exPert Advice
party (Paterson), and ceasing to operate
the businesses without first seeking the
franchisor’s consent, which was found by
the Court to constitute a repudiation of the
franchise agreements.
In addition to discussions regarding the tort of
inducing breach of contract (which will not be
addressed in this article), the Court considered
the principles applicable to assessing damages
for repudiation of contract.
The Court of Appeal held that the franchisor
was entitled to loss of bargain damages to
restore its position to that which it would have
been in if the franchisee had performed the
franchise agreements.
The Court did not consider it relevant that, as
argued at the initial trial, the franchisee had
at the time of the repudiation fallen behind
in its payment of fees due under the franchise
agreements and that the franchisee may not
have been financially able to perform the
franchise agreements for the balance of their
terms.Key learning points
Although considered by some to be a
somewhat harsh decision in relation to
assessment of damages, this decision reminds
franchisors that they are entitled to:- enforce the franchisee’s contractual
obligations to pay all fees due under a
franchise agreement; and - seek damages, following the unlawful
termination of the franchise agreement,
for monies the franchisor would have
received if the franchisee had performed the
franchise agreement for the remainder of its
term.
This case also serves as a reminder to
franchisees that failure to comply with the
terms of their franchise agreements can be
severe. The franchisee in this case would
likely have had a better result had it complied
with its obligation to seek the franchisor’s
prior consent to any proposed transfer of the
business.
Lessons
from 2016
francHising
cases
2016 was an interesting
year in the franchising and
business sector, with the
introduction of new unfair
contract terms laws, high
profile scandals regarding
employee underpayments
and the collapse of several
large and previously
successful retail brands.
This article provides a summary of some of the
interesting franchising court cases decided in
2016 and the lessons to be learned from them.
cI vIc vIDEo cASE^1
This case involved a franchisee purporting
to sell its franchised businesses to a third