Peart Stevenson Associates Ltd v Holland

The claimant, Peart Stevenson Associates Ltd. (“the Franchisor”) carries on business, amongst other things, as a provider of inspection services in relation to gas and electrical appliances, and a repairer of such appliances, in the area of Potters Bar, Hertfordshire and North London. In this judgment I shall refer to that business as “the Home Business”. The Home Business is, and was at all times material to this action, carried on under the style or title “The Power Service”. I shall call that name in this judgment “the Trade Name”. It was the case for the Franchisor that it had developed a distinctive system (“the Method”) of operating the Home Business under the Trade Name.

The Franchisor also carries on business as a grantor of franchises to others to carry on business under the Trade Name in accordance with the Method.

By an agreement (“the Agreement”) in writing in a standard form utilised by the Franchisor, dated 27 October 2005, the Franchisor granted a franchise to “Holland & Co” to carry on a business similar to the Home Business under the Trade Name in accordance with the Method in parts of Staffordshire designated by particular post-codes (“the Territory”). “Holland & Co” was in fact a trading style of the defendant, Mr. Brian Holland.

By a letter dated 16 June 2006 the Franchisor terminated the Agreement in accordance with the provisions of clause 13.1(a), (c), (k) and (l) thereof. It was not contended in this action that the Franchisor had not been entitled to terminate the Agreement by the letter of 16 June 2006, although it was disputed that some of the matters relied upon as justifying such termination were correct.

By the time it came to trial the Franchisor claimed in this action a sum which was alleged to be due to it from Mr. Holland in respect of fees which had become payable prior to the termination of the Agreement, damages for the breaches of the Agreement which led to it being terminated, and damages for alleged breaches of clause 15.1 of the Agreement. In the course of the trial it was agreed that the sum which was due to the Franchisor, subject to the counterclaim of Mr. Holland, in respect of fees which had become payable prior to the termination of the Agreement was £875.

Mr. Holland contested the allegation that he was liable to pay damages for the breaches of the Agreement which led to it being terminated. However, he also sought to set off against any damage which might be proved so much as was necessary of the sums found to be due to him in respect of his counterclaim. That counterclaim was for damages for misrepresentation.

It was the case for Mr. Holland that the provisions of clause 15.1 of the Agreement were not enforceable against him because they were, on proper construction, in unreasonable restraint of trade. It was also contended on his behalf that in any event his breaches of that provision were minor and that it had not been proved that the Franchisor had suffered damage as a result of the breaches which he admitted. Again, Mr. Holland sought to set off against any sum which was found to be due to the Franchisor as damages for any breach of the provisions of clause 15.1 so much as was necessary of the amount found to be due to him in respect of his counterclaim.

In terms of the time occupied at the trial the most significant issues were those which arose in respect of the counterclaim of Mr. Holland. However, before turning to those issues it is convenient to notice the material provisions of the Agreement and to consider the issues which arose in relation to the outstanding claims of the Franchisor.

By clause 3.1 of the Agreement it was provided that:-

“This Agreement shall commence on the Commencement Date [5 December 2005] and shall continue in force thereafter unless and until determined in accordance with its terms for an initial period of five (5) years ending on the Expiry Date and subject to the Franchisee’s right of renewal contained in the next following sub-clause.”

The expression “the Expiry Date” was defined in clause 1 of the Agreement as “the date specified in Schedule 1”. “The Expiry Date” specified in Schedule 1 to the Agreement was in fact “5^th December 2011”. Given the terms of clause 3.1 of the Agreement, providing for an initial period of five years, in my judgment the specification of “The Expiry Date” in Schedule 1 must have been a mistake and the intended date must have been 5 December 2010.

What were described in the Agreement as “Franchisee’s Obligations” were set out in clause 5. They included:-

“5.25

Sales reports

To supply to the Franchisor by first class mail from time to time upon request sales reports and other information in the form stipulated by the Franchisor in the Manual concerning the Business.

5.26

Customer list

To keep a list of actual and potential customers for the Business and to supply a copy of it to the Franchisor upon request.”

Clause 7 of the Agreement was concerned with the question of the sums to be paid by Mr. Holland under the Agreement. For present purposes the material provisions of that clause were:-

“In consideration of the grant of the right and licence to operate the Business according to the Method the Franchisee shall pay to the Franchisor without demand deduction or set off (save where the amount the subject of the said demand deduction or set off has been acknowledged as due and owing by the Franchisor and/or the Franchisor has acted fraudulently) on or before the relevant Payment Dates (time being of the essence)

(a)

The Initial Fee [£23,000] together with VAT thereon

(b)

The Continuing Fees together VAT thereon and in accordance with the provisions set out below:

(i)

On or before the seventh (7^th) day of each month during the Term the Franchisee shall supply to the Franchisor full particulars of the Gross Turnover for the previous month and upon receipt of such information the Franchisor will issue an invoice to the Franchisee to the value of the Continuing Fees together with VAT thereon

(ii)

Except as otherwise provided on the Franchisor’s invoice the Franchisee shall pay to the Franchisor on or before the fourteen (14^th) day of each month all monies that have accrued and are due to the Franchisor in respect of the immediately preceding month and calculated with reference to the immediately preceding monthly invoice that has been submitted in accordance with the provisions of sub-clause 7(b)(i) above”

In clause 1 of the Agreement the expression “Continuing Fees” was defined as meaning:-

“the ongoing management service fees calculated as follows:

(a)

ten percent (10%) of the first five thousand pounds (£5,000) of Gross Turnover per month and

(b)

thereafter five percent (5%) of Gross Turnover over five thousand pounds (£5,000) per month.”

The expression “Gross Turnover” was also defined in the same clause. For present purposes it is sufficient to say that it amounted to the gross amounts receivable each month by the Franchisee.

The claim of the Franchisor against Mr. Holland in respect of fees unpaid at the date of the termination of the Agreement was founded upon the provisions of clause 7.

Clause 7 was also relevant to the claim for damages for termination of the Agreement. It was said, obviously correctly, that, but for the termination of the Agreement, Mr. Holland would have been liable to pay “Continuing Fees” for the term of the Agreement.

The termination of the Agreement was provided for in clause 13. For present purposes the material provisions of that clause were:-

“.1 The Franchisor may terminate this Agreement immediately by giving notice in writing to the Franchisee in any of the following events:

(a)

if the Franchisee shall at any time fail to pay any amounts due to the Franchisor

…

(c)

if the Franchisee shall fail to operate the Business in accordance with the terms of this Agreement the Manual or the Franchisor’s reasonable instructions

…

(k)

if the Franchisee shall be in breach of any of the terms of this Agreement except those set out above and the Franchisor shall have notified the Franchisee in writing of any such breach and the Franchisee shall have failed to rectify such breach within twenty-eight (28) days from the date of the notice.

(l)

in the event of any persistent breach of any of the Franchisee’s obligations under this Agreement and for the purpose of this clause a persistent breach shall be interpreted as two or more breaches of any of the Franchisee’s obligation during any calendar year.”

As I have noted, the other outstanding claim of the Franchisor against Mr. Holland depended upon the provisions of clause 15.1 of the Agreement. That sub-clause provided, so far as is presently material, that;-

“Upon termination of this Agreement for any cause (which shall include its expiry) the Franchisee shall not for a period of one (1) year thereafter whether itself or together with any person firm or company in any capacity whatsoever save as authorised hereunder directly or indirectly:-

(a)

From the Location nor within the Territory (except as a holder of not more than five percent (5%) of the issued shares of a quoted company) be engaged or interested or concerned in the supply of products and services similar to the Services or in any business similar to or operating in competition with the Business as carried out by the Franchisee at the date of termination and/or within the Business of:

(i)

the Franchisor or

(ii)

any of the other franchisees of the Franchisor

(b)

….

(c)

…

(d)

Solicit customers or former customers of the Business nor divert or seek to divert any custom from the Franchisor or any other franchisee of the Franchisor.”

In clause 1 of the Agreement the word “Business” was defined as meaning:-

“the franchised business of electrical and gas appliance/installation inspection servicing and repair operated and conducted under the Trade Name in accordance with the Method within the Territory”,

whilst the word “Services” was defined as meaning:-

“all services to customers performed or provided in connection with the conduct of the Business including (without limitation) such servicing of gas and electrical appliances as are more particularly described in the Manual”

Mr. Holland accepted that he had, after the termination of the Agreement, established a business called “Electic Electrical Contracting” (“the New Business”) and that the New Business did continue to carry out the sort of work which he had carried out pursuant to the Agreement, as well as other work, within the Territory and elsewhere. He also accepted that he had, after the termination of the Agreement, continued to undertake work for some who had been customers of his whilst he was trading under the Trade Name. However, he denied that he had solicited the custom of those customers. He said that, in each case, he had explained to the customer that he was no longer trading under the Trade Name, but the customer had enquired whether he was still providing the sort of services which he had previously provided. Mr. Holland had replied in the affirmative, and the customer had then given him further work.

The remaining provisions of the Agreement relevant to the issues in this action were clause 17.12 and clause 17.14. Clause 17.12 was in these terms:-

“The Franchisee acknowledges that this Agreement contain [sic] the whole agreement between the parties and it has not relied upon any oral or written representation made to it by the Franchisor or its employees or agents and has made its own independent investigations into all matters relevant to the Business.”

Mr. David Wicks, who appeared on behalf of the Franchisor, submitted that the effect of clause 17.12 was that it was not open to Mr. Holland to pursue any claim against the Franchisor founded upon any alleged misrepresentation. I shall come to the submissions of law made by Mr. Wicks in support of that contention.

Clause 17.14 provided, so far as is presently material:-

“(a)

The Franchisee hereby acknowledges:

(i)

that in giving advice to and assisting the Franchisee in establishing the Business the Franchisor bases its advice and recommendations on experience actually obtained in practice and is not making or giving any representations guarantees or warranties with regard to such matters or generally in connection with the sales volume profitability or any other aspect of the Business”

As I have noted, the termination of the Agreement was effected by the letter dated 16 June 2006. The sending of that letter was preceded by a letter dated 15 May 2006 written by Mr. Geoff Peart, the managing director of the Franchisor, to Mr. Holland. The latter letter included the following:-

“Although you have been operating the business since January 2006, I am concerned that you do not appear willing to comply with your contractual obligations. In this regard the terms of the Franchise Agreement entered into by you are quite clear and I would draw your attention to the following matters:

(a)

by clause 5.25 of the Franchise Agreement you are required to supply sales reports concerning the business “and on time”.

(b)

by clause 5.26 you are required to keep a list of actual and potential customers for the business and to supply a copy upon request. You have advised us that you have entered into approximately 14 new contracts although to date no sales reports have been provided. In the circumstances please now provide a copy of actual and potential customers;

(c)

by clause 7(b)(i) you will note that you are required to provide a summary of invoices delivered each month of the Gross Turnover for the previous month. To date no such information has been provided; and

(d)

by clause 7(b)(ii) you are required to pay any sums due in respect of continuing fees by the 14^th day of each month.

You will appreciate that your failure to comply with the terms of the Franchise Agreement is a serious matter and, of course, our remedies for such breaches include those specified in clause 13. For the avoidance of doubt, and without prejudice to our contractual rights, I give notice that you are now required to comply in full with the terms of the Franchise Agreement (including those specified above). In order to remedy the above breaches you are required to undertake the following:

1.

Confirm that you will attend the meeting on Friday 26^th May 2006 at 2pm.

2.

Provide the sales reports as referred to above.

3.

Provide full particulars of the Gross Turnover of the business from commencement until 30^th April 2006. Payment of fees will also need to be made promptly once such information has been furnished.

4.

Confirm that you will comply in full with the provisions of clause 7 regarding the provision of particulars relating to Gross Turnover of the business (and payment of all sums due).

5.

Provide a list of all customers and potential customers of the business.

Please note that this letter should be considered as notice in writing of breaches of the Franchise Agreement served in accordance with the provisions of clause 13.1(k).”

That letter crossed in the post with a cheque drawn by Mr. Holland on 14 May 2006 in favour of the Franchisor in the sum of £129.84. On 18 May 2006 Mr. Holland sent to the Franchisor by e-mail a summary of invoices delivered in the month of April 2006. Receipt of that e-mail was acknowledged by a lady called Anne Sabido at the Franchisor by an e-mail also dated 18 May 2006. However, Mr. Holland did not respond to the letter dated 15 May 2006 and he did not supply any sales report or any list of actual and potential customers.

It was common ground before me that a party who elected to terminate a contract pursuant to a right conferred by the contract was not entitled to claim damages consequent upon the termination unless the breaches of contract relied upon as justifying the termination also amounted to repudiatory breaches of the agreement.

Mr. Wicks submitted that the breaches of failing to pay when due money owed under clause 7, which provided that time was of the essence in relation to payment on the specified “Payment Dates”, failing to provide sales reports in response to the request contained in the letter dated 15 May 2006, and failing to supply a copy of a list of actual and potential customers in response to the request in the same letter did amount, each of them and collectively, to a repudiation of the Agreement on the part of Mr. Holland. Consequently, contended Mr. Wicks, the Franchisor was entitled to damages.

Mrs. Michelle Stevens-Hoare, who appeared on behalf of Mr. Holland, submitted that the breaches of the Agreement in question did not amount to repudiatory breaches.

