Jani-King (GB) Ltd v Pula Enterprises Ltd & Ors

The Jani-King organisation is based in America. It is the largest commercial cleaning franchise company in the world. The Claimant is responsible for its operations in Great Britain. Although the Claimant has its own management, sales and cleaning departments, its principal business comes through the sale of franchise agreements. The prospective franchisee is trained in the Jani-King cleaning system and then offered a certain amount of initial business by the Claimant. Thereafter, the franchisee will be offered new contracts negotiated by the Claimant’s sales team, and also encouraged to seek its own cleaning contracts. The purpose is to provide a standardised cleaning service utilising the Jani-King system and manual.

The Second and Third Defendants signed a franchise agreement (“the first franchise agreement”) with the Claimant on 3 September 2003. There was also an addendum to that first franchise agreement, also dated 3 September 2003. The documents demonstrate that, between 15 and 19 September 2003, the Second and Third Defendants went through the Jani-King initial training process. Thereafter, they commenced operating under the first franchise agreement. The parties had agreed that, over the first two years, they would be provided by the Claimant with initial business which comprised cleaning contracts that paid a cumulative total of £22,000 per month. It appears that this figure for initial business was achieved in April 2004.

For reasons which are explored in greater detail below, later in 2004, the Claimant required all its franchisees to enter into a new franchise agreement. By this time, the Second and Third Defendants had set up a company called Pula Enterprises Ltd, the First Defendant in these proceedings, to act as the corporate franchisee under the new agreement. The extent of the Third Defendant’s formal involvement in that company is unclear. When the second franchise agreement was signed on 26 November 2004, the parties were therefore the Claimant and the First Defendant. For reasons which will become apparent below, it is this second franchise agreement that lies at the heart of these proceedings. There was an addendum to the second franchise agreement, also dated 26 November 2004 and, following further changes to the Claimant’s commercial strategy, a second addendum dated 28 April 2005. This second addendum to the franchise agreement was signed by the Claimant and the First Defendant, and by the Second and Third Defendants as guarantors.

On 1 August 2006, the Second Defendant wrote to the Claimant on behalf of the First Defendant, purporting to terminate the franchise agreement. The letter suggested that the Claimant was in breach of the terms of the second franchise agreement, although no details of the alleged breaches were identified. It was and is the Claimant’s case that this letter constituted a wrongful repudiation of the second franchise agreement. These proceedings were commenced on 10^th August 2006, seeking damages in consequence of that wrongful repudiation. By way of their defence and counterclaim, the Defendants sought to justify the termination by reference to alleged breaches by the Claimant of the second franchise agreement. It is the Claimant’s case that those alleged breaches are based on an erroneous construction of the express terms of the second franchise agreement and/or are founded on implied terms which cannot be justified in fact or in law. In consequence, the Claimant obtained an order from Master Fontaine dated 18 June 2007 for the hearing of certain preliminary issues arising out of the Defendants’ construction of the second franchise agreement. This Judgment is solely concerned with the answers to those preliminary issues.

Although the Second and Third Defendants were present on 18 June, and were thus aware of this hearing of the preliminary issues, and although they provided witness statements to the Claimant’s solicitors on 10 August 2007 dealing with the issues, all subsequent attempts to contact them have proved unsuccessful. The address in High Wycombe that had been used for the purposes of contacting the Defendants appears now to be unoccupied. The telephone numbers provided are live but are always switched to voicemail. The Claimant suspects that the Second and Third Defendants have gone back to South Africa, from whence they originally came.

In those circumstances, Mr Evans-Tovey, who appeared on behalf of the Claimant, invited me (pursuant to CPR Part 39) to continue to deal with the Preliminary Issues in the absence of the Defendants. In accordance with the over-riding objective (CPR 1.1), and because the issues raised are almost entirely matters of construction, I acceded to that request. In reaching the conclusions set out in this Judgment, I have had regard to the written and oral evidence of Mr Ian Thomas, a director of the Claimant. I have also had regard to the written statements of the Second and Third Defendants, referred to above, although I consider that most of their content relates to matters which are irrelevant to the issues with which I am presently concerned. I have also paid particular regard to the Defendants’ pleaded defence, which was settled by experienced commercial counsel. I have been carefully through the documents, including the many agreements between the parties. As to the relevant principles of law, I should express my gratitude to the considerable assistance on this topic that I have received from Mr Evans-Tovey.

