Dwyer (UK Franchising) Ltd v Fredbar Ltd & Anor

A franchisor’s contractual discretion to designate a force majeure event must be exercised honestly, in good faith and rationally, taking account of relevant considerations. Ignoring a franchisee’s need to self-isolate for a vulnerable child was a breach, although the agreement was later affirmed.

Misrepresentation requires proof that the representation was negligent, material and induced entry into the contract. Failure of projections alone does not establish negligence where the projections accurately used disclosed average data and the purchaser could investigate local conditions.

Post-termination restraints in a franchise agreement must protect a legitimate interest and extend no further than reasonably necessary. Restrictions covering all competing plumbing and drainage work, including activity incapable of affecting the franchisor’s goodwill, were unenforceable.

The claimant franchised plumbing and drainage businesses under the “Drain Doctor” name. It sued the first defendant franchisee and the second defendant guarantor for breach after the franchisee purported to terminate during the Covid-19 pandemic and began trading as “Daily Drains”.

The defendants relied on negligent misrepresentation, undue influence, breach of the force majeure clause and misuse of the marketing fund. They also challenged post-termination restraints of trade and sought to continue operating their new business.

The court had to decide whether the defendants were entitled to terminate or rescind the agreement, whether the claimant had itself committed repudiatory breaches, whether the claimant’s later termination was effective, and whether the restraints were enforceable.

1. Misrepresentation. The advertising statements concerning resale, demand, exclusive territory and local marketing were not false in context. Financial-performance statements had been superseded by the later projections and had not induced the agreement. The projections were based on accurately calculated average franchisee data. Their failure to materialise did not prove negligent misrepresentation. The defendants knew that no Cardiff-specific research or adjustment for a new and inexperienced franchisee had been made, and had not proved that presenting the projections as achievable was careless or unsupported by reasonable grounds.
2. Undue influence. The transaction involved inequality of bargaining power and a lengthy standard-form agreement, but those matters did not establish actual undue influence. The defendants had access to the agreement, could have taken independent advice, and failed to prove improper pressure which impaired free will.
3. Force majeure. Under clause 30, the claimant’s designation of force majeure was a contractual discretion subject to an implied term requiring honesty, good faith, rationality and consideration of relevant matters, applying Braganza v BP Shipping Ltd [2015] UKSC 17. The claimant considered only reduced demand and ignored the claimant’s son’s vulnerability and the resulting need for self-isolation. That was a breach of an important, alternatively intermediate, term. However, the franchisee accepted the claimant’s later alternative arrangements and thereby affirmed the agreement.
4. Marketing fund and termination. The marketing fund could not be used to subsidise the administration of the national accounts team. That misuse was a repudiatory breach. The franchisee nevertheless affirmed the agreement by continuing to treat it as binding. The claimant was therefore entitled to accept the franchisee’s 16 July 2020 renunciation and terminate on 19 August 2020. The franchisee had also breached the agreement by trading as “Daily Drains” before termination.
5. Restraint of trade. The court construed “the Drain Doctor Business” as the plumbing and drainage business, not the sale of franchises. Applying the principles in Carewatch Care Services Ltd v Focus Caring Services Ltd [2014] EWHC 2313 (Ch) and ChipsAway International Ltd v Kerr [2009] EWCA Civ 320, the claimant had to establish a legitimate interest and reasonable protection. The covenants were too broad. They prevented ordinary employment or subcontracting, extended beyond territory in which goodwill existed, lacked suitable exceptions, and applied equally regardless of the stage at which the franchise ended. They were unenforceable and could not be severed.

The claimant was entitled to enforce the delivery-up obligations, require transfer of the franchise telephone number if possible, recover unpaid management service fees of £2,976.84 and claim damages for pre-termination competition.