Dwyer (UK Franchising) Ltd v Fredbar Ltd & Anor

Factual and Procedural Background

The Claimant, a franchisor of plumbing and drain repair services under the "Drain Doctor" brand, entered into a franchise agreement on 4 October 2018 with the Defendant company and its guarantor. The Claimant alleges that the Defendant repudiated the Agreement by purporting to terminate it via letter dated 16 July 2020 and ceasing to be bound by its terms. The Claimant terminated the Agreement on 19 August 2020 and seeks damages for breach as well as injunctive relief to enforce post-termination obligations and restrain competition. The Defendant denies the claim, asserting prior termination of the Agreement based on negligent misrepresentations, undue influence, and breach by the Claimant, including failure to apply a force majeure clause during the Covid-19 pandemic. The trial concerns liability and injunctive relief only. The Defendant has operated a competing business within the franchise territory post-termination. The court expedited the trial following an application for interim injunctive relief.

Legal Issues Presented

1. Whether the Defendant was entitled to rescind or terminate the franchise Agreement based on negligent misrepresentation or undue influence.
2. Whether the Claimant breached the Agreement, including by failing to properly apply the force majeure clause during the Covid-19 pandemic and misusing the marketing and promotion fund ("MAP Fund").
3. Whether the Defendant repudiated the Agreement by ceasing to operate the franchise and competing through a new business prior to termination.
4. The enforceability and reasonableness of the post-termination restraint of trade covenants.
5. The entitlement to injunctive relief and damages arising from breaches and post-termination conduct.

Arguments of the Parties

Claimant's Arguments

• The Defendant repudiated the Agreement by terminating it without valid grounds and competing unlawfully within the franchise territory.
• The Defendant was not entitled to rescind or terminate for misrepresentation; the financial projections provided were estimates based on accurate average data from existing franchisees.
• The Defendant was not subject to undue influence; the Agreement was a commercial transaction and the Defendant chose not to seek independent legal advice.
• The Claimant did not breach the force majeure clause; the Defendant failed to comply with payment obligations during the pandemic.
• The MAP Fund was used appropriately for marketing and promotional activities, including administration of the National Accounts team.
• The post-termination restraint of trade covenants are reasonable and necessary to protect goodwill and allow recruitment of replacement franchisees.

Defendant's Arguments

• The Agreement was terminated validly due to negligent misrepresentations inducing entry into the franchise, including exaggerated financial projections and misleading advertising.
• The Agreement was procured under undue influence and pressure, including insufficient time to consider the lengthy Agreement and lack of advice to seek independent legal counsel.
• The Claimant breached the Agreement by failing to properly apply the force majeure clause during Covid-19, unjustifiably demanding fees and threatening termination.
• The Claimant misused the MAP Fund by using it to pay the costs of administering the National Accounts team, contrary to the Agreement.
• The Defendant denies breaches of the Agreement alleged by the Claimant and challenges the reasonableness and enforceability of the post-termination restraint of trade covenants.
• The Defendant contends the new business "Daily Drains" can continue and that the restraint covenants should not apply or are unenforceable.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ali v Abbeyfield [2018] EWHC 669 (Ch)	Test of whether statements constitute misrepresentations based on reasonable person standard.	Used to assess whether advertising statements were false or misleading to the Defendant.
Zagora Management Ltd & Ors v Zurich Insurance plc & Ors [2019] EWHC 140 (TCC)	Principles of inducement in negligent misrepresentation claims.	Guided the court on the burden of proof and presumptions relating to inducement by misrepresentations.
Dadourian Group International Inc v Simms [2009] EWCA Civ 169	Tests for inducement and materiality in misrepresentation claims.	Supported the court's approach to assessing whether misrepresentations played a real and substantial part in the decision.
Raiffeisen Zentralbank v RBS [2010] EWHC 1392 (Comm)	Tests for inducement and causation in misrepresentation claims.	Referenced for the legal standards on reliance and inducement.
Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44	Principles governing undue influence and impairment of free will.	Applied to determine whether the Defendant's execution of the Agreement was procured by undue influence.
Braganza v BP Shipping Ltd [2015] UKSC 17	Implied term requiring honest, good faith exercise of contractual discretion.	Applied to interpret the Claimant's discretion under the force majeure clause.
Force India Formula One Team Ltd v Etihad Airways PJSC [2010] EWCA Civ 1051	Principles on waiver, election and affirmation of repudiatory breach.	Considered in assessing whether the Defendant affirmed the Agreement despite breaches by the Claimant.
Stocznia Gdanska SA v Latvian Shipping Co (No.2) [2002] EWCA Civ 889	Clarification of election between acceptance and affirmation of repudiation.	Used to evaluate the timing and communication of election by the Defendant.
Carewatch Care Services Ltd v Focus Caring Services Ltd [2014] EWHC 2313 (Ch)	Test for enforceability of restraint of trade clauses protecting legitimate interests.	Guided the court's assessment of reasonableness of post-termination restraints.
Kall Kwik Printing (UK) Ltd v Rush [1996] FSR 114	Restraint of trade in franchise agreements akin to buyer/seller covenants protecting goodwill.	Referenced to support the purpose of restraint clauses in franchise agreements.
ChipsAway International Ltd v Kerr [2009] EWCA Civ 320	Enforceability and reasonableness of post-termination restraint clauses in franchise agreements.	Applied to interpret and assess the restraint of trade covenants in the Agreement.
Dyno-Rod plc v Reeve [1999] FSR 148	Protection of franchisor goodwill via restraint of trade against ex-franchisees.	Supported the rationale for restraints preventing unfair advantage by former franchisees.