The leading case on this area of the law is, of course, Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896. In his speech, Lord Hoffmann identified five key principles relating to the interpretation of contracts. For present purposes they can be summarised as follows:

In BCC v Ali [2001] 1 AC 251 Lord Hoffmann said that the true test of admissible extrinsic evidence was “anything which a reasonable man would have considered relevant” and he went on to say that, in Investors Compensation Scheme, he was:

There has been a certain amount of debate as to whether or not the factual matrix is always relevant to questions of construction, or only admissible where the words are ambiguous or open to dispute. It seems clear that this debate has been settled firmly in favour of the principle that the factual matrix should always be considered, even if the wording is unambiguous and sensible: see, for example, Westminster CC v National Asylum Support Services [2002] UKHL 38; [2002] 1 WLR 2956; and Static Control Components (Europe) Ltd v Egan [2004] EWCA Civ 392; [2004] 2 Lloyds 429. Most recently, in Chartbrooke Ltd v Persimmon Homes Ltd & Ors [2007] EWHC 409 (Ch); [2007] All ER (Comm) 1083, Briggs J said at paragraph 36 that ambiguity was no longer a pre-requisite for recourse to the admissible background.

Despite that principle, it is plain, as Lord Hoffmann noted in Investors Compensation Scheme, and reiterated in BCC v Ali, that the most important source of information about the agreement is the contract itself, and not the surrounding documentation. As to the way in which the court should perform the necessary balancing act between the two, I find myself particularly attracted to the reasoning of Buxton LJ in Wayne Martin v David Wilson Homes Ltd [2004] EWCA Civ 1027; [2004] E3 EGLR 77; when he said:

I should also say a word about the relevance of previous contracts. As outlined above, this is a case where there were a series of agreements. The question arises, at least tangentially, as to the extent to which a previous contract can be regarded as relevant to the construction of a later contract. It seems to me that the proper approach was summarised by Rix LJ in HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co & Ors [2001] 2 Lloyds LR 161, at page 179, where at paragraph 83 he said:

With these various principles in mind I now turn to consider the agreements between the parties.

There are no specific matters arising from the factual background to the first franchise agreement which have been pleaded by either side as having relevance to these proceedings and, more particularly, to these preliminary issues. Indeed I note that the defence does not admit that the first franchise agreement is of any relevance at all. It seems to me that the relevant background to the first franchise agreement can be stated shortly as follows:

Jani-King had developed a commercial cleaning system which was perceived as having a number of benefits;

Through the Claimant, they offered a franchise arrangement whereby interested parties could be trained in the Jani-King system, and offered a level of initial business (the precise level being chosen by the franchisee himself);

The Second and Third Defendants considered that they would be able to make a profit operating as the franchisees of the Claimant.

The first franchise agreement was dated 3 September 2003. Clause 7 set out the Claimant’s obligations in respect of initial business. The detail of that initial business was set out in Schedule 1. The parties agreed that the initial offering period would be 540 days and that, during that time, the Claimant would offer the Second and Third Defendants initial business up to £22,000 per month, within a 50 mile radius from Bristol City Centre.

The initial term was for 7 years. The initial franchise fee was £81,000 together with VAT, making a total of £95,175.

It is unnecessary in this Judgment to set out any of the other terms of the first franchise agreement, since the Claimant does not rely on the first agreement and, as previously noted, the Defendants’ pleaded case does not admit the relevance of the first agreement at all. Likewise, although there were two addenda to the first agreement, one also dated 3 September 2003, and the second dated 19 November 2003, it does not appear that any point now turns on either of those supplemental agreements.

The relevant background to the second franchise agreement is as follows:

By 2004, the Claimant was aware that market conditions for its commercial cleaning operations were changing. In particular, it was becoming apparent that the ultimate consumers of the cleaning services being offered were no longer prepared to deal at a local level but wanted to negotiate regional or even national cleaning contracts. This had the obvious advantage, to them, of economies of scale.

These changes meant that it became even more important for the Claimant to be able to offer a standard service, which was less dependent on the variable consistency and quality of the individual franchisees. A greater degree of standardisation was required.

Accordingly, by March 2004, a new franchise agreement was being proposed by the Claimant to all of its existing franchisees, including the Second and Third Defendants. These were sent out in draft in June under cover of a letter dated 7 June 2004. The drafts had been amended and approved by the Claimant’s solicitors. The Claimant recommended to its franchisees that they seek legal advice before deciding whether or not to enter into the new franchise agreement.

