MGB Printing and Design Ltd v Kall Kwik UK Ltd

A franchisor may owe a prospective franchisee a duty of care in tort where the parties have a sufficiently close relationship, loss from negligent advice is reasonably foreseeable, and it is fair, just and reasonable to impose the duty. The assessment is fact-sensitive and focuses on the parties’ relationship in its legal and factual context. A franchisor that expressly undertakes to provide advice on matters affecting the purchase and operation of a franchise must exercise reasonable skill and care in doing so. Contractual obligations to provide continuing advice, know-how and guidance may likewise be breached where the promised support is deficient or absent. Express marketing-plan commitments may create enforceable obligations to supply data, systems and promotional services.

The claimant acquired an existing printing and design franchise business and entered into a franchise agreement and a marketing launch plan agreement with the defendant franchisor. It alleged that the defendant negligently advised it about the cost of bringing the premises up to the franchisor’s required standard, failed to transfer historical customer data to its Marlin system, failed to provide promised operational support, and failed to deliver several marketing services.

The trial concerned liability only. The central issues were whether the defendant owed a duty of care in relation to pre-contractual refurbishment advice, whether its contractual duties had been breached, and whether the marketing launch plan imposed obligations concerning customer data, support and promotional activity.

1. Premises claim. The defendant owed the claimant a duty of care in relation to advice about the cost of shopfitting. The relationship was sufficiently close and proximate, loss from negligent advice was reasonably foreseeable, and it was fair, just and reasonable to impose the duty. The court applied the three-stage approach in Caparo Industries plc v Dickman (1990) 2 AC 831, while emphasising that the court must examine the particular relationship in its full legal and factual context, as stated in Customs & Excise Commissioners v Barclays Bank plc (2007) 1 AC 181.
2. The duty extended to the corporate claimant even though it had not been incorporated when some advice was given. The defendant knew and contemplated that the transaction would be completed through a company, which would rely on the advice after incorporation.
3. The defendant had held itself out as able to advise on shopfitting requirements and costs. Its estimate was not based on the particular premises or the applicable requirements. The advice that £15,000 would be sufficient was therefore negligent and breached the duty of care. The claimant succeeded on liability on the premises claim.
4. Marketing and franchise obligations. The marketing launch plan imposed a contractual obligation on the defendant to upload the vendor’s customer data, including data concerning the top 200 clients, onto Marlin and Destination Delivery. The defendant had obtained and prepared the data but failed to complete the installation, thereby preventing effective centralised direct marketing.
5. The defendant breached clause 6.3 of the franchise agreement by failing to provide the promised advice, know-how and guidance concerning management, finance, marketing and methods of operation, or by providing it deficiently. It also breached the marketing launch plan by failing to provide specified data, promotional materials and services, including a press release, sustained mailings, effective telemarketing follow-up, and monitoring and evaluation.
6. The evidence did not establish breaches concerning personalised mailings to the lower 30 of the top 50 clients, the Winning Kombination cards, or brochures and CD-ROM business cards. Judgment was nevertheless entered for the claimant on liability under both heads of claim. Causation and quantum were to be tried separately.

First-instance trial on liability. The judgment states that causation and quantum were to be tried separately if appropriate.