London Business House Limited & Anor v Pitman Training Limited & Anor

A franchise agreement may confer exclusivity even without express words to that effect, when the agreement read as a whole shows that exclusivity forms part of the bargain. The scope of the exclusivity depends on the rights granted. Here it concerned trading the franchisor’s brand, rather than supplying unbranded materials.

A licence permitting unbranded course materials was therefore permissible, but the use of the franchisor’s certificates constituted breach. The breach caused no recoverable loss because the relevant customers were not potential customers of the franchisee. Standard entire-agreement and no-reliance clauses excluded non-fraudulent misrepresentation liability and were reasonable under the Unfair Contract Terms Act 1977.

The claimants entered into a franchising agreement with the first defendant for a Nottingham training-centre business. They alleged that the defendants had breached an exclusive territorial right by licensing Derby Business College to provide Pitman-related courses and materials in Nottingham. They also alleged fraudulent misrepresentations about territorial exclusivity, sought rescission, and claimed damages.

The court treated the first defendant as the contracting franchisor. The issues included the construction and scope of any exclusivity, whether Derby’s activities breached the agreement, whether pre-contractual statements were actionable, whether rescission was available, and whether any breach caused loss.

1. Construction. The agreement was construed objectively and contextually. Its carefully chosen words remained primary, while business common sense and contractual purpose assisted interpretation. Read as a whole, the agreement conferred an element of exclusivity, notwithstanding the absence of an express exclusive grant.
2. Scope of exclusivity. The exclusivity related to trading the Pitman brand, System and trade marks in the territory. It did not prevent the franchisor supplying unbranded workbooks or other materials. Derby’s use of the Pitman logo on its website was not attributable to the defendants, but the provision of Pitman certificates under the licence was a breach.
3. Derby’s response to customers who approached it was not active solicitation. On the pleaded case, those passive sales did not breach the franchise agreement.
4. The misrepresentation claim failed. The pre-contractual material reflected the agreement and was not fraudulently misleading. Clauses 26.2 and 29.4 excluded liability for non-fraudulent pre-contractual statements. They were fair and reasonable under section 11 of the Unfair Contract Terms Act 1977, having regard to the standard but negotiable agreement, the time available for consideration, and the advice to obtain legal advice.
5. Rescission was unavailable. The claimants had affirmed the agreement by continuing to trade, and restoration of the parties to their pre-contractual positions would have presented difficulties.
6. The proven breach caused no loss. Government-funded Derby customers were not realistic potential customers of the claimant, and the evidence did not establish measurable diversion of turnover or profit. The breach was not repudiatory and did not entitle the claimants to terminate. The claim was dismissed.