Recent franchising case: damages would not be an adequate remedy for a franchisee’s breach of contract
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Recent franchising case: damages would not be an adequate remedy for a franchisee’s breach of contract
In a recent high court case, the court has held, in granting injunctive relief to a franchisor, that in a franchising context, damages would not be an adequate remedy for a franchisee’s breach of its franchise agreement.
The court held that to do so would be seen as a green light to other franchisees to break their agreements. The ruling will reassure franchisors seeking to protect the reputation of their brand and franchise network against franchisees who fail to maintain the standards they have invested time, money and effort in establishing.
The facts of the case
Senior Care at Home Ltd (“Franchisor”) is a franchisor providing domiciliary care in the UK. In May 2017 it granted a 10-year franchise agreement to Adult Home Care Ltd (“Franchisee”). As is typical in franchise agreements, the agreement contained extensive termination rights in favour of the franchisor and imposed restrictive covenants on the franchisee.
The local council raised concerns about the franchisee’s performance, following a number of whistleblowing allegations by staff. The franchisor began its own investigation into the performance and behaviour of the franchisee and concluded that the allegations were well-founded. The fact that the local council had no confidence in the franchisee was important, as half of the client base came from local authority contacts. As a result, the franchisor terminated the franchise agreement and applied for interim relief and the court granted the franchisor’s application for delivery up and restraint of trade orders.
Reasons for decision
The court found that the point of a franchise was to enable the business to be conducted in the franchisor’s name and therefore, it was important for the franchisor’s name and modus operandi, to be protected and for the franchisor to be able to police its brand.
The alleged breaches of contract, went to the heart of the franchise operating model and the purpose of the franchise, and for that reason alone, damages would not be an adequate remedy (as the franchisee had tried unsuccessfully to argue). The balance of convenience was firmly in favour of the franchisor, given the seriousness of the issues involved, the strength of the evidence against the franchisee and the role of the franchisor in providing reputable domiciliary care under its franchises. The court was also unsatisfied that the defendants had the means to meet any damages awarded.
Senior Care at Home Ltd (t/a Right at Home UK) v Adult Home Care Ltd – 20 August 2021
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