In my judgment certainly the breaches of the Agreement which consisted in the failure to pay the amount of £129.84 when due, time of payment being of the essence of the Agreement, the failure to provide any sales report in response to the request for the same and the failure to provide a list of actual and potential customers in response to a request for the same did each amount to a repudiatory breach of the Agreement.

The damages which the Franchisor sought for the breaches of the Agreement which it relied upon as justifying the termination of it were calculated at a total of £55,187. How that figure had been calculated was explained at paragraph 34 of the witness statement of Mr. Peart prepared for the purposes of this action:-

“For the purposes of the claim PSAL [that is, the Franchisor] had assumed estimated monthly gross turnover of £13,695 for a period of 66 months and 19 days (ie from 16 June 2006 until the contractual expiry date of 5 December 2011). This figure is based on the performance of NICEIC registered franchisees as appropriate comparators; ie Mr. Holland was to be NICEIC registered. I believe that the figure of £13,695 is conservative as the performance of such franchisees evidences a higher level of turnover being achieved, details of which are included on the summary of NICEIC registered franchisees for 2006 and 2007 at pages 4 and 5. However, I am content to limit the claim under this head as set out in the statement of case (except that the period from 16 June 2006 until the contractual expiry date is 65 months and 19 days). Accordingly, losses are calculated as follows:

Estimated Turnover……………………………………… £898,730

Continuing Fees:

10% x £335,000 (first £5000 of monthly turnover)……..£33,500

5% x £563,730……………………………………………….£28,187

Less

Estimated direct costs (support services)

£100 per month……………………………………………..£6,500

Total…………………………………………………………£55,187

I should explain that the direct costs saved as a consequence of the termination of the agreement would have been minimal. In particular, most meetings with franchisees are held regionally and those meetings continue to take place. There are no staff costs savings. There are certain administrative savings by way of stationery and postage and some savings in relation to expenses that would have been incurred in occasional visits. The sum of £100 per month referred to above is, in my view, likely to be significantly greater than the costs that would have been incurred had the agreement continued for its intended term.”

The reference in that passage to the contractual expiry date of the Agreement being 5 December 2011 was based on the “Expiry Date” as defined in clause 1 of the Agreement being “the date specified in Schedule 1” and that date being 5 December 2011. However, as I have already remarked, that was fairly obviously a mistake. Mr. Peart in his calculations was assuming that the length of the term of the Agreement was six years, not five. In my judgment, on proper construction of the Agreement the term expired on 5 December 2010, not 5 December 2011.

NICEIC are the initials of National Inspection Council for Electrical Installation Contracting, which is a certifying body which approves electricians.

There was put in evidence the trading and profit and loss account of Mr. Holland in the period from the commencement of his trading as a franchisee of the Franchisor at the beginning of January 2006 until 31 March 2006 (“the Holland Accounts”). The Holland Accounts showed that in that period the turnover of Mr. Holland amounted to £1,336, not £13,695 per month or anything like it. The summary of invoices delivered in the month of April 2006 which was sent to Anne Sabido on 18 May 2006 showed a turnover in that month of £2,615. Mr. Holland told me in cross-examination that up to the date of termination of the Agreement his turnover had amounted to about £8,000. By that date he had been trading for some 5½ months. On an average basis, therefore, by that date his monthly turnover had been of the order of £1,455, although in fact it seems to have risen at the end of the period, with the turnover in the last six weeks being of the order of £4,049, or £2,700 per month.

In the context of his claim for damages for misrepresentation Mr. Holland put before me figures as to his turnover after the termination of the Agreement, whilst carrying on the New Business. In the year to 31 March 2007, which included the latter part of his trading using the Trade Name, Mr. Holland achieved a turnover of £40,661, equivalent to an average of £3,388.42 per month. In the following year his turnover was £43,475.41, equivalent to an average of £3,622.95 per month. For the purposes of his claim Mr. Holland estimated that his turnover would increase in the current year, and in each succeeding year to 5 December 2010, at a rate of 30%. In fact he rounded the figure up to a turnover of £60,000 (from the arithmetically correct £56,517.50) for the year ending 31 March 2009, but thereafter produced the arithmetically correct increases to £78,000 for the year ending 31 March 2010, and to £101,400 for the year ending 31 March 2011. On those figures the average monthly turnover would be £5,000 in the year ending 31 March 2009, £6,500 in the year ending 31 March 2010, and £8,450 in the year ending 31 March 2011.

Using Mr. Holland’s actual and projected figures, had he been achieving those levels of turnover whilst a franchisee of the Franchisor, the “Continuing Fees” due to the Franchisor would have been running at a rate of 10% for all of the years up to that ending 31 March 2009, as the turnover would have been £5,000 per month or less, and so would have amounted to a total of £14,413.63. However, £875 of that has already been allowed in the claim for unpaid “Continuing Fees” to the date of termination of the Agreement. In the year ending 31 March 2010 the “Continuing Fees” would be 10% on the first £5,000 per month and 5% on the balance, so the “Continuing Fees” would amount to £6,900. For the period commencing on 1 April 2010 the monthly average turnover would produce “Continuing Fees” of £672.50. Eight months and five days at that rate amounts to £5,492.08. If the claim of the Franchisor for damages for repudiatory breaches of the Agreement fell to be calculated by reference to the turnover actually achieved by Mr. Holland since the termination and to his projections to 31 March 2011, the sum due would be £14,413.63, less £875, plus £6,900, plus £5,492.08, a total of £25,930.71. From that, on Mr. Peart’s figures, would fall to be deducted savings of £100 per month for 55 months, amounting to £5,500, leaving a net figure of £20,430.71.

However, Mr. Peart’s approach ignored totally the turnover which Mr. Holland had actually achieved during the term of the Agreement and what he had achieved since. Indeed, he seemed to assume that on 17 June 2006 Mr. Holland’s average monthly turnover would have risen from about £2,700 to £13,695 over night. By the time the trial commenced an exercise had been undertaken to produce what it is convenient to call in this judgment “the Analyses”. The Analyses were in fact three in number. Each was based on the turnover of franchisees of the Franchisor in the period January 2006 to April 2008. Not every franchisee included within one or more of the Analyses provided turnover figures for each month of the period, but those figures which were available had been taken into account in preparing average monthly figures for each relevant franchisee. One of the Analyses (“the NICEIC Analysis”) included all of the franchisees of the Franchisor who had been franchisees in the period January 2006 to April 2008, or for part of that period and who held certifications from NICEIC. There were 18, although for reasons which were not really explained two of those franchisees, Mr. Steven Gubb and Mr. Peter Hodge, were treated as one. Another of the Analyses (“the Radius Analysis”) included all of the franchisees of the Franchisor who had been franchisees in the period January 2006 to April 2008, or for part of that period, and were based within 100 miles of the Territory. There were 22 of these, but two were left out of account as not having commenced trading by February 2008, and one, Mr. Alphons Smit, was left out of account as never having traded. The last of the Analyses (“the NICEIC Radius Analysis”) extracted from the Radius Analysis those who also appeared in the NICEIC Analysis. There were 6 of them.

None of the Analyses supported the figure of an average monthly turnover of £13,695. The NICEIC Radius Analysis showed quite widely diverging average monthly turnover levels. For 2006 the average monthly turnover of the six in the group was £8,161.20. However, that was an average of figures of £3,513.88, £7,824.57, £8,166.14, £8,219.95, £10,293.83 and £10,948.84. The average monthly turnover levels for 2007, and January to April 2008, shown in the NICEIC Radius Analysis were respectively £9,226.87 and £11,368.04, but based on similarly wide spreads as the 2006 figures. One franchisee, Mr. Ray Finney, was consistently lower than the others. Only in 2008 did any franchisee included in the NICEIC Radius Analysis achieve a monthly turnover higher than £13,695.

The Radius Analysis showed lower monthly average figures than the NICEIC Radius Analysis. The figures were £4,709.70 in 2006, £6,068.91 in 2007 and £7,791.58 in 2008. Eight of the franchisees gave up during the period January 2006 to April 2008. The lowest monthly turnover recorded was of £892.81 for Mr. Ian Griffin in 2006, but there were seven with average monthly turnovers of less than £3,000 in 2006. The average of £4,709.70 seemed to depend heavily on two cases, Mr. Lee and Mr. Davies, who each achieved an average of over £10,000 per month. The highest average monthly figure included in the Radius Analysis was that of Mr. Stent in 2008, £13,782.85.

The NICEIC Analysis produced average monthly turnover figures of £12,540.87 for 2006, £13,256.72 for 2007 and £13,641.50 for 2008. However, those figures were distorted by treating Mr. Gubb and Mr. Hodge as one franchisee for the purposes of determining the divisor in the calculations and seem to have been heavily influenced by the spectacular success of two franchisees, Mr. McCormick and Mr. Osborne, each of whom produced an average monthly turnover figure of in excess of £30,000 in each year. The lowest figures in each year, were £3,513.88 in 2006, £5,372.47 in 2007 and £2,991.92 in 2008, those all being monthly average figures of Mr. Finney.

I was urged by Mr. Wicks to base conclusions as to the likely average monthly turnover of Mr. Holland, but for the termination of the Agreement, particularly on the turnover of franchisees certified by NICEIC, as Mr. Holland had intended to obtain such certification, albeit that he had not done so by the date of the termination of the Agreement. He submitted that those figures supported the assessment of Mr. Peart of an average monthly turnover of £13,695 of Mr. Holland, but for the termination of the Agreement. In commending Mr. Peart’s figure of £13,695 per month as that which I should accept Mr. Wicks pointed out that Mr. Peart’s assessment of £13,695 per month did not vary across the period over which the assessment of damages fell to be made, and I think the suggestion was that that factor in some way counter-balanced the fact that that rate was taken as from June 2006.

The only thing which can sensibly be derived from any of the Analyses, as it seems to me, is that the circumstances and levels of performance of each of the franchisees included in any of the Analyses were so diverse that they must reflect local, and possibly personal, factors which make it quite inappropriate for me to draw any conclusion to the effect that there is some sort of average franchisee with an NICEIC certification, or in a particular geographical area, who makes a typical turnover each month. Broadly the turnover figures seem to have increased on a monthly basis between 2006 and 2008, but that was not true in every case.

In the circumstances it seems to me that the only sensible basis on which to assess what turnover Mr. Holland would have achieved between 16 June 2006 and 5 December 2010, if the Agreement had not been terminated, is to consider what he has in fact achieved and what he anticipates that he will achieve. I accept the projections which Mr. Holland has made of increasing his turnover in the current financial year by in excess of 30% and by 30% in each of the two succeeding years. However, I have to say that those projections do strike me as optimistic. On the figures put before me Mr. Holland’s turnover increased by just 6.74% between the year ending 31 March 2007 and the year ending 31 March 2008. Nonetheless, in the light of Mr. Holland’s figures I assess the damages to which the Franchisor is entitled in respect of the repudiatory breaches of Mr. Holland of the Agreement at the sum of £20,430.71.

There was no evidence, other than that of Mr. Holland himself, of him doing anything after the termination of the Agreement which might have amounted to a breach of clause 15.1. I have summarised that evidence at paragraph 19 of this judgment. Before coming to consider the effect of that evidence it is convenient to consider the issue whether the provisions of clause 15.1(a) in relation to competition were unenforceable as being in unlawful restraint of trade.

It was, I think, common ground that a franchisor is entitled, by contract, to restrain a franchisee from competing with the franchised business after termination of the franchise agreement, provided that the restraint is no more than is reasonably necessary to protect the legitimate interests of the franchisor. It was also common ground that a convenient exposition of the approach to be adopted to determining that question was to be found in the judgment of Neuberger J, as he then was, in Dynorod Plc v. Reeve [1999] FSR 148 in this passage:-

“As Mr. Tritton says, it is not from other drain-cleaning businesses that an incoming franchisee needs protection, or, I add, could conceivably be entitled to protection, it is from the plaintiff’s own ex-franchisees that an incoming franchisee is entitled to protection, provided that protection is reasonable. In this case the protection sought and contractually agreed to is for one year, and is only within the area.

It is obvious that the plaintiff will be likely, and one will have to judge this at the date of the agreement, to have far greater difficulty in attracting a new franchisee if the ex-franchisee is known as a Dyno Rod franchisee, with all the Dyno Rod experience and contacts and is operating in the territory. An ex-franchisee has the benefit of considerable investment by the plaintiff, which puts the ex-franchisee in a better position than others. Providing that it is reasonable in terms of the public interest and not unfair to the ex-franchisee in terms of time or area, the plaintiff is entitled, in my judgment, to ensure that his investments are protected by ensuring that unfair advantage is not taken by the ex-franchisee by, for instance, prematurely terminating the franchise agreement and setting out on his own.”

It is, I think, clear from that passage that the interest of the franchisor in restraining a former franchisee from competing with the franchised business in the territory in which the former franchisee operated consists in the impact such competition would have on a potential incoming franchisee replacing the former franchisee. That accords with common sense. However, the underlying justification for the restraint is important in the circumstances of the present case. As the public interest has to be considered, it would seem that a restraint against competition by a former franchisee would not be justified unless there was a benefit to the franchisor from the restraint. Without such a benefit, a restraint against carrying on the activity formerly carried on as a franchisee is simply a burden to the former franchisee and a detriment to the public, which is thus deprived of the economic activity of the former franchisee in the role which he previously performed.

