The claim was for both fraudulent misrepresentation and if the claimants failed to persuade the court that the misrepresentations were fraudulent, then the claim would be for negligent misrepresentation.
The court set out the four elements of fraudulent misrepresentation:
“(i) The defendant makes a false representation to the claimant.
(ii) The defendant knows that the representation is false, alternatively he is reckless as to whether it is true or false.
(iii) The defendant intends that the claimant should act in reliance on it.
(iv) The claimant does act in reliance on the representation and in consequence suffers loss.”
The alleged misrepresentations were numerous but included representations concerning the suitability of the franchise premises, the success rate of Vision Express franchisees and the likely return that could be obtained – in other words precisely the sort of representations that nearly all franchisors make!
Vision Express argued that they did not intend the franchisees to have relied on their statements but, in the case of fraudulent misrepresentation, there is a rebuttable presumption that it is intended that the representations would be relied upon. The court also had to consider a clause in the franchise agreement to the effect that if representations were being relied upon they had to be set out in the agreement, which they were not. The court held that that clause was subject to a test of reasonableness set out in the Unfair Contract Terms Act 1977 and concluded that the clause was unreasonable. The claimants therefore won their claim.
John Pratt, IDI franchising expert for UK