Partial Withholding of Turnover-Based Franchise Fees While Continuing to Trade Constitutes Breach; Unjust Enrichment Requires a Recognised “Unjust Factor”

Court: High Court (Ireland)
Neutral citation: [2026] IEHC 416
Judge: Keane J
Date: 30 June 2026
Parties: Supermac's Ireland Limited (plaintiff/franchisor) v Watchford Limited (defendant/franchisee)

1. Introduction

This judgment concerns a long-running, successful but undocumented (oral) franchise relationship that ultimately fractured when the franchisee sought a formal lease and began disputing the composition of a higher franchise charge applied at premises associated with the franchisor. The franchisor sued for unpaid franchise and ancillary fees after the franchisee withheld part of the invoiced monthly amount while continuing to trade under the brand. The franchisee counterclaimed, characterising the withheld element as an “equipment fee” overpaid over many years and sought restitutionary relief framed as unjust enrichment.

The core issues were (i) what the oral agreement required—an undifferentiated 10% franchise fee or a 7% fee plus a separate 3% equipment fee—and (ii) whether the franchisee could stop paying the alleged 3% component (or recover historic payments) while continuing to benefit from the franchise.

Key issues in one sentence

  • Whether an oral franchise required a single 10% turnover fee, and if so whether the franchisee could unilaterally reduce payments to 7% while still trading as a franchisee; and whether any historic “overpayment” could be recovered via unjust enrichment.

2. Summary of the Judgment

  • Contract term found: the Ennis Road arrangement required a single undifferentiated 10% monthly franchise fee on turnover net of VAT (not 7% + a separate 3% equipment fee).
  • No “cap” term: in any event, there was no agreement that any 3% element would cease once fit-out/refurbishment costs were “recovered”.
  • Breach: by paying only 7% while continuing to operate the franchise, the franchisee breached the franchise agreement.
  • Counterclaim dismissed: no viable claim in contract or unjust enrichment; no unjust factor was established.
  • Signage deduction refused: the franchisee could not set off the cost of post-termination-valueless signage it chose to procure.
  • Cheque credit allowed: the franchisee received a credit for a payment misallocated by the franchisor to different account-holders.
  • Result: judgment for the franchisor in €96,263.84 plus interest under the European Communities (Late Payment in Commercial Transactions) Regulations 2012 (calculation to be addressed in submissions).

3. Analysis

3.1 Precedents Cited

(a) “Affirm or rescind” and the impermissibility of partial repudiation

To deal with the franchisee’s unilateral decision to withhold 3% of turnover while continuing to trade under the franchise, Keane J relied on the orthodox contractual principle that an innocent party faced with breach cannot “pick and choose” by continuing to take the benefit of the contract while refusing to perform a key obligation.

  • Suisse Atlantique Société D'Armement Maritime S.A. v N.V. Roteterdamsche Kolen Centrale [1967] 1 A.C. 361 (Lord Reid at 398): cited for the proposition (as paraphrased by the judge) that upon breach, the innocent party must either affirm or rescind the contract as a whole; it cannot “approbate and reprobate” by affirming part and disaffirming the rest.
  • Lanes Group v Galliford Try Infrastructure Ltd [2011] 1 CLC 937 (Akenhead J at 948): cited as a modern restatement consistent with Suisse Atlantique, supporting the conclusion that the franchisee had no legal entitlement to continue operating the franchise while withholding part of the agreed fee.

The significance is practical: even where a franchisee alleges shortcomings by a franchisor (e.g., refurbishment), self-help by unilateral fee reduction—while continuing to exploit the brand and system—will typically be treated as breach unless the contract confers an express right of deduction, set-off, or abatement.

(b) Unjust enrichment is not “fairness in the round”

The judgment’s unjust enrichment discussion is anchored in a recent Supreme Court restatement, which the High Court applied to reject a late-emerging restitutionary “gain-based” claim.

