Dwyer (UK Franchising) Ltd v Fredbar Ltd

JurisdictionEngland & Wales
CourtChancery Division
JudgeJones
Judgment Date11 May 2021
Neutral Citation[2021] EWHC 1218 (Ch)
Date11 May 2021
Docket NumberCase No: BL-2020-001411

[2021] EWHC 1218 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

BUSINESS LIST (Ch)

Before:

INSOLVENCY AND COMPANIES COURT JUDGE Jones SITTING AS A JUDGE OF THE HIGH COURT

Case No: BL-2020-001411

Between:
Dwyer (UK Franchising) Limited
Claimant
and
(1) Fredbar Limited
(2) Mr. Shaun Rowland Bartlett
Defendants

Mr Paul Strelitz (instructed by OWEN WHITE Limited) for the Claimant

Mr David E. Grant (instructed by direct access) for the Defendants

Hearing dates: 18, 19, 22, 26 & 30 MARCH 2021

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

CHJ 11/5/21

INSOLVENCY AND COMPANIES COURT JUDGE Jones

INSOLVENCY AND COMPANIES COURT JUDGE Jones SITTING AS A JUDGE OF THE HIGH COURT:

A) Introduction

1

Dwyer (UK Franchising) Limited (“the Claimant”) is the franchisor of the “Drain Doctor” plumbing and drain repair services franchise. On 4 October 2018 it entered into a franchise agreement (“the Agreement”) with Fredbar Limited as franchisee and Mr Shaun Bartlett (“Mr Bartlett”) as guarantor. Its claim is that Fredbar Limited committed a repudiatory breach when it purported to terminate the Agreement by letter dated 16 July 2020 and no longer accepted it was bound by its terms. The Claimant terminated the Agreement by letter dated 19 August 2020. Damages are sought for breach of the Agreement. It also requests injunctive relief for delivery up of franchise property and to restrain breach of the Agreement's restraint of trade covenants. This trial concerns liability and injunctive relief only.

2

If the injunctive relief is granted it will prevent the operation of a new business of Fredbar Limited called “Daily Drains”. It has traded within and around the post codes of the Agreement's franchise area in Cardiff after termination of the Agreement and, on the Claimant's case, before termination. An application for interim injunctive relief was heard by Mr Justice Nugee, as he then was, on 17 September 2020. He decided the appropriate course was to expedite the trial.

3

The Claimant is a substantial company with more than thirty franchisees covering over sixty territories. It describes itself as the UK's largest full-service emergency plumbing and drainage company operating in commercial and domestic sectors. It is owned by “Neighborly UK”, which is part of “Neighborly Worldwide”, previously known as the Dwyer Group, a holding company formed in Waco, Texas. The ultimate parent is described by the Claimant as the world's largest home service franchise business. For the year ended 31 December 2018, the Claimant had a turnover of some £2.174 million. It suffered a loss of £(893,225) compared with a profit of £28,519 the previous year resulting from a turnover of £2.398 million. However, the balance sheet investment value of its fixed assets, its subsidiaries, established healthy net assets of some £13.221 million enabling it to carry net current liabilities of nearly £4 million.

4

In contrast, Fredbar Limited was formed on 24 September 2018 by Mr Bartlett with the intention of it becoming one of the Claimant's franchisees. He had no previous experience of plumbing and drainage work or of being a company director. He relied upon training by the Claimant and a course was completed by 15 December 2018. The franchise business was run from Mr Bartlett's home using a van hired for the purpose. Its first year's, small companies' exempt accounts with a start date of 1 October 2019 record net liabilities of £(3,113) after deducting liabilities from fixed assets of £26,277 and current assets of £14,617.

5

Fredbar Limited and Mr Bartlett deny the claim and rely upon Fredbar Limited's termination of the Agreement. They assert that negligent misrepresentations made before the Agreement was concluded entitle its rescission or termination. They challenge various clauses seeking to exclude any reliance or liability for representations as unreasonable. They complain about the circumstances in which the Agreement and a Deed of Variation were entered into and at trial alleged undue influence. They also contend that the Claimant failed to fulfil various obligations under the Agreement entitling repudiation. These included a failure to comply with a “force majeure” clause during the Covid pandemic. Alternatively, if the Agreement was rescinded or terminated by the Claimant, they assert that the restraint of trade covenants will either not apply upon their true construction or are unreasonable and unenforceable. It is their case that the new business can and should continue.