Court's Reasoning and Analysis

The court carefully examined the factual matrix, contractual terms, and evidence from both parties. It found that the Defendant was induced to enter the Agreement based on financial projections that were estimates derived from accurate average data of existing franchisees. The advertisements and other pre-contractual representations were superseded by these projections, which the Defendant knew were not guarantees but forecasts. The Defendant's claim of negligent misrepresentation failed due to lack of evidence that the Claimant was careless or had no reasonable grounds for the projections, particularly given the Defendant's knowledge of their basis and opportunity to conduct further research.

On undue influence, the court found no impairment of the Defendant's free will when executing the Agreement. The Defendant had time and opportunity to obtain independent legal advice but chose not to, and there was no evidence of improper pressure or coercion by the Claimant's agent.

The Claimant breached the force majeure clause by failing to exercise its discretion honestly and in good faith, ignoring the Defendant's personal circumstances relating to Covid-19 self-isolation. However, the Defendant accepted an alternative arrangement and affirmed the Agreement, negating any right to terminate on this ground.

The Claimant misused the MAP Fund by using it to pay the National Accounts team's costs, contrary to detailed contractual provisions limiting the Fund's use. This constituted a repudiatory breach but was subsequently affirmed by the Defendant.

The Defendant's purported termination on 16 July 2020 was ineffective; the Claimant validly terminated the Agreement on 19 August 2020 based on the Defendant's repudiation by ceasing to be bound and competing through a new business.

The post-termination restraint of trade covenants were construed as protecting the franchisor's goodwill in the plumbing and drainage business within the franchise territory and a 5-mile radius. However, the court found these covenants unreasonable and unenforceable given the Defendant's inexperience, financial risk, lack of negotiation, and the overly broad geographic and activity restrictions that would prevent legitimate employment or sub-contracting, imposing a disproportionate burden on the Defendant.

Holding and Implications

The court's decision was as follows:

• The Defendant had no right to rescind or terminate the Agreement for misrepresentation or undue influence.
• The Claimant breached the Agreement by misusing the MAP Fund and failing to properly apply the force majeure clause, but these breaches were affirmed by the Defendant.
• The Claimant validly terminated the Agreement on 19 August 2020 following the Defendant's repudiation by ceasing to be bound and competing unlawfully.
• The Claimant is entitled to enforce post-termination obligations, including recovery of unpaid fees and delivery up of franchise property and telephone numbers.
• The Defendant breached the Agreement by operating a competing business prior to termination.
• The post-termination restraint of trade covenants are unenforceable due to unreasonableness in scope and effect.

The direct effect is that the Defendant must cease competing using the franchise's goodwill and comply with post-termination obligations, but the restraint covenants cannot be enforced to restrict the Defendant's trade beyond reasonable limits. No new precedent was set; the decision applies established principles of misrepresentation, undue influence, contractual interpretation, and restraint of trade in the franchise context.