  • Bank of Ireland Mortgage Bank U.C. v Murray & Anor, (Unreported, Supreme Court, 4 June 2025), [2025] IESC 24: reaffirmed the three-element test (enrichment; at the claimant’s expense; unjust), and—critically—insisted that “unjust” requires a recognised unjust factor.
  • Dargamo Holdings Ltd v Avonwick Holdings Ltd [2021] EWCA Civ 1149, [2022] 1 All ER (Comm) 1244: cited (via Murray) for the articulation that unjust factors matter because they show the claimant did not intend the defendant to receive the benefit in the relevant circumstances, and that unjust enrichment is not a roving inquiry into fairness.
  • Investment Trust Companies v Revenue and Customs Commissioners [2017] UKSC 29, [2018] AC 275: cited (again via Murray) to emphasise rule-based reasoning and to avoid a case-by-case “fairness” jurisdiction.
  • Corporation of Dublin v Building and Allied Trade Union: cited (via Murray) on avoiding “palm tree justice”, reinforcing the insistence on doctrinal structure.

(c) Attempted reliance on “gain-based” approaches

The franchisee sought, at the end of trial, to recast the case by reference to:

  • Hickey and Company Limited v Roches Stores (Dublin) Ltd, (Unreported, High Court (Finlay P), 14 July 1976)
  • Vavasour v O'Reilly & Ors., (Unreported, High Court (Clarke J), 28 January 2005), [2005] IEHC 16

However, Keane J disposed of that attempt on two bases: (i) it was not pleaded in the form advanced, and (ii) it rested on factual premises the court had rejected—namely a separate “equipment fee contract” and culpable non-performance by the franchisor where refurbishment had been refused unless fees were waived.

3.2 Legal Reasoning

(a) Proving terms of an oral commercial agreement: contemporaneous documents outweigh unilateral characterisations

The court’s findings on the fee structure turned on a classic evidential hierarchy:

  • Invoicing practice: every invoice issued was a “franchise fee invoice” for a single undifferentiated 10% of net turnover; none split 7%/3%.
  • Company accounts: the franchisee’s audited accounts recorded undifferentiated “franchise fees”, undermining the asserted contractual bifurcation (even though internal management accounts separated “fixtures and fittings”).
  • System-wide consistency evidence: the franchisor’s accounts evidence was that the business typically charged either 10% (where it owned premises) or 6–7% (where it did not), and she had never encountered a franchise with a formal equipment-fee split.
  • Expert evidence used cautiously: the court accepted the arithmetic underlying the counterclaim but rejected the leap from “recouping costs over time” to a legal term capping receipts to cost with no interest/profit element.

Importantly, Keane J observed that even if one could label the differential between 6–7% and 10% as “equipment” in a descriptive sense, that does not establish that the parties contractually agreed (i) a separate equipment fee, still less (ii) a fee that would terminate once costs were met.

(b) No contractual right to abate fees for alleged non-refurbishment while continuing to trade

Having found the applicable term was a 10% franchise fee for the duration, the breach analysis was straightforward: the franchisee stopped paying 30% of invoiced amounts from August 2018 to termination (August 2019) while continuing to trade as a franchisee. Citing Suisse Atlantique and Lanes Group, the court held this was impermissible partial repudiation/“approbate and reprobate”.

(c) Unjust enrichment: absence of a pleaded and proven “unjust factor”

The pleaded counterclaim was essentially: “we paid 3% for equipment; you spent less; therefore repay the difference.” The court rejected that because:

  • Contract governed the payments: the court found no contractual promise to “true-up” payments to actual spend; the fee was payable regardless of cost.
  • No recognised unjust factor: applying Bank of Ireland Mortgage Bank U.C. v Murray & Anor, the court found no mistake, compulsion, failure of basis (in the relevant sense), or other unjust factor making receipt of the agreed fee “unjust”.
  • Self-induced non-refurbishment narrative: even if refurbishment was part of the bargain, the evidence was that proposed works in 2014 did not proceed because the franchisee insisted on a fee waiver condition; that made it difficult to frame any “failure” as unjustly enriching the franchisor.