In addition, both parties wanted the new franchise agreement to be between the Claimant and a company owned/controlled by the Second and Third Defendants. Doubtless for that reason, the Claimant referred to the new agreement as “the new corporate franchise agreement”. The First Defendant was set up in order to become the franchisee under the new agreement.

The second franchise agreement was dated 26 November 2004. It was made between the Claimant and the First Defendant. Schedule 1 stated that the term of the second franchise agreement was 20 years and referred to the initial franchise fee of £95,175 including VAT “which has been paid in full in accordance with the First Franchise Agreement”.

I set out below those clauses of the second franchise agreement which are at the heart of the Defendants’ defence and counterclaim. They are:

There was a first addendum to the second franchise agreement which was also dated 26 November 2004. Nothing turns on the terms of that first addendum.

In the first part of 2005, the Claimant spent some time considering how the level of service provided by the different franchisees could be improved and the necessary consistency in standards maintained and enhanced. They concluded that they could do this by implementing an audit programme and developing an IP system which (amongst other things) ensured that supervisors, employed by the franchisees, made regular visits to see the cleaning work in action.

I consider that the background to the second addendum is adequately summarised at recitals (c) and (d) of the addendum of 28 April 2005. These read as follows:

The bulk of the second addendum is concerned with the training agreement, the IP agreement and the Audit Programme. Clause 1, however, is entitled ‘Settlement of Claims’ and is in the following terms:

Preliminary Issue 1 is in the following terms:

I have concluded that, on the true construction of the second franchise agreement, the parties did not intend that any further initial business would be provided by the Claimant to the Defendants after November 2004. The principal reason for that conclusion lies in the terms of Schedule 2. That Schedule stated that, for the purposes of the second franchise agreement, the initial business was to be a cumulative total of £22,000 per month. The Schedule also made plain that this sum had been offered to the Defendants by way of initial business by 31 May 2004, and that there was therefore no outstanding initial business at the date of the second franchise agreement. This is the only possible explanation for the express words: “initial business outstanding…£0.00”. The rest of Schedule 2 makes clear how and when the cumulative figure of £22,000 was achieved. In those circumstances, I regard it as clear beyond doubt that, by the time of the second franchise agreement, there was no further obligation on the part of the Claimant to provide initial business.

I am conscious that this construction makes Clause 9.1 of the second franchise agreement redundant. A Court should always think long and hard before arriving at a construction which renders otiose a part of the written agreement (see, for example, Re Strand Music Hall Co Ltd (1865) 35 Beav. 153), although there is a good deal of modern authority to the effect that this presumption against surplusage is relatively weak (see, for example, Arbuthnott v Fagan [1995] C.L.C. 1396). However, it seems to me plain that Clause 9.1 was simply a part of the general terms of the Claimant’s standard form franchise agreement, sent out to all prospective franchisees, and was thus overridden by the specific contents of Schedule 2, which related directly to the position as between the Claimant and the Defendants. It is a rule of construction that specific conditions should outweigh the general if there is a conflict between them: see, by way of recent example, Lord Bingham’s speech in Homburg Houtimport BV v Agrosin Private Ltd [2003] 2 WLR 711.

I am fortified in this conclusion by the terms of Schedule 1, another part of the contract that was specific to the relationship between the Claimant and the Defendants. That made plain that the initial franchise fee had been paid in full, in accordance with the first franchise agreement. In other words, there was no question of the Claimant seeking a further franchise fee from the Defendants. They did not seek such a fee, because such a fee had already been paid in accordance with the first franchise agreement. In precisely the same way, the Defendants were not entitled to further initial business from the Claimant, because the Claimant had provided the agreed initial business in full, again pursuant to the terms of the first franchise agreement.

I ask myself whether the factual background, set out at paragraph 17 above, can make any difference to this conclusion. In my judgment, it only serves further to strengthen that conclusion. From that background, it is plain that the second franchise agreement was required to amend and modernise the existing arrangement between the Claimant and the Second and Third Defendants, and to put in their new corporate entity as the franchisee. There was no question of that second agreement taking the relationship between the parties back to square one, and there is nothing in any of the surrounding documents that indicates even a passing suggestion by the Defendants that they were entitled to additional initial business (or, for that matter, that the Claimant was entitled to a further fee). Thus I consider that the factual background only confirms my construction of Clause 9.1 and, in particular, the specific words of Schedules 1 and 2.

