The Franchise Law Blog – Sixth Edition

 

Europe’s Top Franchise Lawyer is …..

I am delighted to report that Who’s Who Legal in its September analysis of franchise lawyers rated me as their top franchise lawyer in Europe. Unusually, Who’s Who Legal have undertaken thorough research and not simply relied on information provided by firms’ marketing departments – thankfully, because we don’t have a marketing department! See: http://whoswholegal.com/news/analysis/article/34098/

 

Domino’s Pizza

Domino’s Pizza has abandoned its franchise only model by acquiring a controlling stake in its biggest franchisee in London. It paid £24 million for a 75% stake in a 25 store franchisee business.  The value of Domino’s shares decreased further on the announcing of the deal. The market appeared to be concerned that Domino’s was taking a different approach to its rival, McDonald’s who is seeking to transfer its corporate owned stores to franchisees which McDonald’s believe are more profitable.

 

Termination of Franchise Agreements in the European Union

I and my good friend, Professor Aldo Frignani have co-written an article analysing termination and non renewal of franchise agreements in the European Union, which has recently been published by the American Bar Association’s Franchise Law Journal. The article undertakes a comparative analysis of the difference in how the courts deal with termination and non renewal in civil law countries – principally Italy – and common law countries such as the UK. Please do let me know if you would like a copy.

 

European Parliament Resolution

The European Parliament on 12 September 2017 adopted a non legislative Resolution on the functioning of franchising in the retail sector.  The Resolution calls on the European Commission to introduce non binding guidelines on franchise contracts which reflect best practice as well as further requirements on member states to provide information on problems in franchising. This is an indication that the European Parliament still has not given up the prospect of trying to regulate franchising!

 

Data Protection

The government has recently published its draft Data Protection Bill and the Information Commissioner’s Office is consulting on draft guidance on contracts and liabilities between data controllers and data processors.  Generally franchisees are data processors but are very often also data controllers and franchisors are data controllers, but can also be data processors. The draft guidance contains practical guidance although further guidance is being prepared.

 

African Export-Import Bank v Shebah Explorations and Production Co Ltd [2017] EWCA Civ 845

The Court of Appeal had to consider in a recent case – African Export-Import Bank v Shebah Explorations and Production Co Ltd – whether a contract was a standard form contract.  It was not a franchise case but seeking to establish whether a franchise agreement is a standard form contract is important, because the Unfair Contract Terms Act 1997 restricts a franchisor’s ability to impose clauses in their franchise agreements restricting their liability unless such clauses are reasonable if the clause is inserted in a standard form franchise agreement.  The Court of Appeal held that the courts had to consider whether a party habitually used those terms and if there had been any variation from the habitually used terms whether such variation had been more than insubstantial.  In other words there is a double investigation of the extent to which a standard form contract has been used and whether it has been changed in a significant way.  In practice, franchise agreements will almost certainly be treated as standard form contracts.

 

Majestic Wine

 

Majestic has introduced what it refers to as a “franchise-light model” with a view to ensuring that managers are motivated to earn more money.  Majestic had been experiencing the departure of successful store managers who wanted to earn more money and, as a result, introduced in 21 of its 210 stores a scheme which gives managers responsibility for areas such as staffing levels, opening hours, product lines, discount levels and tasting budgets and for those managers participating they could earn up to £50,000 per year, considerably more than the average manager’s salary of £30,000. In effect managers are given the ability to run their own store as they would in a full franchise, but without making any up-front payment.  Apparently the preliminary roll out has been successful and will be extended on a wider basis, so that, over the next year, the managers of at least half of its outlets will be franchise-light partners.

 

Ilkerler Otomotiv Sanavai v Perkins Engines Co Ltd [2017] EWCA Civ 183

In Ilkerler Otomotiv Sanavai v Perkins Engines Co Ltd, the Court of Appeal upheld a decision to dismiss a claim alleging the wrongful termination of a distribution agreement – not a franchise agreement but the same principles would apply – rejecting the distributor’s argument that there had been a breach of an implied term of good faith. The Court also rejected arguments based on implied variation to the termination provisions.

Perkins had appointed the claimant (Ilkerler) as its distributor in Turkey pursuant to a distribution agreement entered into in May 2000. When Perkins gave six months’ notice to terminate the agreement in September 2012 (under Article 2.3), the distributor alleged that the notice was ineffective and sued for wrongful termination based on, amongst other arguments the termination provisions of the agreement had been impliedly varied by the implementation of a new business plan. The business plan ran to 2015 and required the distributor to make long term investments. The distributor argued that termination should only be effective from 2015 onwards or when the distributor had recouped its investment (if earlier); and that Perkins was in breach of an implied term of good faith in terminating when it did so.

Both arguments were rejected. When the business plan was agreed, the Court believed the parties should have expressly amended the termination provisions in the distribution agreement and rejected the Yam Seng approach to imposing good faith obligations.

 

Written by John Pratt

 


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