(d) Set-off/deduction claims: signage and misallocated cheque

  • Signage: the franchisee ordered brand signage from an approved supplier during self-funded refurbishment, over the franchisor’s objections; it became useless once the franchise ended. The court held there was no contractual or other legal basis to shift that cost to the franchisor by deduction.
  • Cheque credit: a payment drawn on the franchisee’s account was mistakenly allocated by the franchisor to the personal account of the premises’ tenants (distinct from the franchisee company). Keane J treated this as a simple misallocation error: absent a right of set-off/combination, the payment had to be credited to the franchisee’s liability in these proceedings.

3.3 Impact

(a) Franchise disputes: fee withholding is high-risk self-help

The judgment underlines that a franchisee who believes a franchisor is underperforming (e.g., in refurbishments or support) cannot ordinarily respond by unilaterally reducing a turnover-based fee while continuing to trade under the brand. The correct legal routes are typically: negotiate, seek declaratory relief, claim damages (if loss can be proved), or treat the breach as repudiatory and terminate—rather than partial non-performance.

(b) Oral commercial agreements: “what you invoice” and “what you publish” can decide the contract

The court placed substantial weight on consistent invoicing and audited accounts as objective indicators of agreed terms. For franchisors and franchisees, the practical message is that in the absence of a written agreement, the documentary “paper trail” (invoices, ledgers, statutory accounts) may become the contract’s most persuasive evidence.

(c) Unjust enrichment: reinforcing doctrinal discipline post-Murray

By applying [2025] IESC 24, the judgment reinforces that unjust enrichment in Irish law is not an “equitable” backstop to re-price a bargain that turned out to be profitable for one side. A claimant must identify and prove a recognised unjust factor; “you made more than your costs” will not suffice where payment was due under an operative contract and no vitiating factor is shown.

(d) Late Payment Regulations exposure

The decision also illustrates the potentially severe interest consequences under the European Communities (Late Payment in Commercial Transactions) Regulations 2012 for unpaid commercial debts, particularly where disputes delay payment but do not establish a legal basis for deduction/withholding.

4. Complex Concepts Simplified

4.1 “Oral contract terms”

An oral agreement can be binding, but the court must determine its terms from objective evidence. Here, repeated invoices stating one undivided “franchise fee” and audited accounts recording a single fee were treated as stronger indicators than a party’s internal labels or subjective belief.

4.2 “Affirmation vs rescission” (and why partial withholding failed)

If one party breaches, the other generally must choose: affirm (keep the contract alive and sue for remedies) or rescind/terminate (treat the contract as at an end if legally entitled). Continuing to take the benefit of the contract while refusing to perform a key payment obligation is usually not permitted unless the contract itself provides for a deduction or abatement mechanism.

4.3 “Unjust enrichment” and the “unjust factor” requirement

Unjust enrichment is not a general power to correct outcomes that feel unfair. It requires a recognised reason—an “unjust factor”—such as mistake, duress, compulsion, or a legally recognised failure of basis, explaining why the defendant’s receipt should be reversed. Here, the court found none: the payments were due under the bargain as found.

4.4 “Set-off” vs “separate expense”

A set-off/deduction is not automatic just because a party spent money connected to the relationship. The signage cost was treated as a voluntary expense assumed by the franchisee outside any agreement that the franchisor would pay, so it could not be netted off against franchise debts.

5. Conclusion

[2026] IEHC 416 is a commercially significant reminder that (i) courts will reconstruct oral franchise terms primarily from objective documentary evidence, (ii) a franchisee cannot continue to trade under a franchise while unilaterally withholding an agreed portion of turnover-based fees, and (iii) unjust enrichment is tightly controlled: absent a pleaded and proven “unjust factor”, a court will not re-write a profitable bargain by forcing a “cost-based” restitution of part of the agreed fee.

The High Court entered judgment for the franchisor in €96,263.84 (after crediting a misallocated payment), with interest under the Late Payment Regulations to be calculated on further submissions, and dismissed the counterclaim in full.