Top Ten is a franchisor of holiday parks, which typically include camping grounds and other accommodations for travellers. Top Ten franchisees differ from typical franchisees in that they are also shareholders of the company. In June 2023, one of Top Ten’s franchisees, which owned the land on which the franchised business operated, approached the company’s CEO with a plan to sell the land and business to finance the development of another franchised location. The franchise agreement provided that any sale of the business was subject to the prior written approval of Top Ten and that any agreement must contain the Top Ten’s further terms of sale. Anticipating interest from two competitors—Tasman and Hampshire—the CEO communicated that Top Ten’s preference would be for the franchisee to sell to Hampshire. Top Ten saw Tasman as a competitor in the market place and Tasman had previously acquired other former Top Ten holiday park businesses and rebranded them as Tasman. Ignoring the CEO’s preference, the franchisee executed conditional agreements to sell the underlying property and business to Tasman. These agreements set out that the franchisee would first try to obtain Top Ten’s consent to terminate the franchise agreement, or alternatively, obtain consent to assign the franchise agreement. Top Ten did not approve the sale and rejected the franchisee’s offer to buy out the franchise agreement for $175,000.
After the franchisee refused Top Ten’s request to delay the sale to Tasman, Top Ten applied for an interim injunction to prevent the sale without Top Ten’s consent. Top Ten also sought a similar injunction restraining Tasman from (i) encouraging the franchisee to sell the business or (ii) acquiring any interest in the business or underlying property. The franchisee argued that the Top Ten franchise was a marketing co-operative and fundamentally different from more orthodox forms of franchise. Moreover, there was no express provision barring the franchisee from selling its business or land without Top Ten’s consent so long it was not sold as a “franchised operation.” Finally, they argued that the Top Ten franchise agreement was fundamentally concerned with protecting Top Ten’s intellectual property and gave no proprietary interest in land or the business. The court declined to enter Top Ten’s requested injunction. The court partially agreed with the franchisee, concluding that although the sale arguably breached the franchise agreement, Top Ten was not a franchisor in the traditional sense. As a result, Top Ten was able to quantify its damages more precisely than a typical franchisor. Moreover, harm to Top Ten’s goodwill was mitigated by the fact that there was another Top Ten holiday park in the area, and, by its own CEO’s admission, Top Ten would have agreed to a sale to Hampshire, another known competitor. Finally, Top Ten’s argument that permitting the sale would embolden other franchisees to breach their franchise agreements was too speculative. Thus, an injunction preventing the franchisee from selling its land (and, in turn, financing the development of the other location) would result in comparatively greater harm.
Stewart Germann, IDI Country Expert for agency & distribution in New Zealand
Link to the judgement: Top Ten Group New Zealand Ltd v Tasman Tourism New Zealand Ltd
