Kall Kwik is one of the UK’s leading franchisors. It was approached by a prospective franchisee who was an experienced finance director. Kall Kwik provided, before the franchise agreement was entered into, substantial documentation setting out the sales process and also provided other assistance to the prospective franchisee. As part of this exercise Kall Kwik provided information relating to the cost of refurbishing the franchise premises.
The High Court held (by applying the previous decision in Esso Petroleum v Mardon) that the franchisor owed the prospective franchisee a duty of care to ensure that the information it provided was accurate. The difference between the decision in this case and Esso v Mardon was that the franchisee in the Esso decision had to rely on the information provided by the franchisor in relation to profit and turnover figures because the prospective franchisee simply did not have any of the relevant information but in the Kall Kwik decision the prospective franchisee could have established the cost position for refurbishing the premises himself. Clearly, as a result, franchisor’s in the UK will need to take great care in providing information to prospective franchisees.
The franchisee also argued that Kall Kwik was in breach of the franchise agreement – both express terms and breach of the implied term to exercise reasonable skill and care in performing those contractual obligations. The court found that there was a breach of both the express and implied terms. This is a worrying aspect of the decision for franchisors because if followed (and there are grounds for believing that the decision was based solely on the particular facts of this case and may not be followed) not only must franchisors do what they agree to do in the franchise agreement, but must also do it well. This brings in value judgments as to what constitutes reasonable skill and care which, with great respect to judges they may not be best suited to establish.
John Pratt, IDI franchising Country Expert for UK.