close
UK

UK: Two interesting case law on franchising.

Armchair Answercall Limited v People in Mind Limited [2016] EWCA Civ 1039 and Rush Hair Limited v Hayley Gibson-Forbes, S.J Forbes Limited [2016] EWHC 2589 (QB)

John PRATT - 03.07.17
Country expert

Armchair Answercall Limited v People in Mind Limited [2016] EWCA Civ 1039

Kendlebell operated a franchise offering telephone answering services. It had ten franchisees. Kendlebell approached Armchair Answercall (“AA”) with a view to being taken over but instead AA proposed a services agreement under which AA would manage the Kendlebell business under a new method developed by AA under which franchisees would effectively become sales branches for services offered by AA.  The franchisees were notified and immediately raised objections to the loss of control of invoicing and payment and to the removal from them of the call handling function which they previously exercised. The franchisees asserted that their franchise agreements were void or, if not, that they had come to an end by the franchisees accepting what they asserted were AA’s repudiatory breach of the franchise agreements. The franchisees communicated their rejection of the new terms. The franchisees, in addition, had set up an alternative answering service.  AA submitted that these events amounted to a frustration of the contract.

The Court of Appeal concluded that AA’s failure to persuade the franchisees to accept the new method was not a supervening outside event, which the parties could not reasonable have foreseen as a real possibility and, therefore, could not constitute frustration of the contract.

 

                                                                                                            *****

 

Rush Hair Limited v Hayley Gibson-Forbes, S.J Forbes Limited [2016] EWHC 2589 (QB)

In this case the High Court had to consider whether post termination non solicitation and non compete covenants contained in an agreement transferring a franchisee’s business back to the franchisor were enforceable.  The first covenant applied for two years and prevented the selling franchisee from canvassing, soliciting, enticing or employing certain key employees from the franchise business.  The second was a non compete covenant also lasting two years preventing the franchisee from being involved in a competing business within the franchisee’s territory.

Notwithstanding these covenants, the franchisee opened a hairdressing salon within her previous franchise territory and hired one of the key employees.  The Court found that she was in breach of both covenants.

The decision created no new law but reinforces that on a sale of a franchise business more extensive post termination non compete and non solicitation covenants can be enforced than in a franchise agreement.  Generally, such covenants in franchise agreements last for only one year.

 

John Pratt, IDI franchising country expert for UK

RELATED