Preliminary Issue 2 is in the following terms:

Assuming that I am wrong in my construction of Clause 9.1, then the Claimant was in breach of Clause 9.1 because it failed to provide a further round of initial business following the second franchise agreement of 26 November 2004. Such a claim for breach would plainly have been in existence by 28 April 2005, when the second addendum to the second franchise agreement was agreed. Clause 1.3 of that agreement states that any existing claims against the Claimant were fully and finally settled by the terms of the addendum and that the Defendants undertook not to bring any proceedings in respect of such claims. It is impossible to see an answer to the contention that, if there was a claim in respect of outstanding initial business by April 2005, it was therefore compromised by the clear and unequivocal terms of the second addendum.

Accordingly, I conclude that, even if my construction of Clause 9.1 is wrong, so that the Claimant was in breach of its obligations under Clause 9.1, any claim for damages for breach arose immediately after the second franchise agreement was signed on 26 November 2004 and was therefore settled by Clause 1.3 of the second addendum of April 2005. That provision unequivocally settled “any claims” against the Claimant and made plain that such claims would not be the subject of proceedings.

Preliminary Issue 3 is in the following terms:

I consider that there is clear Court of Appeal authority, which is obviously binding on me, for the proposition that there is no need or room in this agreement to imply the term contended for by the Defendants. In Ludgate Insurance Company Limited v Citibank NA [1998] Lloyds LR 221, it was submitted that a contractual obligation to exercise discretion was qualified by an implication of reasonableness, even if such qualification was not expressly stated in the contract. The Court of Appeal rejected this argument in round terms. At paragraphs 35 and 36 of his judgment, Brooke LJ said as follows:

It seems to me that this judgment, expressed in typically trenchant terms by Brooke LJ, constitutes a complete answer to Preliminary Issue 3. There can be no basis in law for the implied term contended for by the Defendants at paragraph 7(2) of their defence. In exercising its discretion under Clause 9.2 of the contract, the Claimant was obliged to exercise that discretion honestly and in good faith, and for the purposes for which it was conferred. The Claimant was also obliged to ensure that it was a true exercise of discretion and was not capricious, or arbitrary, or so outrageous in its defiance of reason that it could be categorised as perverse. No breach of that nature (which would have to be clearly spelled out) is alleged against the Claimant in the Defendants’ pleading. Any lesser allegation would not constitute a breach of the obligation at Clause 9.2. Accordingly, the alleged breaches, which are based on the incorrect premise that the obligation must be exercised reasonably, cannot succeed.

The terms of Preliminary Issue 4 are as follows:

There are essentially two limbs to this issue. Clause 9.5 of the second franchise agreement is concerned with the Claimant’s obligation to provide a member of staff to give advice. Only one breach of this obligation is alleged, at paragraph 24(3) of the defence. The relevant breach is dated July 2004. Accordingly, the first point is the Claimant’s case that this could not have been a breach of the second franchise agreement at all, because the second franchise agreement did not come into force until November 2004.

The second limb of Preliminary Issue 4 is the same as that covered by Preliminary Issue 2 above, namely that if, contrary to the Claimant’s primary case, the Claimant was in breach of Clause 9.5, that claim for breach was settled by the terms of the second addendum of 28 April 2005.

Paragraph 24(3) of the defence alleges that a Mr Knox was provided by the Claimant in July 2004 to manage the business whilst Mr and Mrs Bruce were on holiday and that he was not competent to provide the required assistance and advice. It seems clear to me that this cannot be a breach of the second franchise agreement because the agreement (and therefore the obligation at Clause 9.5), did not come into existence until November 2004. There is nothing in the second franchise agreement to indicate that it was in any way retrospective, neither is such a suggestion pleaded by the Defendants in their defence. The allegation is therefore doomed to fail.

In those circumstances it is probably unnecessary for me to deal with the second limb of Preliminary Issue 4. However, precisely the same points arise in respect of it as arise under Preliminary Issue 2 (see paragraphs 29-31 above). If there was a breach of Clause 9.5 it seems to me it must have been settled by the terms of the second addendum of 28 April 2005. Therefore no claim can arise in any event.