The website of the Franchisor identified some 159 areas in which there were to be operations using the Trade Name. Those areas appeared to be territories which could be the subject of franchises. At the date of the making of the Agreement the Franchisor had 33 current franchisees. The total number of franchisees which it had ever had was 82, but it was unclear what was the greatest number which it had ever had at one time. Mr. Peart told me that it was not the policy of the Franchisor to try to occupy all of the possible territories which it contemplated by affirmative action to recruit franchisees. Rather, what it did was when a person who wanted to be a franchisee applied to it, it looked for the available territory nearest to where the applicant was based and offered that territory. It was not the case that the Franchisor was seeking positively to establish or maintain national coverage. In those circumstances, submitted Mrs. Stevens-Hoare, it was not reasonable to include in the Agreement a clause like clause 15.1 because it had the effect of preventing Mr. Holland from competing with the former franchised business in the Territory for one year whether or not there was anyone who wanted to take over that Territory in the period in question.

I am sympathetic to that submission, but I am persuaded on balance that the terms of clause 15.1 do amount to a reasonable restraint upon Mr. Holland’s activities. While it may be that in fact there was no one in the period of one year after the termination of the Agreement who would want to become a franchisee of the Franchisor for the territory, it seems to me that the Franchisor had a legitimate interest in protecting the goodwill of the Trade Name in the Territory as against the possibility that an applicant might appear who would, or might, be deterred if Mr. Holland were at liberty to compete. It was not suggested that the application of the restraint to the whole of the Territory was otherwise excessive, and in my judgment it was not. However, it was suggested by Mrs. Stevens-Hoare that the period of restraint, 12 months, was excessive. She drew to my attention a decision of His Honour Judge Eccles Q.C., Fleet Mobile Tyres Ltd. v. Stone [2006] EWHC 1947 (QB). In the circumstances of that case the learned judge was persuaded that the appropriate period of restraint was six months rather than twelve. However, that was a case of a completely different type of operation, namely, in essence, a man in a van covering a large area in order to fit tyres himself to the vehicles of customers requiring them. The learned judge described that operation as “a pretty basic occupation”. The franchise in the present case was a management franchise and rather assumed that the franchisee would not himself or herself carry out the work of inspecting or testing appliances, but manage those who were employed to do so. Thus, I am not persuaded that a period of restraint of twelve months was excessive.

The evidence of Mr. Holland to which I have referred demonstrated, in my judgment, that he had been “engaged or interested or concerned in the supply of products and services similar to the Services” within the Territory within the period of one year following the termination of the Agreement, but not that he had solicited any customers or former customers. Mr. Wicks invited me to adopt a sceptical approach to Mr. Holland’s account of not soliciting customers, and to infer that the whole purpose of informing existing customers that he was no longer a franchisee of the Franchisor was to obtain their continuing business. However, I was very impressed by Mr. Holland as a witness. He struck me as thoroughly honest and straightforward. In some respects – an example I have already given concerns his projected increases in turnover in the New Business in the years 2008-2009 and subsequent years, and another is his limitation of his claim for damages for misrepresentation to the period of five years from the date of the Agreement – he adopted for the purposes of his litigation a position considerably less advantageous to himself than a less scrupulous man could quite properly have done. If, as he did, Mr. Holland told me that he did not solicit customers, then I am entirely satisfied that he did not solicit customers.

In the light of my findings that Mr. Holland was in breach of the non-competition covenant in clause 15.1(a) of the Agreement, the question arises to what damages the Franchisor is entitled.

The pleaded case of the Franchisor shed no light on this issue. What was pleaded at paragraph 7.3 of the Amended Particulars of Claim was:-

“Damages in relation to lost opportunity to recruit a replacement franchisee for the Territory

The Defendants’ [sic] actions as particularised in paragraph 5 hereof have substantially reduced the likelihood of the Claimant being able to find a replacement franchisee for the Territory, with the result that the Claimants have suffered loss and damage, being the profits which it would have received from a new franchise. Full particulars will be provided by way of disclosure and witness evidence. ”

In his witness statement at paragraph 34(c) Mr. Peart dealt with the issue in this way:-

“As I have explained above, PSAL has experienced difficulties in finding a replacement franchisee. I believe that had it not been for Mr. Holland’s actions post termination, a replacement franchisee for the territory would have been found. The franchise fees payable on the grant of a franchise are £23,000.00 + VAT against which I estimate that direct costs incurred in relation to grant of the franchise would be £8,000. The loss under this head is therefore £15,000.”

In fact there was no evidence of any prospective franchisee expressing any interest whatsoever in taking over the Territory in the year after the termination of the Agreement. The highest the evidence went was this passage in the witness statement of Mr. Stephen Begg, the franchise director of the Franchisor:-

“18.

I was contacted by a prospective franchisee, Stephen Cooke, in January 2006 asking for initial information about the franchise opportunities available. Stephen Cooke was then a facilities and projects supervisor for commercial buildings, contracted to offices run by the Ministry of Defence. His knowledge, personality, background and attitude all seemed very suitable. He said that he believed that he would need some new work from mid 2006 as the contracts under which he was currently employed were due to end around that time. He was therefore looking at franchises and said to me that he was very interested in The Power Service. I had several telephone conversations with Stephen and met him twice; once at his office and once when he travelled to our office in Hertfordshire with his wife. Stephen had various issues that he raised about whether the franchise fee was good value and wanted to ensure that he would get the support of a good team in return for his franchise fee.

19.

As part of our usual recruitment process, Stephen was given the contact details for Mr. Holland as, at the time, he was his nearest franchisee. I understand that Stephen spoke to Mr. Holland more than once, the last time being in the summer of 2006. Stephen discussed his conversations with Mr. Holland with me and clearly at this stage Mr. Holland was not willing to give an endorsement of the business opportunity.

20.

Stephen said that he became aware of the Defendant’s new business, Electic Electrical Contractors, from October 2006. Stephen knew that this company was attempting to get work from at least one company in Telford, Shropshire called Interspiro Limited. This was exactly the same area that Stephen was considering taking a franchise. In October 2006 Stephen contacted me to say that he had decided not to take up a franchise with The Power Service after all.”

It is material to notice in that account that Mr. Cooke approached the Franchisor in January 2006, when Mr. Holland was still the franchisee of the Territory, and that the territory which he was considering, it seems, between January 2006 and October 2006 included Telford, Shropshire. Telford was not within the Territory. While there was some hint of a suggestion in the evidence of Mr. Peart that, had Mr. Cooke pursued his interest in a franchise after the termination of the Agreement, the territory which he would have been granted would have been the Territory, there was no proper evidence that Mr. Cooke had, or would have, changed his interest from the area including Telford to the Territory, and I reject it. From Mr. Begg’s account one of the factors which seems to have put Mr. Cooke off pursuing a franchise in the Telford area was activity on the part of Mr. Holland in that area, but that was not prohibited by the terms of clause 15.1(a) of the Agreement. If and insofar as it was intended to be suggested by Mr. Begg that Mr. Cooke was also put off because Mr. Holland “was not willing to give an endorsement of the business opportunity”, that was not a breach of the Agreement either.

In the absence of evidence of any actual damage sustained by the Franchisor as a result of the breaches of clause 15.1(a) which I have found, the Franchisor is only entitled to nominal damages in the traditional sum of £2.

From about September 1990 Mr. Holland had been employed by the University of Wolverhampton (“the University”) as a lecturer in graphic design. By 2005 Mr. Holland’s position at the University was that of a principal lecturer. He was earning a gross annual salary of £42,448. As a result of a proposed restructuring of the department within which he worked, the School of Art and Design, he decided to consider accepting an offer of voluntary redundancy made by the University and setting up some business of his own. His thoughts turned to the possibility of acquiring a franchise to undertake an established business model in his local area. With that in mind he and his wife, Lynda, attended on 13 July 2005 a seminar organised by the British Franchise Association (“BFA”) in Liverpool. Their evidence was that during the course of the seminar those conducting it advised that it was important in assessing any particular franchise which might be available to find out what was the failure rate for franchisees. One of the speakers at the seminar was Mr. James Eades. According to paragraph 10 of the first witness statement of Mr. Holland, at the seminar,

“James Eades explained that in the UK economy 75% of business start-ups fail whereas with franchises it is far less at 1.75%. He explained that BFA members go through stringent testing to ensure that they were offering a fair and ethical franchise opportunity and members were re-accredited every three years. There were examples of the number of franchises operating in the UK. Insofar as franchise withdrawals were concerned, 1.7% were forced as a result of the termination of the franchise agreement by the franchisor and 4.8% were voluntary such as people giving up due to ill-health, marriage breakdown and retirement.”

Another speaker at the seminar was a lady called Elise Billy. At paragraph 14 of his first witness statement Mr. Holland said of her:-

“A franchise lawyer, Elise Billy, talked about the importance of the franchise documentation and the agreement and again reinforced the fact that, when contrasting franchises to marriages, about 40% of marriages end in divorce but less than 3% of franchises are terminated by the franchisor.”

Following the seminar Mr. Holland became aware of the business of the Franchisor. In fact it was as a result, he said, of there being at the back of the seminar pack a list of members of BFA, which included the Franchisor. He telephoned Mr. Begg. As a consequence of that telephone call Mr. Begg wrote a letter dated 19 July 2005 to Mr. Holland. The letter was in these terms:-

“Further to our telephone conversation please [find] enclosed our business plan and cash flow forecast as promised.

As discussed we are holding an informal question-and-answer session on Wednesday 3^rd August 2005 at 10.30 am in the coffee lounge at The Crowne Plaza Hotel at Manchester Airport (see map attached). Please feel free to come – this will allow you to hear all about the recession-proof safety-inspection business and the way your new company might operate. We’ll have a useful session with several interested people (approximately 2 hours).

Should you require any further information do not hesitate to call me on 01707 654600.”

The “business plan” (“the Plan”) enclosed with the letter was in the form of a template for a document which could be prepared and submitted to a funding institution in support of an application for a loan to finance the establishment of a business to trade under the Trade Name. One part of the template was in these terms:-

“Turnover expected in the first year: £66,000.00

Sales break-even figures (Total fixed costs x 100) £36,100.00

Gross profit margin %

Reasons for expected turnover

The above turnover was achieved by The Power Service using one electrician and a gas service engineer testing a pilot area in North London.”

In cross-examination Mr. Peart was asked about the figures in the template. His evidence about it, like much of his other oral evidence, was confused and contradictory. He seemed disinclined to answer any question directly, preferring to wander off on some excursion of his own to try to avoid giving an answer to the question actually asked. The figure of £66,000.00, as I understood it, was said to represent the turnover actually achieved by the Home Business in the calendar year 1995 when it tried out a pilot scheme (“the Pilot”) providing inspection of gas, but not electrical, appliances. The reference to the use of an electrician was, on any view, accepted Mr. Peart, wrong. Much greater difficulty was experienced in trying to pin down with Mr. Peart what the “Sales break-even figures” were supposed to represent. At length, and after an intervention from me, it appeared that Mr. Peart’s final position was that it was the cost of achieving the turnover of £66,000. Mr. Peart accepted, I think, that the references to total fixed costs being multiplied by one hundred and then divided by a gross profit margin percentage simply had nothing to do with the calculation of the figure of £36,100. It thus seemed that how the extract from the Plan which I have set out should be interpreted, according to Mr. Peart, was that in the period of the Pilot the Franchisor achieved a turnover of £66,000 at a cost of £36,100, thereby generating a gross profit of £29,900, or 43.5% of the turnover.

The cash flow forecast (“the Forecast”) sent with Mr. Begg’s letter dated 19 July 2005 was divided into five separate years. The genesis of the figures contained in it did not clearly emerge. Mr. Peart said that the figures were based on the Pilot and his experience of what could well be achieved derived from talking to franchisees. However, he accepted, when asked about the Forecast, that in fact he had obtained no documents from franchisees, such as accounts, which showed any costs an actual franchisee had incurred. Later in his cross-examination he seemed to be contending that in fact some accounts had been received from franchisees, but none were produced in evidence. What Mr. Peart did say which seemed to be correct was that the Franchisor received from franchisees turnover figures.

For Year 1 the Forecast assumed a total turnover from work done and services provided by a franchisee of £61,625. That figure rose in Year 2 to £126,900, in Year 3 to £181,100, in Year 4 to £235,600 and in Year 5 to 275,700. The net profit figure shown for Year 1, after allowing for the payment of the initial fee of £23,000 payable for the franchise, was £26,414, calculated as a surplus at the end of the year of £5,414 plus drawings of £21,000.

