Steven Ellis & Ors v John Benson Limited

This is a first-instance decision of Freidman J about whether standard-form driving-school franchise agreements contained implied duties of good faith/trust and confidence and, if so, whether the franchisor breached them such as to permit multiple franchisees to terminate as of right. The court found, on the particular facts of these agreements and the parties, that an implied term of good faith and trust and confidence should be implied in fact into the contracts (applying the ordinary tests of business necessity/obviousness and the parties' notional reasonable expectations). The judge held that the franchisor, through its managing director, engaged in a course of abusive, intimidating and discriminatory conduct (including public posts and threatening rhetoric about litigation), exercised certain discretions capriciously (not permitting franchisees to advertise personal numbers or prices), and attempted an unlawful unilateral variation during the Covid lockdown by purporting to extend minimum terms. Taken together those breaches were capable of amounting to repudiatory breaches and, in respect of the represented claimants, did do so. The claimants were accordingly lawfully discharged from their franchise agreements.

This dispute concerned twenty driving instructors who had entered standard-form franchise agreements with JBL, the Benson School of Motoring. The claimants sought declarations that their terminations in late 2020 were lawful on the basis that JBL had breached implied terms of good faith, fair dealing and trust and confidence; JBL denied those terms applied, denied breach and counterclaimed substantial sums said to be due as unpaid future franchise fees.

The court had ordered a trial of three preliminary issues: (1) whether the contracts carried a duty to act in good faith and deal fairly; (2) whether express or implied terms had been breached and by whom; and (3) whether any contracts had been lawfully discharged, and if so by whom. The case involved extensive oral and documentary evidence over two weeks and further written submissions.

On issue (1) the judge concluded that, on the facts of these agreements and parties, an implied term of good faith/trust and confidence should be implied in fact. The reasoning emphasised the particular features here: long minimum terms entered into by inexperienced and vulnerable individuals without meaningful independent legal advice, significant franchisor control in practice (including allocation of work, branding, and detailed rules), standard-form "take it or leave it" dealings, and a business model that previously produced many disputes and extensions of term. The court expressly declined to decide generally whether a term of good faith should be implied in law into all franchise agreements, deciding the case by implication in fact on its particular matrix.

On issue (2) the judge found a course of serious breaches: abusive and intimidatory conduct by the franchisor and its managing director (including sexist, racist and homophobic remarks and public boasting about suing franchisees and guarantors), arbitrary enforcement of sanctions (for example removal from a widely used internal Facebook group), refusal in practice to permit franchisees to display personal telephone numbers on vehicles or to advertise prices, and a unilateral attempt during the Covid-19 suspension to extend minimum terms by adding suspended weeks to the end of agreements. The court rejected allegations of systematic tax evasion as not proved.

On issue (3) the judge held that the breaches, taken together and in many cases cumulatively, were repudiatory and materially undermined mutual trust and confidence; the represented claimants had not affirmed their contracts and validly elected to accept the repudiation and terminate. The court declared the represented claimants discharged from their franchise agreements. The judgment underlines that implications of good faith remain fact-sensitive and must satisfy the orthodox tests (business necessity/obviousness); it also records that remedies and factual conclusions are confined to these particular arrangements and findings.

First instance: The court held that an implied term of good faith and trust and confidence should be implied in fact into the franchise agreements on the particular contractual matrix. The court found that JBL (through its managing director) committed multiple breaches of express and implied terms — including abusive, discriminatory and intimidatory conduct, arbitrary exercise of discretions (notably refusing most franchisees the right to display personal telephone numbers or publish prices) and a wrongful unilateral attempt to extend minimum terms during the Covid-19 suspension. Those breaches, cumulatively and in many instances individually, were repudiatory. The represented claimants validly accepted the repudiation and were lawfully discharged from their franchise agreements. The court declined to imply a general rule that all franchise agreements attract a statutory-style implied duty of good faith as a matter of law, deciding the matter on implication in fact given the particular circumstances.