As previously reported, the case centred on a franchise agreement for a recruitment consultancy. The High Court agreed that Antal had terminated the contract wrongly, and had itself breached the contract in doing so.

However, the claim for damages on the basis of a reduction in the company’s value as a result of the breach was rejected, with the High Court ruling that, unless the company had been put out of business by the breach, loss of value was not the correct measure for assessing the losses. The High Court’s reasoning was based largely on the fact that the value of the company before and after the breach was hypothetical, thereby making damages for loss of value difficult to assess. Since the company had chosen to pursue the valuation route rather than making a claim for loss of profits, the loss of profits route was barred to them, leaving them only with nominal damages.

The High Court agreed with MMP. The franchisee was responsible for the actions of its employee. It disagreed with the franchisee’s  argument that her actions were outside of the course of her employment and were a matter for her private life. This was about an employee who had misused personal data obtained from a CV obtained through her employment.  This was a breach of her employment contract, but MMP was still responsible.

However, the franchisor’s purported termination of the contract was wrongful and that action in itself was a repudiatory breach of contract as it showed an intention not to perform the contract. The reason was that the relevant clause which had been breached said that MMP must not “do anything to adversely affect our name, Trade Marks or other Intellectual Property”.  On a true construction of those words, Antal would have needed to provide evidence that MMP’s conduct had in fact damaged the Antal brand.  It had not provided that evidence.  A mere fear or concern of the harm or reputation that would be done was not sufficient on the wording used in the agreement.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “This case should act as a warning to businesses to be careful when selecting and managing their staff.  However, even more stark is the consequence of failing to have an agreement that says what the franchisor or other business thinks it says.  Care should be used before terminating an agreement, or the otherwise innocent party ends up being the wrongful party.  It should also have made the contract wording tighter by talking about damage to its reputation “in the franchisor’s opinion” so that it would not have to attain evidence to prove that the damage did actually occur.”

The franchise agreement contained three different provisions in separate sub-clauses: the non-solicitation clause prohibited soliciting clients and staff for one year in respect of the Restricted Area; the non-supply clause prohibited supply of competing goods for one year in respect of the Restricted Area; and the non-compete clause prohibited engaging in a competing business in respect of the Restricted Area. The “Restricted Area” was defined only in the non-compete clause, by reference to the franchise territory but also some other surrounding areas. The agreement also contained a severability clause, which is often used to encourage a judge to treat each provision separately and remove any offending words.

The parties fell into dispute. They did agree that the non-solicitation clause was valid in all of the Restricted Area. However, the non-compete clause would be invalid if it extended to the whole of the Restricted Area as it was too wide. The High Court therefore had to rule on the ability to sever any offending words.

The High Court ruled that it would not sever the Restricted Area in order to save the unenforceable non-compete clause. If the Court would have reduced the wording so that the definition referred just to the original territory, this would have changed the meaning of the defined term in the other sub-clauses (the non-solicitation clause and non-supply clause), which did not need changing in order to make them enforceable. Therefore it was not possible to sever.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “This case shows the danger of using the same defined term, and particularly defining the term itself, within particular sub-clauses if the intention by drafting separate sub-clauses is that offending unenforceable sub-clauses may be severed with the rest left intact.”

The High Court sided with P. The level of know-how and assistance provided by P to its franchisees totally justified the restrictive covenants. The restrictive covenants were no more than necessary to protect P’s business. Those provisions were therefore not void at common law or contrary to competition law as they were essential to maintain P’s goodwill. The injunction was justified and the other side’s claim for damages was dismissed.

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.’