Property Links International Ltd v Coffee Republic Retail Ltd

An assignee of a contractual right generally takes it subject to equities affecting the assignor. An exception may arise where the assignee enquires of the debtor and is misled, or where inequitable conduct disentitles the debtor from relying on an equity created by the assignor. A party who gives a materially misleading account of a contractual concession may therefore lose the ability to rely on it.

Contractual breaches must be assessed objectively. Where a franchise agreement requires payment and reporting, persistent non-payment and disabling required reporting functionality may justify termination if the breaches remain unremedied after notice.

The claimant operated a Coffee Republic franchise business in Bulgaria under a 2006 master franchise agreement. It alleged an oral collateral contract, a fee holiday, and a written amendment releasing Mark Christie from his guarantee. The defendant, as successor to the original franchisor, terminated the agreement in 2010 and counterclaimed for unpaid royalties and post-termination use of the Coffee Republic marks.

The principal issues were whether the alleged variations were proved, whether the defendant was entitled to terminate, whether the written amendment released Mr Christie, and the appropriate relief.

1. Contractual variations and evidence. The alleged oral collateral contract was not proved. The claimant and Mr Christie intended to be bound by the written franchise agreement, and Mr Christie signed as guarantor. The May 2009 written amendment was genuine and released Mr Christie from both the guarantee and the substantially equivalent indemnity obligation in clause 21.3.
2. Fee holiday and assignment. The claimant failed to prove either a six-month or twelve-month fee holiday. Applying the principles discussed in Mangles v Dixon (1852) 3 HL Cas 70 and Athenaeum Life Assurance Society v Pooley [1858] 3 De G and J 294, the defendant had made no enquiry which could engage the relevant exception. In any event, even if a twelve-month holiday had been granted, the claimant’s later representation that the holiday was six months would have made it inequitable for the claimant to rely on the longer period.
3. Termination. The claimant was in breach of the obligation to pay fees and of clause 11.1 because the tills’ internet reporting functionality had been disabled. Those breaches remained unremedied. The defendant therefore terminated the MFA lawfully. The allegations concerning sub-franchise agreements and audited accounts failed, but were immaterial.
4. Relief. The claimant was liable for continued use of the marks through trade mark infringement, passing off and breach of the post-termination restrictions. A notional reasonable royalty was assessed at £2,000. Outstanding royalties were £4,395. The counterclaim therefore succeeded for £6,395 plus interest. The claim against Mr Christie as guarantor failed. The court also found that, had the claimant succeeded, it would have proved no more than nominal damages.

First-instance judgment. The judgment records a prior paper refusal by HHJ Russen QC of an application concerning expert evidence, but no appellate decision in the dispute.