations had to be performed when it was reasonably apparent that the relevant assistance or materials were needed, or when reasonably requested. The claimant had not requested the relevant services, and the décor packs had been supplied. The continuing obligations applied to an operating franchise, which had never commenced.
3. Clause 12.7. The obligation to devise an alternative trade name arose only if it was not possible to secure registration of the trade marks and it was reasonably considered inadvisable to use the existing name. Neither condition was established. The evidence confused company-name registration with use of a trading name and did not demonstrate with sufficient cogency, supported by appropriate local advice, that use of the Pitman name was inadvisable. The franchisor was not under a wider duty to investigate and remedy every potential problem.
4. Repudiation. The defendant’s correspondence did not clearly indicate an intention not to perform the franchise agreement. It set out terms for continuing cooperation in circumstances where substantial fees were overdue and the claimant’s business had not opened. Although the claimant’s analysis of the separate contractual obligations was correct in isolation, it did not follow that insisting on payment before supplying further materials amounted to repudiation.
5. Other claims. There was no total failure of consideration. The claimant received a décor pack, and the contractual rights and promises remained available through the group’s arrangements. The assumed principle against derogation from grant did not assist because the alleged omission did not involve competing use of the granted rights and clause 12.7 expressly governed the issue. The misrepresentation claim failed for want of proof of reliance.