6

Whilst it is plain there has been inequality of arms during these proceedings, at trial Fredbar Limited and Mr Bartlett have had the considerable benefit of being able to instruct Mr Grant as their barrister through direct access. That has avoided the significant disadvantage they would otherwise have been under because the Claimant had the benefit of Mr Strelitz acting as their counsel. Both counsel are to be complimented upon the professionalism and skills they have applied to this trial.

7

Nevertheless that inequality was relevant to the circumstances in which the Agreement was concluded, to the operation of Fredbar Limited's business and to the issues which arose concerning enforcement of the restraint of trade covenants. It continued to be relevant to the conduct of the litigation before Mr Grant's involvement. It is an inequality perhaps typified by the size and convoluted nature of the Agreement, the difficulties experienced by Mr Bartlett as a result of the Covid pandemic and the fact that for him the outcome of this claim will potentially determine whether he and his family will be able to keep their modest family accommodation. Nevertheless, this case still involves a commercial transaction and the outcome must be determined applying legal principles to the contractual relationship of franchisor and franchisee. The starting point, therefore, is the Agreement.

B) The Agreement

8

Under the terms of the one hundred plus page Agreement, Fredbar Limited purchased an exclusive licence to obtain the right to trade under the name “Drain Doctor” within nine specified Cardiff postcode areas, districts and sectors. It is for a term of ten years with provision for a renewal agreement. English law applies. Although exclusive, the Claimant (subject to provisions concerning the right for Fredbar Limited to respond) could authorise other franchisees to service customers who made such a request or when the service could not be provided by Fredbar Limited. As a result of response, Fredbar Limited could be authorised to provide services to customers outside the territory if not solicitated or (in briefest summary) if one of their customers requested services outside. However, Fredbar Limited could not actively solicit customers outside the area. The same provisions applied to all other franchisees (see further at clause 3.2). The Agreement is a standard form document drafted by lawyers. That was inevitably necessary but unfortunately it has been drafted in an unnecessarily complicated and lengthy style.

9

The recitals record that the trade name is “associated with quality residential and commercial plumbing and drainage services” which have been derived from the time money effort and expense incurred by “Mr Rooter Corporation” of Texas, U.S.A., when developing the Claimant's business methods over a number of years. The recitals also contain an acknowledgment that Fredbar Limited and Mr Bartlett had taken or had the opportunity to take “full legal and financial advice” concerning the Agreement before its execution.

10

By clause 5 the Claimant contracted as its “initial obligations” to provide initial training, access to its business “Manual” after training and advice upon any products and equipment required to start the business. At its discretion, it would assist Fredbar Limited to establish and operate its Drain Doctor Business.

11

By clause 6 the Claimant contracted as its “continuing obligations” to provide periodical refresher training courses, to ensure the Manual was kept up to date and to provide advice in connection with its “System” when reasonably required by Fredbar Limited. In addition the Claimant “may” provide “Additional Support” for a reasonable fee provided its staff were available. An example of that support being “field visits beyond those normally required for training purposes”.

12

By clauses 11.1 and 11.2 the Claimant would use the weekly marketing and promotion fund (the “MAP Fund”) fee to be paid by Fredbar Limited (as detailed within Schedule 11 to the Agreement) and all other franchisees, to promote the Drain Doctor Business through national advertising and/or promotional activities (amongst other methods). This obligation was conditional upon payment of the fee and the method of promotion was discretionary. It was not guaranteed that Fredbar Limited would benefit equally with other franchisees from the use of the MAP Fund. In addition, the Claimant would advise upon any further advertising Fredbar Limited may carry out in accordance with its obligations under the Agreement.

13

Fredbar Limited was required to pay an initial franchise fee of £35,000 plus VAT for which it entered into a loan agreement (see Schedule 14 of the Agreement”) with the Claimant for £17,500. It would be required to pay a weekly management service fee (plus VAT) (“the MSF”) based upon a percentage of invoiced gross sales (net of VAT). The fee would range from 15% up to £7,500 of invoiced sales and down to 11% for sales invoiced of £23,001 and above. It was subject to a minimum payment based upon the territory's population and the period of the term. The MAP Fund fee (plus VAT) was a weekly contribution of 2% of...

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