The defendants operated an Apollo franchise under three franchise agreements. The agreements were due to expire simultaneously and by letter sent, at the last possible moment, Apollo served notice that the franchise agreements would not be renewed because of alleged breaches of contract and because the franchisee had failed to serve their renewal notices within the period specified by their franchise agreements. The defendants argued that they were not aware of the requirement to serve notice to renew, the requirement had not been enforced previously, they believed that their agreements would be renewed and that Apollo knew that they intended to continue to operate their franchise business. Following expiry/termination the franchisee continued to trade under a different brand. Apollo applied to the Court for, amongst other things, an interim injunction to enforce the 12 months’ restrictive covenants. On the face of it the Court was bound to grant an injunction but it instead ordered an expedited trial and ordered for the delivery up of documentation and information by the franchisee.
The franchisee’s defences focused on estoppel by convention, breach of an implied term of good faith and infringement of competition law.
The Court’s refusal to grant an injunction may have been influenced by Apollo’s behaviour. The purpose of the clause which required the franchisee to serve notice to renew was to enable Apollo to start the process of recruiting a new franchisee but Apollo did not do so and so its argument that it needed the full period of the restrictive covenant was “unattractive”.
Unusually in this case, the franchisee had not planned a strategy to circumvent their post-termination non competition restrictions. Here the franchisee wanted to stay in the system but it was the franchisor that was using a contractual term which it had not previously enforced to remove a franchisee.
This case highlights that perceived “bad behaviour” may influence a judge who is being asked to exercise his discretion in your favour.
John Pratt, IDI franchising country expert for UK
