(1) London Business House Limited (2) Faisal Rehman v (1) Pitman Training Limited (2) Pitman Training Group Limited [2023] EWHC 1077 (Comm)
Hamilton Pratt and Counsel Ali Tabari of St Philips Chambers successfully represented Pitman Training in its defence of fraudulent misrepresentation and loss of profits proceedings brought for over £450,000 and heard at a 4-day trial in the High Court. The dispute arose when Pitman Training’s franchisee said they discovered the presence of a licensee of Pitman Training operating within the franchisee’s exclusive territory. The franchisee argued that the licensee’s presence impacted his trading performance and infringed his exclusivity rights, and therefore he was entitled to terminate and pursue a claim for loss of profits, not only for the remainder of the existing 5 year term, but for a subsequent term when the franchise agreement was renewed.
The judge found that there had been no fraudulent misrepresentation, and that insofar as the licence agreement gave rise to a breach of the franchise agreement, the ex-franchisee had failed to prove causation or loss.
The proceedings bring to the fore some points worthy of consideration for other franchisors.
Franchisees misunderstand the exclusivity rights granted to them.
Franchisees are very sensitive to the franchisor or neighbouring franchisees infringing what they perceive to be their exclusive right to trade in their territory. They may believe that “exclusive” means, no one can trade within their territory under any circumstances; when it fact the meaning is more limited due to, amongst other things, competition law.
The basis of this ex- Pitman Training franchisee’s complaint was his failure properly to understand the rights granted to him.
Franchisors should ensure that prospective franchisees obtain legal advice on the meaning of the franchise agreement and should ensure that the exclusivity provisions in their franchise agreements are as clear as possible.
Recent decisions have highlighted that franchise agreements which are excessively complicated and lengthy are less likely to be considered favourably by the Court.
Be wary of relying on the benevolence and availability of former employees.
During the franchisee recruitment process, usually a number of lengthy discovery meetings with candidates take place before they enter into their franchise agreements. Those meetings are often not recorded or if they are, the written note rarely addresses all the relevant points.
A key witness and former employee of Pitman Training was, for very understandable reasons, unable to attend trial to verify her version of the discussions at pre-franchise agreement meetings. However, it does invite the question, that if video conferencing software and our phones now allow recordings of meetings to be made, why aren’t franchisors using it to keep a clear digital record to assist with the defence of claims in the event an employee leaves the business or is simply not available for trial?
