Franchisor liable for negligent advice to franchisee despite disclaimers and exclusions of liability – MGB Printing v Kall Kwik, High Court

This case concerned MGB’s purchase of one of Kall Kwik’s existing printing services franchises. In doing so, MGB asked Kall Kwik about the cost of re-fitting, which Kall Kwik advised that it should be about £10,000 (which it later increased to £15,000). The cost turned out to be between £30,000 and £45,000.

The High Court said that Kall Kwik breached a duty in negligence to MGB, causing harm. Because this was a case of financial loss, MGB had to show that there sufficient proximity (or closeness) in their relationship, the loss was reasonably foreseeable as a consequence of a breach, and it was just and reasonable in all the circumstances to impose a duty of care. MGB succeeded in doing that. Kall Kwik had assumed a responsibility in acting as an adviser in helping MGB over the financial issues associated with the franchise, and it had breached that duty. All in all, the High Court decided that it was fair to hold Kall Kwik liable.

The High Court came to this conclusion despite two exclusions of liability. In the franchise agreement itself, there was an exclusion of liability, but this related to the claim for misrepresentation in inducing MGB to enter into the agreement and not for negligence in relation to performance of the agreement itself. In addition, Kall Kwik had produced a cash flow document (which contained the figure of £15,000 for the re-fitting costs) that had a disclaimer against responsibility for the contents except in the case of fraud and there was a note advising recipients to carry out their own verification of the contents; however, the Court said it was not the cash flow on which MGB had relied but the discussions about fitting costs.

MGB also successfully claimed against Kall Kwik for breaching an ancillary agreement to the main franchise agreement because of Kall Kwik’s failure to transfer certain customer data as promised.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘Franchisees often enter into one-sided franchise agreements just to have the opportunity to share in the success enjoyed by the franchisor. The franchisor generally helps the franchisee to establish its business so that the relationship ends up being a win-win situation for both of them. Inevitably, the franchisor gives the franchisee assistance and advice. Even if the franchise agreement is one-sided, this case shows that the franchisee may be able to claim under the legal head of tort rather than breach of contract. From a franchisor’s point of view, they should look at their agreements and ensure that their liability clauses are drafted as widely as possible to seek to limit liability for claims made against them under tort.’