The terms of Preliminary Issue 5 are as follows:

For precisely the same reasons as outlined in paragraphs 25-28 above in relation to initial business, I reject the suggestion that, as a matter of the true construction of the second franchise agreement, the Claimant was obliged to provide a further initial training programme to the Defendants. The reason for this can be found in the express wording of Schedule 1, which stated that the initial training programme had been “satisfactorily completed on 19 September 2003 under the terms of the first franchise agreement”. Accordingly, although on their face the general provisions of Clauses 13.1 and 13.3 obliged the Claimant to offer an initial training programme, the words of Schedule 1 (which was specific to the relationship between these parties) recorded that such a programme had been satisfactorily completed. There was therefore no further obligation on the part of the Claimant to offer another initial training programme.

Again I acknowledge that this construction means that Clause 13.1 is redundant. Again, it seems to me that this is the result of using a standard form of words in Clause 13 and a ‘case-specific’ form of words in Schedule 1. The specific should outweigh the general in such circumstances, and therefore the wording in Schedule 1 must be interpreted as meaning that there was no obligation on the part of the Claimant to provide a (further) initial training programme.

Again, I consider that a consideration of the factual background only serves to confirm my conclusion as to the true construction of the relevant provisions. There is no dispute that the Second and Third Defendants went on the Claimant’s initial training course between 15 and 19 September 2003; indeed, according to the questionnaire which they completed at the end of that programme, they both gave it a very positive assessment. There is nothing in the documents to suggest that the Defendants ever thought that they were obliged (or entitled) to go on a further training course once the second franchise agreement had been reached, and no indication of what they might have hoped to gain from going through the initial course all over again.. They had been trained by November 2004 and were running what was, on all the evidence, a successful franchise. Neither they nor the Claimant apparently thought that there was any further need for training. Accordingly, the factual position only bears out what I consider to be the true construction of the second franchise agreement.

For the same reasons as are outlined in paragraphs 29-31 above, I consider that, if I am wrong, and there was a breach of Clause 13.1 and 13.3 of the second franchise agreement, any such claim was compromised by the express words of the second addendum. There is therefore no claim in any event.

Preliminary Issue 6 is in the following terms:

It is unnecessary for me to set out at length in this Judgment the general principles relating to the implication of terms into contracts such as this. It is trite law that a term will only be implied into a contract if it is necessary to give efficacy to that contract: see The Moorcock [1889] 14 PD 64, at 68. In Trollope & Colls v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601, at page 609, Lord Pearson said:

The question for any court considering an alleged implied term is to ask whether the contract was “inefficacious, futile and absurd” without the alleged implied term: see the speeches in the House of Lords in Tai Hing v Liu Chong Hing Bank [1986] AC 80 at 104, citing Liverpool City Council v Irwin [1977] AC 239.

If I was unconstrained by authority, I would conclude that the implied term alleged by the Defendant at paragraph 8 of their defence does not come close to meeting the test of necessity set out above. The contract works perfectly well without it.

Further, I consider that there is authority directly in point which demonstrates that, in a complex commercial contract of this sort, there is no room for the implied term alleged. In Bedfordshire County Council v Fitzpatrick Contractors Ltd [1998] 62 Con LR 64, Dyson J (as he then was) rejected the contention that a highway maintenance contract included an implied term as to trust and confidence. He found that the implied term contended for did not satisfy the test of necessity and went on to say this:

There is a third reason why I reject the alleged implied term. It is well established that, in a contract of employment, an implied term of trust and confidence is to be implied: see Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666 at 670. Indeed, in Bedfordshire CC, Dyson J distinguished between, on the one hand, contracts of employment, where such a term truly was necessary to make the contract work, and on the other, commercial arrangements of the sort with which he was dealing, where such a term did not satisfy the test of necessity. That leads on to this question: was the relationship between the Claimant and the Defendants in this case, being a relationship between a franchisor and a franchisee, closer to the commercial arrangement in Bedfordshire CC, or a contract of employment?

I am in no doubt that, as a matter of common sense, and on the authorities, the relationship is much closer to an ordinary commercial relationship, than one between employer and employee. There are a variety of reasons for this. First, Clause 32.11 of the second franchise agreement expressly stated that the Defendants’ relationship with the Claimant was that of an independent contractor and was not a relationship of either agency or employment.

Secondly, the authorities demonstrate that the relationship between franchisor and franchisee is akin to the relationship between lessor and lessee. In Kall Kwik Printing (UK) Ltd v Frank Clarence Rush [1996] FSR 114 at 119, HHJ Cooke said:

Accordingly, I find that, not only was this not a contract of employment, it was not even akin to such a contract. It was closer to the commercial relationship that existed in Bedfordshire CC. That is a third reason why I reject the implication of the alleged term as to trust and confidence in the present case.

