Is the Franchise Agreement breached?

The recent High Court decision in Senior Care at Home Ltd (t/as Right at Home UK) v Adult Home Care Ltd will provide a significant amount of reassurance to Franchisors that the courts may be willing to grant injunctions in franchise disputes where warranted by the facts of the case, rather than ‘just’ awarding damages. Equally, it will serve as a further warning to Franchisees of the potentially serious consequences of breaching franchise agreements.

In the above case, the High Court granted the franchisor Senior Care at Home Ltd (SCH) an interim injunction against its former franchisee, Adult Home Care Ltd (AHC) for both delivery up of all possessions belonging to SCH, and to restrain AHC from continuing to trade within the franchise area in competition with SHC (known as “restraint of trade”). In making its decision, the Court ruled that damages would not have been an adequate remedy for SCH. The court was persuaded by SCH’s representations that if an injunction were not granted it would be tantamount enabling Franchisees to breach their agreements without consequence.

1. Background

SCH and AHC entered into a 10-year Franchise Agreement in early 2017. SCH is in the business of providing in-house care to its clients. Under the terms of the Franchise Agreement, AHC operated under SCH’s name and business.

During the course of the Franchise Agreement, the Local Authority had raised concerns regarding AHC’s performance and the behaviour of one of its directors.

This prompted SCH to conduct its own investigation, which ultimately upheld the Local Authority’s concerns. SCH therefore terminated the Franchise Agreement on the basis that AHC was in breach, and applied to court for an injunction for delivery up and restraint of trade.

2. SCH’s case

SCH relied on the fact that they were entitled to terminate the Franchise Agreement as the Local Authority had stated that they had lost confidence in AHC. This was significant because many of AHC’s clients were sent by the Local Authority.

SCH claimed that AHC had flagrantly breached the Franchise Agreement and therefore SCH should be entitled to enforce the terms without fetter. SCH submitted to the court that a Franchise Agreement is very different to a normal contractual relationship, and that it should be entitled to protect its brand by any means necessary.

3. AHC’s response

In its defence, AHC denied that they were in breach of the Franchise Agreement. They also asserted that the injunction was unduly oppressive and unnecessary. It was submitted that the injunction was not required as if it was proven (at later trial) that they were in the wrong they could simply pay damages to SCH.

They also said that the balance of convenience favoured allowing them to continue providing care to their clients, especially as they maintained that the Local Authority had purportedly since regained trust in them.

4. Judgment

The court ultimately decided to grant SCH the requested injunction for delivery up and restraint of trade.

Significantly, the court determined that damages would not have been an adequate remedy in the context of the existing franchise model. It agreed that the point of a franchise is for franchisees to operate and promote the franchisor’s business and it was therefore important to ensure that the Franchisor could protect its name and modus operandi.

Another factor that influenced the court in its decision was that it was not convinced that AHC had the means to satisfy any damages award.

5. Comment

The court’s decision here should act as reassurance to Franchisors. This shows that the court is willing to accept that the franchise model is different to typical commercial relationships, and that Franchisors should be allowed to protect their brands to the fullest extent permissible under their Franchise Agreements. The word of warning for Franchisors in this case is to ensure that their Franchise Agreements give them sufficient protections (such as restrictive covenants in the event of breach by the franchisee)  to obtain the necessary relief if  it should become necessary.

For Franchisees, this is a clear warning that in franchise disputes the courts seem to be more willing to grant injunctive relief, rather than simply ordering a payment of damages, than may typically be the case in ‘normal’ business-to-business contracts.

If you wish to discuss the above article, or have a franchise dispute, then please contact Chloe Bird or another member of the Litigation and Dispute Resolution Team.