Carewatch Care Services Ltd v Focus Caring Services Ltd & Ors

Franchise agreements are detailed commercial contracts. Broad duties of good faith, mutual support or continued expansion will not be implied unless necessary to give the agreement business efficacy. A franchisor may pursue its own commercial interests, subject to the express terms.

Post-termination restraints may be enforceable where they protect legitimate interests in goodwill, confidential know-how, customer and employee loyalty, and go no further than reasonably necessary. In franchise agreements, the competition-law analysis asks whether the restraint is strictly necessary to protect the franchisor’s know-how and assistance and the identity and reputation of its network.

Carewatch sought injunctive relief and damages against its former franchisee, Focus, and its directors, Tony and Elaine Grace. The defendants purported to terminate three franchise agreements, alleging that Carewatch had repudiated them by failing to support and develop the franchise network, competing with franchisees and offering disadvantageous renewal terms.

Carewatch accepted the defendants’ repudiatory breach, relied on post-termination restrictive covenants and exercised its contractual step-in rights. The principal issues were contractual construction, implication of terms, repudiatory breach, enforceability of the restraints at common law and under the Competition Act 1998, and the scope of the step-in provisions.

1. Contractual construction. The expressions “the Business” and “the Services” were not fixed immutably at the date of each agreement. They referred to Carewatch’s business and services as carried on from time to time. Live-in care fell within the agreements because the language covered care and support services generally, and the parties’ conduct confirmed that conclusion.
2. The premises used for the Norwich and Ipswich franchises were contractually recognised despite the absence of prior written approval. Carewatch had waived the writing requirement by its conduct. Alternatively, the parties were estopped by convention from denying that those premises were the contractual premises.
3. Implied terms. The agreements contained detailed express provisions and no clear lacuna. Terms requiring Carewatch to maintain or expand franchising, avoid competition, act in good faith or maximise mutual profits were not necessary and were in some respects inconsistent with the express contract. Carewatch remained entitled to pursue its own commercial interests provided it complied with the express terms.
4. Focus had breached the exclusivity provisions by operating Poppy Care and Purely Care without Carewatch’s consent. The defendants’ allegations of repudiatory breach by Carewatch failed in law and on the facts. The purported termination was therefore itself repudiatory, and Carewatch validly accepted it.
5. Restrictive covenants. Applying the restraint-of-trade principles in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Company [1894] AC 535, the four covenants protected legitimate interests in goodwill, know-how, customer loyalty and employee loyalty. Their territorial limits and periods of nine or twelve months were reasonable. The covenants were valid and enforceable.
6. Competition law. The covenants prima facie restricted competition under section 2(1) of the Competition Act 1998. However, applying Pronuptia de Paris GmbH v Pronuptia de Paris Ermgard Schillgalis Case 161/84, and the case-specific approach in Pirtek (UK) Limited v Joinplace Limited [2010] EWHC 1641 (Ch), they were strictly necessary to prevent the defendants using Carewatch’s know-how, assistance and customer relationships to compete. The Pronuptia defence succeeded, making it unnecessary to decide the alternative exemptions.
7. Step-in rights. Carewatch had validly exercised its contractual right to step in. Focus House, being freehold premises, was not required to be transferred under the clauses, although Focus had to give Carewatch sufficient possession or a licence to operate the former franchise business.
8. Carewatch was entitled to injunctions enforcing the restrictive covenants and, subject to the ruling concerning Focus House, the step-in provisions. It was also entitled to damages against all three defendants.

The judgment describes an interlocutory hearing before Mr Edward Bartley-Jones QC, sitting as a deputy High Court judge, on 7 March 2014. That hearing resulted in an expedited trial of the substantive issues. The present judgment determined the expedited trial at first instance.