Unhappily the rosy figures in the Plan and in the Forecast were not borne out by the actual experience of the Home Business in the period of the Pilot. During the period of the Pilot, as Mr. Peart accepted, the Franchisor had no business other than that the subject of the Pilot. During the course of the trial the filed financial statements of the Franchisor for the years ending 31 March 1995 and 31 March 1996 were obtained by the solicitors acting on behalf of Mr. Holland from Companies House. Each set of financial statements included comparative figures for the previous year, so that in fact one could see the figures for the year ending 31 March 1994, as well as those of the years which I have mentioned. Each set of financial statements had been prepared on the basis that the special accounting exemptions in Companies Act 1985 Sch. 8 Part I and the abbreviated disclosure exemptions in Part III of that schedule applied because the Franchisor was a small company. Thus all that was overtly revealed of the trading activities of the Franchisor in each of the years for which there were figures was the amount of any profit or loss. In fact there were losses in each of the years. For the year ending 31 March 1994 the loss was £13,929, for the next year the loss was £13,267, and for the year ending 31 March 1996 the loss was £21,155. The abbreviated balance sheets included in the financial statements showed that the Franchisor was balance sheet insolvent in each of the years in question. The deficiency for the year ending 31 March 1994 was £12,637. For the next year it was £11,975. For the year ending 31 March 1996 the deficiency was £19,863. While there is a limit to the extent to which a conclusion can be drawn from such information as to the trading activities of the Franchisor, some indication of the levels of economic activity was provided by the amounts declared in the abbreviated balance sheets as the sums due to creditors within one year. These were, as at 31 March 1994, £23,916, as at 31 March 1995, £7,613, and as at 31 March 1996, £23,561. The sums recorded as due to creditors after more than one year hovered between a low of £51,437 and a high of £54,977. The picture thus seemed to be one of a company engaged in low levels of activity, rather than having high levels of turnover and low margins.

Separately from the material sent to him by Mr. Begg under cover of his letter dated 19 July 2005 Mr. Holland was sent a brochure (“the Brochure”) relating to the business franchised by the Franchisor. In a section entitled “What is the Power Service business?” appeared this:-

“Around 35 franchisees UK-wide with profit margins averaging 60%; an annual turnover figure of £250,000 is proven and achievable, and prospects are mouth-watering.”

Mr. Peart was asked about this statement in cross-examination by Mrs. Stevens-Hoare. After an extended series of attempts to evade answering her highly pertinent questions, Mr. Peart at length accepted, after my intervention, that the statement that the average profit margins of the franchisees of the Franchisor was 60% was not true.

I think that Mr. Peart also really accepted in consequence of that answer that what was said on the website of the Franchisor about profit margins in September 2005, at which Mr. Holland looked at the time, was not true either. The relevant sentence in the entry on the website was:-

“With a potential billing of £400,000 annually, at an average franchisee profit margin of 55%, can you think of a better career?”

It was not the case of Mr. Holland that any other alleged misrepresentations were made to him in writing. However, he contended that other misrepresentations were made to him verbally, first at a meeting which he and his wife had with Mr. Begg at the offices of the Franchisor in Potters Bar on 1 August 2005. Other misrepresentations were said to have been made to him at a meeting between Mr. and Mrs. Holland, Mr. Peart and Mr. Begg at the offices of the Franchisor in Potters Bar on about 16 September 2005. Finally it was pleaded in the Amended Defence and Counterclaim that Mr. Begg made yet further misrepresentations to Mr. Holland at meetings between them at the home of Mr. Holland in August, September and October 2005. However, no evidence was led to support alleged misrepresentations at meetings other than those on 1 August 2005 and on 15 or 16 September 2005.

Mr. Begg told me that he had no recollection whatever of what he had said to Mr. Holland at any of the meetings between them. He did not deny that they had the meetings which Mr. Holland asserted. The furthest that Mr. Begg went in his evidence was to contend, of certain statements of which Mr. Holland gave evidence, that it was not something which Mr. Begg would have said.

Mr. Holland’s evidence in his first witness statement as to what had transpired at his first meeting with Mr. Begg on 1 August 2005 was supported by that of his wife, who was also called to give evidence. Mr. Holland’s account was:-

“25.

That initial meeting was very positive. Stephen Begg was a pleasant and personable individual and he answered all my questions very clearly. He said that The Power Service had between 35-40 franchisees throughout the UK. Mindful of the tips I had picked up at the BFA seminar I asked him how many failures there had been. We also discussed what failure might be. At the end of the period of the franchise agreement, a successful franchisee should have a going concern that had a value and could be sold. Stephen Begg explained that a franchisee also had a right to renew and continue the franchise business and sell it at a time best suited to them. In the context of these discussions he said there had been two failures. One was someone he described as “a lazy Asian” in London who had only wanted to work amongst his own community and who had not built the business up and the other was an individual in Norwich who had not done very well, was not cut out for the business and had become ill and who had sold it to a new incoming franchisee. I said to Stephen that this meant that The Power Services’ failure rate was less than 5%. He said “that would be right” or very similar words to that effect.

26.

We went through the brochure pack and Stephen confirmed that the average profit margin of franchisees’ businesses was around 60% and there was no reason why I would not achieve that too.

27.

We also discussed in some detail the roles of NICEIC and CORGI.

28.

Stephen said that The Power Service was registered with both NICEIC and CORGI and they worked the same. Basically the franchisee would be able to work under The Power Service’s own registration number and issue certificates to customers for the works that had been carried out. Those certificates would be countersigned by The Power Service as a supervisor. The franchisee would want to obtain their own individual registration with NICEIC once they were appropriately qualified as electricians but that could take some months and in the meantime The Power Service would be able to countersign any certificates that had been issued.

29.

Stephen explained that insofar as electrical works were concerned there were different aspects to the business.

(i)

Portable appliance testing otherwise known as PAT testing. This was the testing of electrical appliances in offices such as computers, kettles, microwaves, etc.

(ii)

Periodic inspection reports. For example, residential landlords had to have the electrical installations and appliances in their tenanted properties tested annually and that a good source of this business was through lettings agencies.

(iii)

Although the franchise technically covered installation work, he said that The Power Service advised franchisees from undertaking it as the profit margins were not as good and when doing inspections it was important that clients felt there was no vested interest in finding faults.

(iv)

Checking the work of other domestic electric installation contractors. Local councils had to pass the quality of work done on extensions and new-builds under Part P of the Building Regulations and usually the council would sub-contract that work out to a local contractor. A Power Service franchisee could get that work because they were members of CHAS which was the Contractor’s Health and Safety Assessment Scheme.

30.

I consider myself to be a reasonably intelligent person and felt that I had the skills to run a small business but where I lacked any experience was in the area of sales and accounts. I expressed my concern about this to Stephen and he explained that The Power Service used specialist marketing techniques which I would be trained in to help me build my franchise business. He also explained that The Power Service had a comprehensive training programme lasting 5 days which would provide me with all the skills I needed to operate the business.

31.

I also asked about the back-office support from The Power Service. Having been informed that many businesses required certificates to be issued annually I asked if there was a system for reminding me as a franchisee that a particular certificate was about to elapse and that I should make contact with the customer to re-certify them. He explained that The Power Service did employ such a system. Stephen had sent me a business plan and cash-flow forecast for our meeting. I had reviewed those. They predicted turnover of £91,650 in the first year and drawings and profits totalling £26,414 but that was on the basis that the franchise fee of £27,000 [that is, £23,000 plus Value Added Tax thereon] was solely set against the first years’ trading and not over the 5-year term of the franchise, and the income included a bank loan, VAT reclaim and working capital.

32.

The cash-flow forecast for the second year was turnover of £126,900 and drawings and profits of over £52,000. I had my accountant review these and he told me that if they were honestly prepared the forecasts looked reasonable.

33.

I discussed the forecasts with Stephen because I was keen to make sure that this business had earning potential. I explained that I was paid around £41,000 as a lecturer. Stephen said I would not make that much in my first year of trading but I would be at that level or more by the second year and well in excess of it by my third year of trading.

34.

The business plan reinforced this to me. This had been provided as a sample in case I needed to apply bank finance. It set out figures which The Power Service had earned themselves from their own pilot in its first year of trading. I was aware that The Power Service could not guarantee that I would make these cash-flow projections. However, because Stephen had explained that their failure rate was extremely low and that franchisees were on average making profits of around 60% I considered these projections to be realistic and based on fact.

35.

I asked Stephen to let me have a full list of all The Power Service franchisees so that I could speak to a cross section of them and find out how they were doing. Stephen explained that they did not issue full lists of franchisees to prospective franchisees because what generally happened is that the first half dozen on the list were constantly being called and they became rather irritated by that and nobody called the franchisees lower down the list. What Stephen said he would do is to send me some contact details of a sample of franchisees and I could speak to them. I accepted his explanation and asked him to e-mail some contact details to us.”

Mr. Begg did not dispute that he had mentioned to Mr. and Mrs. Holland the two cases of the Asian gentleman in London and the ill franchisee in Norwich. However, he denied that he would have said that these were the only cases of franchisees which had failed. He also denied that he had agreed that the Franchisor’s failure rate was 5 per cent. He told me in cross-examination that he never put a figure on the number or percentage of failures among franchisees. Mr. Begg accepted, I think, that he would have confirmed the accuracy of the gross margins quoted in the Brochure. He said that he had no personal knowledge as to whether the figure of 60 per cent was correct, but he accepted that figure from Mr. Peart.

Following the meeting on 1 August 2005 a lady called Shelly Peart sent to Mr. and Mrs. Holland an e-mail dated 5 August 2005 containing the names and telephone numbers of nine franchisees. In the light of the evidence which emerged during the course of the trial it would seem that the composition and order of the list of franchisees included in the list were probably not determined at random. The names listed were, in order, Stuart McCormick, Nick Osborne, Bill Stent, Phil Brothwood, Jim Clark, Kevin Spencer, David Lamb, Peter Oxley and Peter Lee. Of these, no information emerged in evidence concerning Mr. Spencer. Mr. Oxley became an employee of the Franchisor, and so presumably gave up his franchise. No details of his success or otherwise as a franchisee were put before me. So far as the other names listed were concerned, Mr. McCormick and Mr. Osborne were, by a very long way, the most successful franchisees of the Franchisor. Mr. Stent, Mr. Brothwood, Mr. Lamb and Mr. Lee were all gentlemen who had, as at August 2005, been franchisees for less than one year. Only Mr. Clark, other than Mr. McCormick and Mr. Osborne, had been a franchisee for more than a year, in his case he had been a franchisee for just over two years. From the Analyses it appeared likely that the names provided by Shelly Peart were possibly selected so as to direct Mr. Holland to the most successful franchisees. That allegation was not put to any witness, but, as I have noted, for the calendar year 2006 the NICEIC Analysis showed an average monthly turnover of £12,540.87. That average was the product of a range the low point in which (Mr. Finney) was £3,513.88 and the high point in which (Mr. Osborne) was £37,758.10. Mr. McCormick’s average monthly turnover in 2006 was £31,918.68. The next most successful franchisee in the NICEIC Analysis in 2006 was a Mr. Skelton, with an average monthly turnover of £15,863.54. Leaving out of account the two separate franchises which were treated in the NICEIC Analysis as a single franchise, those of Mr. Gubb and Mr. Hodge, the next most successful franchisee in 2006 was Mr. Lamb, with an average monthly turnover of £11,963.45. Mr. Clark was after him, with an average monthly turnover of £11,696.76, then Mr. Lee, with an average monthly turnover of £10,948.84. Mr. Stent and Mr. Brothwood declared no turnover figures for 2006, but only started to declare figures for 2007. Mr. Brothwood was not mentioned in the NICEIC Analysis, but he did feature in the Radius Analysis. Mr. Stent’s average monthly turnover in 2006 was included in the Radius Analysis, but not in the NICEIC Analysis. It was £8,219.95. Mr. Brothwood’s figures for 2006 were not included in any analysis.

Mr. Holland did in fact make contact with some of those whose names he had been given. He told me in his oral evidence that he did not recall exactly how many franchisees he spoke to. He thought perhaps seven or eight. Certainly he had made notes of telephone conversations with a number of franchisees, Mr. Clark, Mr. Brothwood, Mr. Lee, Mr. Stent and Mr. McCormick. In the course of his conversations Mr. Holland gleaned a certain amount about the turnovers of those to whom he spoke and formed the impression that the turnovers more or less corresponded with the turnovers anticipated in the Cashflow. Mr. Holland also spent a day, at Mr. Brothwood’s suggestion, shadowing Mr. Brothwood so that Mr. Holland could see what the work of a franchisee of the Franchisor involved, whether he liked it and whether he thought that he could do it.

It appears that by about the early part of September 2005 Mr. Holland had decided that he probably wished to become a franchisee of the Franchisor, but that before making a final decision he wished to meet Mr. Peart, the founder of the Franchisor and the owner of the company. A meeting was arranged for 15 or 16 September 2005. Mr. and Mrs. Holland both attended. Mr. Holland’s account of the meeting in his first witness statement was again supported by that of his wife. His account was:-

“45.

At that meeting Geoff spoke about how he had built up the business and he was clearly very proud of it. I asked him about the person Stevenson in the company name. He said there was no such person and he had used it to add gravitas. He joked that with my grey hair I would do well at winning customers. I explained that The Power Service appeared to be the most successful franchise because the failure rate was so low. I mentioned the two people that Stephen had told me about. Geoff Peart said he did not think of those two as failures because the Asian franchisee in London simply had not tried hard enough and had refused to network outside his own community and the Norwich franchisee had sold his business.

46.