The terms of Preliminary Issues 9, 10 and 11 were as follows:

These issues arise in this way. Even if, contrary to my finding, the contract contained the alleged implied term as to trust and confidence, the Claimant alleges that the claims outlined in paragraphs 25(1), (2) and (3) of the defence and counterclaim cannot legitimately be brought by the Defendant. This is because:

The facts and matters alleged arose before the second franchise agreement was signed and cannot therefore amount to breaches of that agreement;

Any such claims were compromised as a result of the terms of the second addendum to the second franchise agreement.

If, contrary to my conclusion set out above, the contract contained the alleged implied term as to trust and confidence, then it seems to me that the allegations of paragraphs 25(1), (2) and (3) are doomed to fail. They allege breaches of the second franchise agreement, respectively, in March 2004, July 2004 and September 2004. All such events occurred before the second franchise agreement was signed. As I have already noted, there is nothing to suggest that the second franchise agreement was in any way retrospective, or that the Defendants even suggest such a case. Thus the matters alleged in those sub-paragraphs cannot amount to breaches of the second franchise agreement in any event.

Further, for the reasons set out at paragraphs 29-31 above, even if there was such an implied term, and even if these three claims could be brought as breaches of the second franchise agreement, all such claims would have been settled by the clear terms of the second addendum of 28 April 2005. These claims are therefore doomed to fail.

The terms of Preliminary Issue 7 are as follows:

I have already set out, at paragraphs 46 and 47 of this Judgment, the general principles of law applicable to the implication of terms into contracts such as this. The term must be necessary, not merely reasonable.

Where commercial contracts have no fixed term, the courts have been willing to imply a notice provision of the sort alleged: see, for example, Staffordshire Area Health Authority v South Staffordshire Waterworks Co [1978] 1 WLR 1387. However, Mr Evans-Tovey was unable to identify any case in which an implied term as to termination on reasonable notice was implied into a contract with a fixed term. That is, perhaps, unsurprising: the whole point of a commercial contract which will last for a particular period (or until a specified event has happened) is that the contracting parties are committed to both the contract and each other for a known period. It seems to me that it would make a nonsense of such an arrangement if either party could give notice of termination at any time during the term, with minimal consequences, because, say, that party has received a more attractive proposal from someone else.

In addition, it is of course trite law that the court will never imply a term which is inconsistent with the express terms of the contract or which introduces an obligation which goes beyond the limits of the express terms that have been agreed. In Broome v Pardess Co-Operative Society of Orange Growers (Est 1900) Ltd [1940] 1 All ER 603, recently cited with approval by Patten J in WX Investments Ltd v Begg [2002] 1 WLR 2849, MacKinnon LJ said:

I am in no doubt that it is wholly unnecessary to imply the alleged term into the second franchise agreement. There are a number of different reasons for this. First and foremost, this was a contract which had a fixed term. There is no authority that suggests that there can ever be room, in a fixed term contract, for an implied termination provision of the sort alleged. For the reasons stated in paragraph 60 above, it is difficult to see how such a term could ever be implied into a fixed term contract.

Secondly, Clause 4.1 provided that the second franchise agreement “will continue in force thereafter for the term, unless and until terminated in accordance with the terms set out in this agreement”. That makes it clear that termination could occur only in accordance with the express provisions of the second franchise agreement. In those circumstances, I conclude that the implied term relied on by the Defendants is contrary to Clause 4.1 of the second franchise agreement, because it seeks to provide for a termination process which is not ‘set out in this agreement’. There can be no basis in fact or in law for implying a term into the second franchise agreement that is contrary to the express terms of that agreement.

Thirdly, Clause 26 of the second franchise agreement contained detailed provisions allowing the Claimant to terminate the agreement, on the occurrence of a variety of events, on 30 days notice. That again must point strongly to the conclusion that the parties did not intend that the right to terminate on 30 days notice was somehow shared by the Defendant, but not expressed in the second franchise agreement at all. Moreover, if the Defendants are right, and they had an unfettered right to terminate on 30 days notice, regardless of the circumstances, then (through the implied term) they would find themselves in a much more beneficial position than the Claimant, who could only terminate under Clause 26 on the happening of very particular events, usually requiring default on the part of the First Defendant. That anomaly, too, makes it plain that there can be no room in the second franchise agreement for the term alleged.