At no point did either Stephen Begg or Geoff Peart tell me that their failure rate was around one third or use words such as the ‘bottom third of franchisees did not renew their agreements or were terminated’. If they had done so that would have sounded major alarm bells to me because of what I had learned about the success and failure rates at the BFA seminar and what were the BFA members own average based on the survey and the BFA’s accreditation process. Given that the average failure rate either forced or voluntary was around 6.5%, if The Power Service had a failure rate of around one third this would have made it one of the worst performing franchises in the market and I would have undoubtedly withdrawn my interest in their business at that time. I have no doubt about that. I am very clear that the statements made to me about the failure rate by both Stephen Begg and Geoff Peart was that they have had 2 failures which I said to Stephen constituted less than 5% of their network and he agreed.

47.

Geoff Peart explained the NICEIC and CORGI and CHAS aspects of the business in more detail. He showed me a specimen CORGI Certificate which had The Power Service’s logo and address, the CORGI logo and a registration number which was personal to The Power Service. He explained that NICEIC worked the same way. I could carry out all the inspections and then send those to The Power Service to be countersigned by their Qualified Supervisor for which a nominal £5 fee would be charged. This would only be necessary until I had been personally enrolled with NICEIC myself and that would occur once I was properly qualified.

48.

I explained to Stephen and Geoff that I intended to obtain my own qualifications as an electrician and had looked into taking on an intensive short-term course to get a City & Guilds qualification. He was interested to hear that I intended to undertake electrical training that would qualify me to carry out the electrical inspections myself rather than employ a qualified electrician during the early phase of the business. But he cautioned me to avoid being caught up in doing the work rather than managing others but did see the advantage of being NICEIC registered in my own right sooner than most of their franchisees could or did. They further explained that if I got that before I was ready to start in business as a franchisee then they could fast-track my enrolment with NICEIC because of their relationship with NICEIC and also because I would have proved my abilities by that stage by having the qualification.”

The references in that passage to the bottom third of franchisees were, no doubt, prompted by the terms in which the pleaded case of Mr. Holland was answered in the Re-Amended Reply and Defence to Counterclaim.

Mr. Peart’s evidence in his witness statement about the only meeting which he attended with Mr. Holland before the making of the Agreement was rather curious. At paragraph 16 he said:-

“I recall that Mr. Holland attended a further meeting with Stephen and myself on or around 15 September 2005. I cannot now recall whether this meeting was attended by Lynda Holland although I believe it was. The second meeting was arranged when it was clear that Mr. Holland was serious about taking up the franchise and, at that time, I discussed a number of issues in greater detail (as I do with all prospective franchisees who are serious about the business). In this regard, it is the case that I relayed the experiences of PSAL (and some of its franchisees) with a view to describing the opportunities. I comment below as to the representations it is alleged were made by me and Stephen. I am confident that I made it clear to Mr. Holland that it was not possible to guarantee results, that the materials provided by PSAL were for guidance only and that it was important for him to make his own assessment of the market for the services in the proposed territory. Indeed, it was also very clear to me that Mr. Holland had undertaken much research into franchising generally, and was intent on pursuing his own enquiries. Of course, it was some time later before Mr. Holland signed the franchise agreement although he had indicated in September that he intended to take up the franchise.”

When he came, later in his witness statement, to deal with the representations upon which Mr. Holland relied Mr. Peart appeared to be trying to deal not only with the meeting which he himself attended, but also with the meetings between Mr. Holland and Mr. Begg in respect of which the evidence of Mr. Begg was that he could not recall what he had said. The material passage was paragraph 32 of Mr. Peart’s witness statement:-

“In dealing with the litigation it has proved necessary to address a number of issues that have been raised by Mr. Holland for the first time and it seems to me that he has adopted something of a scattergun approach in respect of the allegations made. In turning to the various allegations made in respect of representations it is said were made to Mr. Holland, I would comment as follows:

(a)

Turnover expectations

As I have mentioned above, at meetings with Mr. Holland both I and Stephen Begg clearly explained that the cashflow projections provided were not intended to represent what Mr. Holland might secure in the way of turnover whether in his first year of trading or subsequently. It was explained to Mr. Holland [that he would] need to factor in various considerations when formulating his own business plan to include, for instance, the number of households in any given territory, the repayment of any finance advanced in connection with the establishment and operation of the business, and any other overhead costs that may be applicable depending on Mr. Holland’s plans for the business. The figures in the cashflow projections are “rounded” figures and were intended to be used as an aid in producing a tailored business plan. I explained this to Mr. Holland and I informed him that it would be prudent to obtain independent input in connection with the production of any specific business plan.

As regards the sample business plan, it was precisely that, a sample. I have explained above PSAL’s experiences in respect of the pilot operation and this was also explained by me in detail to Mr. Holland at meetings with him. I appreciate that the materials make reference to having used one electrician and one gas engineer. As stated above, this is incorrect as the business related to gas inspections only at the time. As the business has expanded to include electrical inspection services, the reference to an electrician has been included in the materials without much thought and I accept that this should be corrected. However, in circumstances where franchisees are able to provide a much wider range of services than PSAL did at the time of the pilot operation, the profit opportunities for franchisees are clearly much greater. I remain of the view that the turnover expectations referred to in the business plan are not unrealistic. That said, it remains the case that the turnover figures to be generated by any franchisee will depend on the factors referred to above (as well as the effort and ability of individual franchisees). This was a point that was clearly made to Mr. Holland in my meetings [sic] with him.

(b)

“Failure rate” of franchisees

I am not sure where Mr. Holland has arrived at the figure of 5% in relation to the allegation concerning failure rate of franchisees. “Failure rate” is not a term that would have been used by either me or Stephen Begg and I certainly did not advise of a figure of 5%. It is the case that when asked by Mr. Holland as to the number of franchisees no longer operating, I indicated that the “bottom third” would have had their agreements terminated or would have chosen not to renew for one reason or another. I would not have considered that the non-renewal or termination would necessarily be deemed a failure and I did not use that word. Between 1994 and October 2005 PSAL had granted franchises to 82 franchisees. At the time of the grant of the franchise to Mr. Holland there were 33 current franchises. I accept that the non-renewal/termination rate where taken over the whole of the period from the launch of the franchise was in excess of the “bottom third”. I do not believe that this suggests that the viability of the franchise business was other than as represented to Mr. Holland.

(c)

Profit margins

As I stated above, PSAL has operated the business adopting the franchise method and system since the mid 1990’s. Over this period I have monitored PSAL’s performance and the amount of profits capable of being generated. I have also had discussions with franchisees regarding their own experiences. Of course, profitability will depend very much on the ability of franchisees to generate sufficient work and to ensure that the workload is arranged efficiently. In the course of these proceedings PSAL has disclosed monthly records kept by the company since April 2006 which provides a breakdown of the work undertaken and the profit generated by the company. I do not now have records in respect of earlier periods although I am able to say that such records as disclosed are typical of the performance achieved in previous years. I remain of the view that franchisees should be able to replicate this performance; indeed, many franchisees have reported to me verbally at regional meetings and during visits to individual franchisees as part of the ongoing support provided to them that they have done so. PSAL has not requested, or been provided with, written accounting information so as to verify the financial performance of its individual franchisees but I do not have any reason to question the accuracy of the information provided by franchisees.

As I have mentioned above, it was also made clear to Mr. Holland that he should prepare his own business plan based on his own assessment of the market for services in the area granted to him under the agreement.

(d)

NICEIC registration

Sometime prior to the grant of a franchise to Mr. Holland it was the case that franchisees were entitled to benefit from PSAL’s NICEIC registration. However, in or around 4 March 2004 new policies were adopted by NICEIC which meant that franchisees would need to register in their own names. This required a change to the franchise system and such change was effected. Prior to Mr. Holland’s appointment as a franchisee, both Stephen and I explained to him that it would be necessary for him to apply for membership of NICEIC and that he would have to employ a qualified electrician. This was discussed at the meeting with Mr. Holland in September 2005. We also explained that during the period when his application was being processed he would be able to undertake “green form work” which meant that work undertaken by Mr. Holland’s qualified electrician would need to be effectively signed off by PSAL’s qualifying supervisor. Whilst we did not say that Mr. Holland’s application for NICEIC membership would be “fast tracked”, the reality was that in view of the support that we were able to provide them it was likely that the membership application would be processed much more quickly than had Mr. Holland not been a franchisee. The NICEIC enrolment procedures are set out in the Manuals (section E).

(e)

CHAS registration

It is the case that due to an oversight on the part of the company, registration with CHAS lapsed. The period during which the registration lapsed was 16 May 2006 to 10 August 2006. Mr. Holland’s franchise was terminated on 16 June 2006. I am surprised that Mr. Holland raises a complaint as regards CHAS membership. I do not believe that PSAL is required to maintain CHAS membership and, indeed, I suspect that the benefit to franchisees is very limited. That said, had the issue been brought to our attention by Mr. Holland (or indeed any other franchisee) then this was a matter that was easily rectified. Of course, the period of lapsed membership was only very short. I understand that Mr. Holland has disclosed correspondence from Staffordshire County Council which relates to his application for approved contractor status in the name of The Power Service which was being pursued at the end of July 2006. Clearly, at that time Mr. Holland was no longer a franchisee.

(f)

Training in the operation of the business

I am somewhat at a loss to understand Mr. Holland’s complaints regarding the training provided. As I have described above, the initial training was extensive and it was supported by field training. Further training in the field was provided. Certainly no representations were made in relation to the provision of training in connection with the delivery of quotations for electrical works such as testing circuits for emergency lighting systems (whether at my meeting with Mr. Holland in September 2005 or otherwise). Indeed, such services would not have represented the core services as provided by franchisees (as described in the Manuals and as explained to Mr. Holland), albeit that technical assistance was available. As regards the suggestion that training in relation to marketing simply involved the collection of compliment slips and contact names then this is not borne out by Mr. Holland’s own experience. During the initial training provided marketing techniques were addressed. The Manuals provided include matters such as details on lettings, presentations and sales person training. Further both Mr. Begg and I provided field training which involved visiting potential customers with a view to explaining the benefits of the services provided by franchisees. Indeed, during the provision of training Mr. Begg secured for the benefit of Mr. Holland his most valuable contract during the period he operated the franchise business (ie, the contract with Connexions).”

In the event, after the meeting on 15 or 16 September 2005 Mr. Holland decided to accept the offer of voluntary redundancy made by the University and to enter into the Agreement. Had Mr. Holland not decided to enter into the Agreement he had, it seems, three effective alternatives. He could have accepted the offer of voluntary redundancy in any event and then sought to establish a business other than as a franchisee of the Franchisor. He could have remained in the employ of the University in his then current post of principal lecturer and accepted the consequences of the restructuring of his department for someone in that position, which in practice seems to have meant a probable deterioration in his working conditions. The third option was to have remained in the employ of the University, but to have accepted a reduction in his rank to that of senior lecturer. That would have meant a reduction in his salary, but it would have relieved him of administrative responsibilities and would have afforded him some opportunity to pursue research interests of his own. In cross-examination Mr. Holland told me that he did not think that he would in fact have left the University if he had not entered into the Agreement. In his second witness statement, dated 17 June 2008, Mr. Holland said, at paragraph 16, that he thought that, “Had I not taken the franchise on … that it was more likely than not that I would have retained a Principal Lecturer role”

On accepting the voluntary redundancy package offered by the University Mr. Holland received a sum of £64,386.11. However, a consequence of accepting that package was that Mr. Holland not only gave up the right to salary which would have continued had he remained an employee of the University, but he also gave up the possibility of increasing his entitlement to a pension from the Teachers’ Pension Scheme on retirement at the age of 65 years. Mr. Holland was born on 28 October 1950. He might have continued in the employ of the University until October 2015. Thus the acceptance of the package deprived him of 10 years’ worth of increased pension.

Mr. Holland’s case was that he entered into the Agreement in reliance on the representations which he contended had been made to him. He was cross-examined to the effect that that was not correct. He accepted that he realised that the figures in the Cashflow could not be relied upon and that actual results might be better or worse than what was shown in the Cashflow. It was also suggested to him that he had sought to verify the turnover figures and consequent margins by contacting the various existing franchisees with whom he spoke, and he agreed that the results of that contact did seem to confirm that the existing franchisees were content with the turnover which they had achieved.

Mr. Holland did not seek legal advice before entering into the Agreement. He agreed in cross-examination that he had read the Agreement before signing it. In particular he agreed that he had read and understood the provisions of clause 17.12 and clause 17.14(a)(i). However, he told me that he believed that he had a legal right not to be induced to enter into an agreement by being lied to.

The representations upon which Mr. Holland relied were conveniently summarised by Mr. Wicks in a table which he produced as part of his written opening skeleton argument. As summarised by Mr. Wicks the representations were these:-

“1.

D could expect turnover in the 1^st year of £61,625 and profit (i.e., turnover less operating expenses) of £26,414; in 2^nd year, D could expect t/o of £126,900 and profit of £51,123. These representations were made in ‘Cash Flow Projection for Yrs 1-5’ … C also provided sample business plan which stated that C’s 1^st year profit in the pilot operation was £29,900 …

2.

C had 35-40 franchisees in UK and failure rate was 5%, and those franchisees had been to blame for failure. The representation was made orally by Peart and Begg in meetings on 16.9.05, in Aug 05, Sept 05 and Oct 05. …

3.

The average profit margin was 55-60% and D would expect to achieve that. The representation was made in C’s brochure and website and at meetings …

4.

C was registered with NICEIC and D would be able to issue NICEIC certificates immediately, which would be countersigned by C. The representation was made orally by Peart and Begg at meetings (above) …

5.

C would ensure that D’s own application for NICEIC registration would be fast-tracked (and could be fast-tracked because of C’s status with NICEIC) …

6.

C was registered with CHAS and D would be able to carry out work for local authorities. The representation was made orally at meetings (above) …

7.

C would provide full training in the operation of the business and C’s specific marketing techniques. The representation was made orally at meetings (above).”

Of those alleged representations, those numbered 5 and 6 were not, in the event, pursued. I think that it was accepted, in the light of documents disclosed on behalf of the Franchisor, that the representation about CHAS was not incorrect when made, although it became untrue subsequently, shortly before the termination of the Agreement. It appeared that the alleged representation that the Franchisor would fast-track the application of Mr. Holland to NICEIC, being a representation of intention, only raised the issue whether, at the time it was made, the Franchisor had the intention expressed to seek to expedite the application. The evidence did not suggest that the Franchisor did not have that intention at the time the representation was made.

The first issue which arises is whether, on the evidence, any of the representations complained of at trial was made, and if so which. Consequent upon my findings on that issue, the logical next question is whether any of the representations which I find was made was made to induce Mr. Holland to enter into the Agreement. Then the question arises whether, on the evidence, any representation which I find was in fact made was false. If and insofar as I find that a representation was made to Mr. Holland on behalf of the Franchisor which was false, it is necessary to decide whether Mr. Holland relied upon that representation in entering into the Agreement. The next stage of the enquiry, once I have considered whether Mr. Holland relied upon a representation which was false and have concluded that he did, is whether the representation in question was made by whoever made it knowing that it was false, without any belief in the truth of the representation, or being reckless as to whether the representation was true. If one of those matters is demonstrated, the representation was made fraudulently. Failing a finding of fraud, it is necessary to consider, in relation to any representation which I find was in fact false and upon which Mr. Holland relied in entering into the Agreement, whether the person who made the representation believed at the time it was made that it was true, and had reasonable grounds for such belief. If there were no reasonable grounds for any belief in the truth of a representation, the making of such representation was negligent.

While logically all of the steps which I have set out in the preceding paragraph are separate and sequential, in fact, in the circumstances of the present case, the principal issues seemed to be what was represented to Mr. Holland and whether he relied upon any representation. There were two aspects to each of these issues. The first issue was divided into what was actually said to Mr. Holland, insofar as something was alleged to have been said orally, and what did what was said or written actually mean. The second issue was divided into, first, could Mr. Holland, as a matter of law, have relied upon what he was told – in other words, was the representation one of existing fact, rather than opinion – and second, did he actually rely upon it.

The first of the summarised representations which I have set out in fact involved five alleged statements, namely, that in the first year of the franchise Mr. Holland could expect a turnover of £61,625; that in the first year of the franchise Mr. Holland could expect a profit of £26,414; that in the second year of the franchise Mr. Holland could expect a turnover of £126,900; that in the second year of the franchise Mr. Holland could expect a profit of £51,123; and that the Franchisor made a profit in the first year of the Pilot of £29,900. The first four of these alleged statements were plainly made in the Cashflow. However, they were in the nature of predictions or estimates, and thus were statements of opinion. Any statement of opinion of course involves a representation of fact, that the person expressing the opinion genuinely holds the opinion expressed. It was unclear who precisely prepared the Cashflow, but it seems from his own evidence in cross-examination that Mr. Peart was heavily engaged in its preparation. He said that the Cashflow was based on the experience of the Franchisor with the Pilot, but modified to take account of the experience of franchisees. However, he also accepted in cross-examination that in fact the Franchisor did not receive accounts from franchisees and did not know what costs were incurred by franchisees. The “payments” part of the Cashflow thus could not have been based on any reliable input from franchisees. It could only have been based, if what Mr. Peart said was true, on the experience of the Franchisor during the Pilot. Unfortunately, the annual financial statements of the Franchisor for the years ending 31 March 1994, 31 March 1995 and 31 March 1996 demonstrated, as it seems to me, that it is most unlikely that the Franchisor achieved anything like a turnover of £61,625 in the first year, and it certainly did not achieve a profit of £26,414 – it made a loss. On the other hand, the Analyses did indicate that one franchisee, Mr. Stent, did achieve a turnover of more than £61,625 in the first year of operation, although none of the others did. The Analyses also indicated that a franchisee could achieve a turnover of £126,000, or more, in the second year of operation. In the end, therefore, in my judgment Mr. Peart did in fact believe that the turnover figures in the Cashflow were indicative of what a franchisee could achieve, and he had good grounds for that belief. The “payments” part of the Cashflow, and the consequent indications of profit, were essentially fictitious. However, Mr. Holland accepted in cross-examination that he had recognised that the figures in the Cashflow were indicative and that the actual performance achieved by a franchisee might be higher or lower than what was set out in the Cashflow. He made enquiries of his own of the franchisees he approached as to how their respective performances ranked against their expectations from the Cashflow and received answers to the effect each was making more or less what he had been led to believe from the Cashflow. In those circumstances I am not satisfied that Mr. Holland in fact relied upon any information in the Cashflow, as opposed to the comments of franchisees upon their experiences, in deciding to enter into the Agreement.

However, the representation that the Franchisor had achieved a profit of £29,900 on turnover of £66,000 in the first year of the Pilot was, I think, and notwithstanding the attempted obfuscations of Mr. Peart as to how the relevant part of the Plan should be interpreted, a clear representation of fact. It was, as I have demonstrated, false. There was no justification for the making of the representation that the Franchisor had made a profit of £29,900 in the first year of the Pilot. I am satisfied that Mr. Peart knew that the representation was false and that he made it fraudulently. Mr. Peart accepted in cross-examination that every statement made by him or by Mr. Begg to a potential franchisee was one on which the potential franchisee would rely in deciding to enter into an agreement with the Franchisor. It was plain that Mr. Holland had relied upon what Mr. Peart and Mr. Begg told him about what the Pilot had achieved.

The representations to Mr. Holland about the failure rate of franchisees of the Franchisor he told me were of major concern to him and something upon which he placed great reliance. I accept that evidence. I also accept the evidence of Mr. Holland and that of Mrs. Holland that what was said to them by Mr. Begg and Mr. Peart was that there had been only two failures and that, on that basis, the failure rate amounted to 5%, one in twenty, or rather, in the present case, two out of somewhat under 40. I reject entirely the evidence of Mr. Begg that he mentioned the two cases as illustrative of the circumstances in which a franchisee might fail, and did not suggest that these two were the only failures. I was not impressed by Mr. Begg. While he undoubtedly has a smooth tongue, it seemed to me that he had little regard for the truth of the words which that tongue uttered. In his cross-examination, in my judgment, he demonstrated a facility in evading questions which he had no doubt honed over the years, but which did not encourage confidence on my part in the accuracy of his evidence. Whilst, as I have noted, he said that he did not recall any of the detail of his actual conversations with Mr. and Mrs. Holland, he nonetheless affected to be confident that he could not have told them that there had only been two failures amongst franchisees of the Franchisor, because he never put any number on the former franchisees of the Franchisor when talking to prospective franchisees. That confidence was obviously misplaced because a number of other former franchisees of the Franchisor were called to give evidence and they said, in effect, that the message which Mr. and Mrs. Holland told me Mr. Begg had conveyed to them about failure rates was similar to what he had conveyed them. In detail what Mr. Begg was said to have said varied a little, but in substance the message was the same. Thus he told Mr. Ian Griffin that there had been no failures, but one franchise had been resold because of the ill-health of the franchisee. With Mr. Alphons Smit and Mr. Alex Sansone Mr. Begg deliberately avoided answering the question how many franchises had failed. Mr. Begg told Mr. Jonathan Rowbotham that there had only been one failure, that of the franchisee in Norwich who had suffered from ill-health. When Mr. David Barnes enquired about the failure rate Mr. Begg told him that only three or four had failed. Mr. David Spalding was told by Mr. Begg that the success rate of franchisees was well in excess of 90%.

I reject completely the evidence of Mr. Peart that he spoke to Mr. Holland of “the bottom third”, whether as the numbers of those franchisees at risk of failing or as those likely to fail or who had failed. I was unimpressed by Mr. Peart as a witness. Quite apart from his attempted evasions of questions, upon which I have already commented, he was totally unable, in my judgment, to explain away or justify clear statements of fact, like the profit made by the Franchisor during the Pilot and the average profit margins made by franchisees, set out in documents which he had caused to be produced. It seemed to me that he was just not an honest person and would tell a prospective franchisee whatever seemed necessary to secure his or her signature to a franchise agreement.

Mr. Begg did accept that it would have been untrue to say that the failure rate of franchisees of the Franchisor was 5%. That is plainly right. On the figures produced by Mr. Peart, that out of 82 persons who had entered into franchise agreements with the Franchisor, only 33 remained franchisees at the time of the Agreement, the percentage of franchisees who had ceased to be such was 59.75%. There was no justification whatsoever for representing to Mr. and Mrs. Holland that the failure rate among franchisees was 5%. I am satisfied that both Mr. Begg and Mr. Peart knew perfectly well that that figure was untrue and they simply lied about it to Mr. Holland to induce him to enter into the Agreement.

The representations in relation to the average profit margin achieved by franchisees were also, I am satisfied, important to Mr. Holland in deciding to enter into the Agreement. No attempt was made to justify by evidence the representation in the Brochure that the average profit margin was 60% or the representation on the website that it was 55%. As I have pointed out, in the light of the evidence of Mr. Peart that he did not receive accounts from franchisees, he just had no idea what profit margins were achieved by franchisees. While there was no evidence that supported the contention that the average profit margins of franchisees were 60% or 55%, there was equally no positive evidence to suggest that they were not. It was, of course, for Mr. Holland to prove the falsity of the representations that the average profit margins of franchisees were 60% or 55%. In my judgment that was demonstrated in the present case by the fact that the party within whose unique control it was to prove or not the accuracy of the stated average margins was the Franchisor and the Franchisor had elected not to put before the Court any evidence to support the margins. In those circumstances, as it seems to me, I should infer from the lack of any evidence on the point from the Franchisor that the representations in question were false. In my judgment I should also conclude from the evidence that the representations were known by Mr. Peart to be false, because he had no information whatsoever from franchisees which could have justified any statement as to average profit margins. In his closing submissions Mr. Wicks contended that there was some evidence to support the accuracy of the stated representations, namely the lack, according to Mr. Peart, of any complaints from any franchisees that the published representations were incorrect. That submission suffers from two major difficulties. The first is that I do not accept the evidence of Mr. Peart on any contested issue, for the reasons which I have already recorded. Second, given that 49 franchisees out of 82 had ceased to be a franchisee during the currency of, or at the end of, a franchise agreement, it seems unlikely that those ceasing to be franchisees were achieving anything like 55% or 60% profit margins, because if they had been they would probably not have ceased to be franchisees. Thus I reject the submission of Mr. Wicks.

The question in relation to the representations concerning NICEIC and the issue by Mr. Holland of NICEIC certificates concerning periodic inspection reports which would be counter-signed by the Franchisor was whether, as Mr. Holland contended, he was told, in effect, that could use the certification of the Franchisor with NICEIC for the purpose of his franchise in advance of himself being registered with NICEIC, or whether he was told only that what were called “green form” certificates could be counter-signed by a “qualified supervisor” from the Franchisor. Mr. Holland told me that it was not necessary in fact for a “green form” certificate to be counter-signed by a “qualified supervisor”, so that having the ability to obtain counter-signatures from the Franchisor was of no value.

It was plain from the evidence of Mr. Peart that, at least until about 4 March 2004, it had been possible for franchisees to utilise the certification of the Franchisor for the purposes of the franchised business. However, as from that date, said Mr. Peart, franchisees had to obtain their own certification from NICEIC.

I am satisfied that Mr. Begg did represent to Mr. Holland that he would be able to take advantage of the certification of the Franchisor with NICEIC to cover work done in the franchised business pending the obtaining of NICEIC certification himself, and that it was not the case that he said that what was available was the provision of counter-signatures on “green forms”. It follows that what Mr. Holland was told was untrue to the knowledge of Mr. Peart and Mr. Begg.

The ability of Mr. Holland, if he took a franchise from the Franchisor, to provide, himself, a full range of the services permitted by the Agreement was obviously important to the economics of taking a franchise. I accept that Mr. Holland relied upon what he was told concerning the utilisation of the certification of the Franchisor with NICEIC.

The last live issue of alleged misrepresentation related to the training of Mr. Holland in the Franchisor’s specific marketing techniques. It was not, I think, in dispute that the alleged representation was made. It was not in dispute that, after the making of the Agreement, Mr. Holland, his son and his wife, did receive training, in the case of Mr. Holland over a five working day period at the offices of the Franchisor, and subsequently on one or two days in the field. Further, it was accepted that the Franchisor did provide training in respect of marketing techniques. The real complaint was that what was described as the specific marketing techniques of the Franchisor were not very impressive. In effect they amounted to cold calling to obtain the name of a decision-maker in a potential customer and then writing to that person. While that marketing technique may show a lack of enterprise and initiative, it is a marketing technique, albeit in no sense special or specific to the Franchisor. I sympathise with Mr. Holland being disappointed with what was offered in relation to marketing, but it does not seem to me that, in the circumstances, any misrepresentation was made.