There is a suggestion in documents emanating from the Defendants that the second franchise agreement was in some way unfair because it provided the Claimant with a variety of reasons for early termination, but allowed the Defendant no similar rights. Plainly, questions of fairness are irrelevant to the implication of contract terms: as noted above, the basis for the implication of any term must be necessity, never reasonableness. Moreover, it cannot be said that a term contract of this sort is unreasonable merely because there were no express rights on the part of the Defendants to terminate. The Defendants would have been able to terminate at common law had the Claimant been in breach of the agreement. Beyond that, it seems to me that, maintaining the analogy between a franchise agreement and a lease originally drawn by HHJ Cooke in Kall Kwik, a term contract of this sort is akin to a lengthy lease without a break clause.

For all these reasons, therefore, I reject the alleged implication of the term purporting to allow the Defendants to terminate on notice.

The terms of Preliminary Issue 8 are as follows:

This issue arises in this way. At paragraph 24(5)(a) of their defence, the Defendants allege that the Claimant was in breach of Clause 15.1.36 in respect of a particular contract. The Claimant alleges that, even if that were right, on the Defendant’s own pleading, the breach occurred before the second addendum to the second franchise agreement was agreed and was therefore settled by the terms of that addendum.

Clause 15.1.36 was designed to allow the Claimant to negotiate national accounts with customers and to transfer to the Defendants contracts from other franchisees. In either case, Clause 15.1.36.1 expressly obliged the Claimant to take such steps as it reasonably deemed appropriate to remove any negative cash flow that the Defendant would otherwise suffer as a result of servicing that particular contract.

Paragraph 24(5) of the defence alleges four breaches of that obligation. I am not concerned with those alleged at sub-paragraphs (b) – (d) inclusive. The allegation at (a) is in respect of a sale in December 2004 to Brewsters in Bridgewater, the allegation being that the sales person who sold the contract at this time failed to take any or any proper account of the extent of the work required, by comparison with the charges agreed. It seems clear, therefore, that the relevant breach occurred in December 2004. That was at a time when the second franchise agreement was in force. A claim for breach therefore existed as at 28 April 2005, and was thus settled by the addendum agreement of that date (see paragraphs 29-31 above).

I have concluded that there was no obligation on the part of the Claimant under the second franchise agreement to provide any further initial business, because the parties were agreed that the initial business had already been supplied. My reasons are set out at paragraphs 24-28 above.

I have concluded that if, contrary to my primary view, the Claimant was obliged to provide further initial business under the second franchise agreement, the Claimant was in breach of that obligation from November 2004 onwards, and therefore any claim based on that breach was compromised by the terms of the second addendum of 28 April 2005. My reasons are set out at paragraphs 29-31 above.

I have concluded that there was no implied term as to the reasonable exercise of discretion. My reasons are set out at paragraphs 32-34 above.

I have concluded that the claim at paragraph 24(3) of the defence cannot amount to a breach of the second franchise agreement because the relevant event occurred before the second franchise agreement was agreed. Alternatively I have concluded that any claim was compromised by the second addendum agreement. My reasons are set out at paragraphs 35-39 above.

I have reached the same conclusion on Preliminary Issue 5 as I have reached on Preliminary Issues 1 and 2, and for very similar reasons. Those reasons are set out at paragraphs 40-44 above. There was no obligation to provide initial training under the second franchise agreement and, even if I was wrong about that, any claim for breach was compromised by the terms of the second addendum.

I have concluded that there was no implied term as to trust and confidence for the reasons set out at paragraphs 45-53 above. However, if I were wrong about that and there was such an implied term, the claims made in the defence at paragraphs 25(1), (2) and (3) could not amount to breaches of the second franchise agreement because the relevant events occurred before the agreement had been reached. Furthermore if I was also wrong about that, then any such claims would have been compromised by the second addendum agreement. The reasons for these subsidiary conclusions are set out at paragraphs 54-57 above.

I have concluded that there was no implied term allowing the Defendant to terminate on notice. Such a term was contrary to the express terms of the contract and could not be regarded as necessary in any event. My reasons are set out at paragraphs 58-66 above.

I have concluded that, if the Claimant was in breach of Clause 15.1.36.1 then the claim at paragraph 24(5)(a) was compromised by the terms of the second addendum of 28 April 2005. My reasons are set out at paragraphs 67-70 above.