For the reasons which I have given I am satisfied that the misrepresentations alleged in respect of the profit in the first year of the pilot operation of the Franchisor, the failure rate of franchisees of the Franchisor, the average profit margins of franchisees and the availability of the NICEIC certification of the Franchisor to Mr. Holland, if he became a franchisee of the Franchisor, were made, were false to the knowledge of the representor, were made with a view to inducing Mr. Holland to enter into the Agreement, and were relied on by him in entering into the Agreement. The question then arises whether it is open to Mr. Holland to rely upon those misrepresentations in the light of the provisions of clauses 17.12 and 17.14(a)(i) of the Agreement. That depends upon the effect in law of the clauses in question.

The effect of a non-reliance clause in a contract on a possible cause of action in misrepresentation has been considered by the Court of Appeal in two cases which were drawn to my attention. In each of them the leading judgment was that of Chadwick LJ. The first of these two cases, E.A. Grimstead & Son Ltd. v. McGarrigan, is unreported, but the judgments of the Court of Appeal were handed down on 27 October 1999. The second case was Watford Electronics Ltd. v. Sanderson CFL Ltd. [2001] EWCA Civ 317. In the course of his judgment in the latter case Chadwick LJ cited the relevant passages from his judgment in the former. In each case the observations on the effect of a non-reliance clause were obiter.

For present purposes the material part of the judgment of Chadwick LJ in Watford Electronics Ltd. v. Sanderson CFL Ltd. was paragraphs 38 to 41 inclusive:-

“38.

The purpose of the first sentence of the clause must be ascertained not only in the light of the second sentence, but also in the light of the entire agreement clause. The entire agreement clause – clause 14 in the Terms and Conditions of Sale, clause 15 in the Terms and Conditions of Software Licence – is also in two parts. The second part of the clause contains an acknowledgment by the parties that “no statements or representations made by either party have been relied upon by the other in agreeing to enter into the contract”.

39.

The effect of an acknowledgment of non-reliance, in terms which were sufficiently similar to those in the second part of the entire agreement clause in the present case as to be indistinguishable, was considered in this Court in E A Grimstead & Son Ltd. v. McGarrigan (unreported, 27 October 1999). In a passage which was obiter dicta – but which followed full argument on the point – I said this (at page 32A-C of the transcript):

“In my view an acknowledgment of non-reliance … is capable of operating as an evidential estoppel. It is apt to prevent the party who has given the acknowledgment from asserting in subsequent litigation against the party to whom it has been given that it is not true. That seems to me to be a proper use of an acknowledgment of this nature, which, as Mr. Justice Jacob pointed out in the Thomas Witter case [Thomas Witter Ltd. v. TBP Industries Ltd. [1996] 2 All ER 573], has become a common feature of professionally drawn commercial contracts.”

I went on, at page 35A-C, to say this:

“There are, as it seems to me, at least two good reasons why the courts should not refuse to give effect to an acknowledgment of non-reliance in a commercial contract between experienced parties of equal bargaining power – a fortiori, where those parties have the benefit of professional advice. First, it is reasonable to assume that the parties desire commercial certainty. They want to order their affairs on the basis that the bargain between them can be found within the document which they have signed. They want to avoid the uncertainty of litigation based on allegations as to the content of oral discussions at pre-contractual meetings. Second, it is reasonable to assume that the price to be paid reflects the commercial risk which each party – or, more usually, the purchaser – is willing to accept. The risk is determined, in part at least, by the warranties which the vendor is prepared to give. The tighter the warranties, the less the risk and (in principle, at least) the greater the price the vendor will require and which the purchaser will be prepared to pay. It is legitimate, and commercially desirable, that both parties should be able to measure the risk, and agree the price, on the basis of the warranties which have been given and accepted.”

40.

Those passages were not cited to the judge. He held that Sanderson could not rely on the acknowledgment of non-reliance contained in the second part of the entire agreement clause. He said this, at paragraph 107 of his judgment:

“ … the clause is, in substance, one that excludes liability rather than precludes liability from ever occurring. The clause states that no statement or representation has been relied on. It follows that the clause can only first bite once a statement or representation has been made that is capable of being relied on. The clause bites, therefore, on a potential misrepresentation that has been made. It is not preventing words that have been uttered from being a misrepresentation at all. Furthermore, the words that were used did, as a matter of fact, as I have found, induce the contract. Thus, this clause is one which is in substance an exclusion clause to which section 3 of the Misrepresentation Act is applicable”

I confess to some difficulty in following the reasoning in that passage. It is true that an acknowledgment of non-reliance does not purport to prevent a party from proving that a representation was made, nor that it was false. What the acknowledgment seeks to do is to prevent the person to whom the representation was made from asserting that he relied upon it. If it is to have that effect, it will be necessary – as I sought to point out in Grimstead v. McGarrigan – for the party who seeks to set up the acknowledgment as an evidential estoppel to plead and prove that the three requirements identified by this Court in Lowe v. Lombank Ltd. [1960] 1 WLR 196 are satisfied. That may represent insuperable difficulties, not least because it may be impossible for a party who has made representations which he intended should be relied upon to satisfy the court that he entered into the contract in the belief that a statement by the other party that he had not relied upon those representations was true. But the fact that, on particular facts, the acknowledgment of non-reliance may not achieve its purpose does not lead to the conclusion that the acknowledgment is “in substance an exclusion clause to which section 3 of the Misrepresentation Act is applicable”. Nor does it lead to the conclusion that the entire agreement clause can be disregarded when construing the earlier limit of liability clause – clause 7.3 in the Terms and Conditions of Sale and clause 10.6 in the Terms and Conditions of Software Licence.

41.

The importance of the entire agreement clause in the present context – and, in particular, the importance of the acknowledgment of non-reliance which constitutes the second part of that clause – is that the first sentence in clause 7.3 (or clause 10.6, as the case may be) has to be construed on the basis that the parties intend that their whole agreement is to be contained or incorporated in the document which they have signed and on the basis that neither party has relied on any pre-contract representation when signing that document. On that basis, there is no reason why the parties should have intended, by the words which they have used in the first sentence of the limit of liability clause, to exclude liability for negligent pre-contract misrepresentation. Liability in damages under the Misrepresentation Act 1967 can arise only where the party who has suffered the damage has relied upon the representation. Where both parties to the contract have acknowledged, in the document itself, that they have not relied upon any pre-contract representation, it would be bizarre (unless compelled to do so by the words which they have used) to attribute to them an intention to exclude a liability which they must have thought could never arise. ”

The reference to the three requirements identified in Lowe v. Lombank Ltd. was to the requirements set out by Diplock J, giving the judgment of the Court of Appeal, at page 205:-

“In order to found an estoppel on this statement in the delivery receipt, which is in a printed form drafted and supplied by them, the defendants must show: (1) that it is clear and unambiguous; (2) that the plaintiff meant it to be acted upon by the defendants or at any rate so conducted herself that a reasonable man in the position of the defendants would take the representation to be true and believe that it was meant that he should act upon it (see Citizens’ Bank of Louisiana v. First National Bank of New Orleans); (3) that the defendants in fact believed it to be true and were induced by such belief to act upon it.”

A decision of the Court of Appeal which was not, it appears, cited in either E.A. Grimstead & Son Ltd. v. McGarrigan or Watford Electronics Ltd. v. Sanderson CFL Ltd. was Cremdean Properties Ltd. v. Nash (1977) 241 EG 837. The form of words at issue in that case was not a non-reliance clause. It was words at the end of special conditions of sale by tender to this effect:-

“Messrs. Lalonde Bros & Parham for themselves, for the vendors or landlord whose agents they are give notice that (a) These particulars are prepared for the convenience of an intending purchaser or tenant and although they are believed to be correct their accuracy is not guaranteed and any error, omission or misdescription shall not annul the sale or be grounds on which compensation may be claimed and neither do they constitute part of an offer of a contract. (b) Any intending purchaser or tenant must satisfy himself by inspection or otherwise as to the correctness of each of the statements contained in these particulars.”

However, it was contended on behalf of the defendant in that case that the effect of the words used was to circumvent the provisions of Misrepresentation Act 1967 s. 3, which, as substituted by Unfair Contract Terms Act 1977 s.8, provides:-

“If a contract contains a term which would exclude or restrict –

(a)

any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or

(b)

any remedy available to another party to the contract by reason of such a misrepresentation,

that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does.”

The leading judgment in the Court of Appeal in Cremdean Properties Ltd. v. Nash was that of Bridge LJ. He concluded that the words in question did amount to an exclusion clause falling within the ambit of Misrepresentation Act 1967 s.3. However, in the course of his judgment he said:-

“Mr. Newsom’s able argument on behalf of the defendant can really be summarised very shortly. In effect what he says is this. The terms of the footnote are not simply, if contractual at all, a contractual exclusion either of any liability to which the defendant would otherwise be subject for any misrepresentation in the document, or of any remedy otherwise available on that ground to the plaintiff. The footnote is effective, so the argument runs, to nullify any representation in the document altogether; it is effective, so it is said, to bring about a situation in law as if no representation at all had ever been made. For my part, I am quite unable to accept that argument. I reject it primarily on the simple basis that on no reading of the language of the footnote could it have the remarkable effect contended for. …

I am quite content to found my judgment in this case on the proposition that the language of the footnote relied upon by Mr. Newsom simply does not, on its true interpretation, have the effect contended for. But I would go further and say that if the ingenuity of a draftsman could devise language which would have that effect, I am extremely doubtful whether the court would allow it to operate so as to defeat section 3. Supposing the vendor included a clause which the purchaser was required to, and did, agree to in some such terms as “notwithstanding any statement of fact included in these particulars the vendor shall be conclusively deemed to have made no representation within the meaning of the Misrepresentation Act 1967,” I should have thought that that was only a form of words the intended and actual effect of which was to exclude or restrict liability, and I should not have thought that the courts would have been ready to allow such ingenuity in forms of language to defeat the plain purpose at which section 3 is aimed.”

Scarman LJ expressed his agreement with the conclusion of Bridge LJ in these trenchant words:-

“Nevertheless, the case for the appellant does have an audacity and a simple logic which I confess I find attractive. It runs thus: a statement is not a representation unless it is also a statement that what is stated is true. If in context a statement contains no assertion, express or implied, that its content is accurate, there is no representation. Ergo, there can be no misrepresentation; ergo, the Misrepresentation Act 1967 cannot apply to it. Humpty Dumpty would have fallen for this argument. If we were to fall for it, the Misrepresentation Act would be dashed to pieces which not all the King’s lawyers could put together again.”

The words which I have quoted from the judgments in Cremdean Properties Ltd. v. Nash were, I think, also obiter. However, they seem to demonstrate a difference of approach to a contractual provision intended to circumvent the provisions of Misrepresentation Act 1967 s.3 from the approach of Chadwick LJ. The approach in Cremdean Properties Ltd. v. Nash was, essentially, that as a matter of principle a form of words in a contract which, however expressed, had the effect of preventing a party to the contract from pursuing a claim for damages for misrepresentation should be treated as an exclusion clause falling within the provisions of Misrepresentation Act 1967 s.3. The particular example of a term taken by Bridge LJ was a term deeming any actual representation not to have been made. However, the same practical result would be achieved by a term providing that any actual representation had not been relied upon – a term like clause 17.12 of the Agreement. It would seem that Bridge LJ and Scarman LJ would have been inclined to treat such a term as in substance an exclusion clause falling within Misrepresentation Act 1967 s.3, and so only having effect if it satisfied the requirement of reasonableness. Chadwick LJ, on the other hand, did not contemplate a non-reliance clause having a free rein, but rather potentially crashing into a different set of buffers, the requirements set out by Diplock J in Lowe v. Lombank Ltd. If those requirements were met, there was no need to consider the requirement of reasonableness in Misrepresentation Act 1967 s.3 – the provision took effect. However, if those requirements were not met, again there was no need or opportunity to consider the requirements of reasonableness – the provision was of no effect.

For the reasons which I have explained, neither the observations of Bridge LJ and Scarman LJ in Cremdean Properties Ltd. v. Nash, nor the comments of Chadwick LJ in E.A. Grimstead & Son Ltd. v. McGarrigan and Watford Electronics Ltd. v. Sanderson CFL Ltd. are binding upon me. I do not consider that I need decide between the two different approaches in the circumstances of the present case, because whichever approach I adopted would lead to the same conclusion, namely that clause 17.12 and clause 17.14(a)(i) of the Agreement provided no defence to the Franchisor in relation to the fraudulent misrepresentations which I have found were made by the Franchisor to Mr. Holland and were relied upon by him in deciding to enter into the Agreement.

By Unfair Contract Terms Act 1977 s.11(1) it is provided that:-

“In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967 and section 3 of the Misrepresentation Act (Northern Ireland) 1967 is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made.”

No evidence was called on behalf of the Franchisor which was specifically directed to the issue whether clause 17.12 or clause 17.14(a)(i) of the Agreement satisfied the requirement of reasonableness.

Mr. Wicks submitted, as I think correctly, that, in order to satisfy the requirement in Misrepresentation Act 1967 s.3 that “it is for those claiming that the term satisfies the requirement to show that it does”, it was not necessary to lead any evidence directed to the point, rather than to persuade the Court by argument, if that was the course which was preferred by the party bearing the burden. However, in many cases the Court might well be assisted by evidence on the point, for example if a particular term was commonly used in a particular industry. Mr. Wicks took his stand on the considerations identified by Chadwick LJ in E.A. Grimstead & Sons Ltd. v. McGarrigan at page 35A-C of the transcript, quoted above, as leading to the conclusion that clause 17.12 and clause 17.14(a)(i) satisfied the requirement of reasonableness, namely that the Agreement was a commercial contract, it was made, he submitted, by experienced parties of equal bargaining power with at least access to professional advice, the provisions in question led to commercial certainty and the relevant commercial risk had been taken into account in the terms of the Agreement. Unhappily, the circumstances in E.A. Grimstead & Sons Ltd. v. McGarrigan were, as it seemed to me, completely different from those of the present case. In that case the agreement in question was a sale of shares in a limited liability company. The agreement included various warranties on the part of the vendors. In the present case the Agreement was a franchise agreement and it contained no material warranties on the part of the Franchisor. While the Franchisor was, no doubt, experienced in matters of business, Mr. Holland was not – he had been a university lecturer for much of his adult life. It most certainly was not the case that the Franchisor and Mr. Holland were of equal bargaining power. The evidence was that the Agreement was in a standard form used by the Franchisor. Mr. Wicks did not suggest to Mr. Holland in cross-examination that he could have re-negotiated with the Franchisor any terms of the Agreement which he did not like – he suggested that if there was anything Mr. Holland did not like he always had the option of not entering into the Agreement at all. By the time the Agreement was concluded the Franchisor, on my findings, had made important fraudulent misrepresentations to Mr. Holland. Mr. Peart and Mr. Begg knew, as I have found, that the representations which I have found were made were made fraudulently, and they knew that Mr. Holland considered the representations important and had relied upon them. Mr. Holland did not know at that time that the representations were false, but he did know that in his view what he had been told was important to him in making his decision to enter into the Agreement. All that can really be put against Mr. Holland as a factor indicating that clause 17.12 and clause 17.14(a)(i) satisfied the requirement of reasonableness was that he had read the Agreement before he signed it and he knew that those provisions were included in it. However, as he told me in cross-examination, he believed that he had a statutory right not to be lied to in relation to the making of the Agreement. I do not overlook the points pleaded at paragraph 17(d) of the Re-Amended Reply and Defence to Counterclaim that:-

“Further or alternatively (and in so far as it is necessary for the Claimant to do so), the Claimant avers that the clauses referred to in paragraph 17(b) hereof, and each of them, satisfy the requirement of reasonableness under the Unfair Contract Terms Act 1977. The Claimant relies in particular upon the following:

(i)

The Defendant made his own inquiries into the viability of the proposed franchise business. The Claimant provided him with details of at least 14 of its franchisees. The Defendant’s own case is that he made inquiries of some of these franchisees, asking them in particular whether they had achieved their business plans.

(ii)

The Defendant attended a conference, “Approaching Franchising with Confidence”, on 13 July 2005 at the Liverpool Chamber of Commerce. The conference included a presentation by Elise Billy of EXB Legal in which, inter alia, advice was given that a potential franchisee should read the franchise agreement carefully and consult a solicitor (preferably one affiliated to the British Franchising Association).

(iii)

In the light of that advice, the Defendant knew, or ought reasonably to have known, of the existence and extent of the terms relied upon by the Claimant.

(iv)The Defendant was under no pressure, commercial or otherwise, to enter into the Agreement.”

The only point pleaded which I have not already specifically mentioned is the matter that Mr. Holland had made enquiries of franchisees of the Franchisor. That does not seem to me to be material to the question whether it was reasonable to seek to exclude liability for misrepresentations made on behalf of the Franchisor, in circumstances in which Mr. Holland was relying both upon the answers to his enquiries of franchisees and upon the misrepresentations.

In the result, if it were appropriate to consider clause 17.12 and clause 17.14(a)(i) as provisions which sought to exclude or restrict liability for misrepresentation falling within Misrepresentation Act 1967 s.3, the Franchisor has not satisfied me that either of them satisfies the requirement of reasonableness, so each is of no effect.

If the approach of Chadwick LJ to non-reliance clauses were relevant, I accept the submission of Mr. Wicks that the first requirement in Lowe v. Lombank Ltd., that the statements in clause 17.12 and in clause 17.14(a)(i) were clear and unambiguous, was met. However, neither the second nor the third requirements were demonstrated, in my judgment. Mr. Wicks submitted that Mr. Holland had shown that he meant the statements in clause 17.12 and clause 17.14(a)(i) to be acted upon by the Franchisor by signing the Agreement. However, that signature of the document relied upon is not itself enough to demonstrate the second requirement emerges from the facts of Lowe v. Lombank Ltd. itself – Mrs. Lowe had signed the delivery receipt in that case, but was not held thereby to have intended that it be acted upon by the defendant. What is needed, in order to make out the second requirement, as it seems to me, is the demonstration of a conscious intention to make the statements upon which reliance is placed or to have conducted oneself in such a way as to lead a reasonable person to conclude that there was such a conscious intention. Signing a standard form of agreement prepared by the party seeking to rely on the statements, which are themselves buried within 34 pages of text, does not, in my judgment, either in itself show the requisite intention or amount to conduct such as would lead a reasonable man to conclude that Mr. Holland had such an intention in signing the Agreement. As I have noted, Mr. Holland told me that he did not consider that by signing the Agreement he would be forgoing any statutory right not to be lied to. I accept that evidence. I find that he did not intend the statements in clause 17.12 and clause 17.14(a)(i) to be relied upon by the Franchisor. I also find that the Franchisor did not believe the statements in clause 17.12 and clause 17.14(a)(i) to be true – they, by Mr. Peart and Mr. Begg, knew that they were not. They knew, as Mr. Peart accepted in cross-examination, that Mr. Holland had relied on what he had been told by them at the meetings on 1 August 2005 and on 15 or 16 September 2005. Although Mr. Peart in his witness statement asserted that the Franchisor had relied upon the statements in clause 17.12 and clause 17.14(a)(i) made by Mr. Holland, I reject that evidence.

It was common ground that, if I found that Mr. Holland had been induced to enter into the Agreement by misrepresentations upon which he was entitled to rely, damages fell to be assessed on the basis of the amount necessary to put him in the position in which he would have been if the misrepresentations had not been made to him.

It was also common ground that, if the misrepresentations had not been made to Mr. Holland, he would not have entered into the Agreement and would not have paid the franchise fee under the Agreement of £23,000.

Mr. Wicks submitted that the sum of £23,000 was the limit of the damages to which Mr. Holland was entitled, because I should conclude on the evidence that he had decided to leave the University in any event, and, having made that decision, he would have set himself up in some business such as that which he has in fact been conducting since the termination of the Agreement.

Mrs. Stevens-Hoare submitted that I should conclude that, but for the misrepresentations and the consequent making of the Agreement, Mr. Holland would have remained at the University, probably in the role of principal lecturer. In fact, subject to one matter, Mr. Holland limited his claims to the period of five years from the date of the Agreement, that is to say, until October 2010, so I do not need to reach any conclusion as to whether he would have remained at the University until retirement other than in relation to that one matter.

So far as concerned damages for misrepresentation, most of the attention at the trial was focused on Mr. Holland’s claims for loss of income in the period November 2005 to October 2010, and the amounts for which credit should be given. Mr. Wicks rather concentrated on the issues whether Mr. Holland would have left the University in about November 2005 in any event and whether, if not, he would have accepted a reduction in grade to senior lecturer. He did not really challenge the income figures put forward by Mr. Holland as those relevant to a principal lecturer and those relevant to a senior lecturer in the period November 2005 to October 2010. Mr. Wicks did raise the spectre of compulsory redundancy of Mr. Holland in the role of principal lecturer, but there was no evidence to suggest that he would have been dismissed as a principal lecturer by reason of redundancy prior to the trial in any event, and there was no evidence to suggest that that was likely to have happened before October 2010, or at all.

I accept the evidence of Mr. Holland that, but for the making of the misrepresentations and the making of the Agreement, he would have remained at the University in his then current post of principal lecturer. I find, on the evidence in his second witness statement, that he would have earned a total of £165,678 in that post in the period between the date he actually left the University and October 2010.

Mr. Holland accepted that he should allow as a credit against his claims against the Franchisor the sum which he received as a redundancy payment when he left the University, £64,386.11. However, he contended that against that credit should be set the loss which he suffered in the form of not having remained a member of the Teachers’ Pension Scheme until retirement at the age of 65. It was in relation to this issue that the question arose whether Mr. Holland would in fact have remained at the University until the age of 65. How Mr. Holland went about assessing the loss which he had suffered from not having the benefit of ten years extra service as a member of the Teachers’ Pension Scheme he described in paragraph 8 of his second witness statement:-

“At page 6 of BH4 is a page from a website showing what it would cost if I wished to purchase back those years of pensionable service. Because I have only now made this calculation, and I wanted to calculate the effect of losing 10 years pensionable salary, I have had to bring forward my date of birth and calculated retirement date by 2 years. The effect however is to provide a figure for pension age 65 with my age being 55 and looking at what lump sum I would have to pay into the Teachers’ Pension Scheme in order to be treated as though I continued being an employee of the University and paying into the Teachers’ Pension Scheme to 65. Final pension is calculated on the basis of 1/80^th of final salary per year. Therefore for purposes of calculation I have used the current annual salary of £51,095.00 x 10/80ths which would yield an annual pension payment of £6,386.87 plus a tax free lump sum of £19,160.62. However the maximum annual pension I could buy in as extra years by means of a lump sum payment is £5,200 and I have used this figure in my calculations. ”

The cost of buying ten years pension at an annual rate of £5,200 was £68,016.

Mr. Wicks criticised the approach of obtaining a figure from the Teachers’ Pension Scheme website, rather than obtaining a specific quotation from the Scheme, but it seems to me that in these days obtaining this sort of information by inputting information into a website which offers the service of calculating the cost of buying additional pension is perfectly satisfactory, in the absence of some specific reason to suppose that the information obtained from the website might not be reliable. A more powerful point made by Mr. Wicks was that it appeared that Mr. Holland would not in fact be able to purchase additional pension from the Teachers’ Pension Scheme as he had ceased to work for the University. However, Mr. Holland was not really, as it seems to me, seeking to claim as damages the loss of ten years pension benefits. Rather, he was seeking to set off against the credit of his redundancy payment which he was prepared to allow against his claims the amount of his pension benefits which he had given up in return for that redundancy payment.

In my judgment, rather than allow the amount of the redundancy payment as a credit against his claims and then offset against it the loss of the pension benefits, it is probably more logical not to allow the credit of the redundancy payment on the basis that one of the elements of the consideration for it was the forgoing of the pension benefits, which was worth at least as much as the redundancy payment. That is how I intend to proceed in assessing damages. On that basis what needs to be allowed against the claim for loss of salary at the University until October 2010 is the income which Mr. Holland has generated, or will generate, from the New Business. Mr. Holland made a profit of £4,721.00 in the financial year ending 31 March 2007 and a profit of £7,001.80 in the financial year ending 31 March 2008. He has estimated that in subsequent years until October 2010 his turnover will increase by 30% each year and his gross profit margin before tax and National Insurance contributions will be 25%. I have already noted that it seems to me that Mr. Holland’s predictions as to the future are optimistic. However that may be, the credits offered by Mr. Holland in respect of his earnings from the New Business in the period 1April 2006 to October 2010 amount to £51,895.30. Mr. Holland also offered as credits £2,425 in respect of electrical training and £4,230 in respect of a van purchase. The total credits thus came to £58,550.30.

In addition to the loss of salary up to October 2010 to be set against those credits, one needs to bring into account Mr. Holland’s losses incurred during the period of his franchise. According to the Holland Accounts, for the period ending 31 March 2006 he sustained a loss of £30,489 on trading, but that loss included the franchise fee of £23,000. However, in addition, he incurred debts of £32,773 shown on his balance sheet as at 31 March 2006, and that sum was included in his claims for damages. Mr. Wicks did not specifically challenge either of these figures.

It is necessary, in calculating the damages to which Mr. Holland is entitled also to allow for the sum of £875 which it was agreed was due from him to the Franchisor, the sum of £20,430.71 which I have assessed as the damages due to the Franchisor for repudiatory breaches of the Agreement justifying termination, and £2 nominal damages for breach of clause 15.1(a) of the Agreement.

In the result the calculation of damages is as follows:-

Consequently, I find that the Franchisor’s claims against Mr. Holland are extinguished by the sums which I have found to be due to him. Thus there will be judgment for Mr. Holland on his Part 20 claim in the sum of £149,081.99, together with interest, as to which I will hear Counsel, and the claims of the Franchisor fail and are dismissed.