Grow With Us Ltd v Green Thumb (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUXTON,LORD JUSTICE MAURICE KAY,SIR MARTIN NOURSE,Lord Justice Buxton |
| Judgment Date | 27 July 2006 |
| Neutral Citation | [2006] EWCA Civ 1201 |
| Docket Number | B5/2006/0338 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 July 2006 |
[2006] EWCA Civ 1201
Lord Justice Buxton
Lord Justice Maurice Kay
Sir Martin Nourse
B5/2006/0338
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(HIS HONOUR JUDGE SEYMOUR QC)
Royal Courts of Justice
Strand
London, WC2
MR P COPPEL (instructed by TWM Solicitors LLP, 16–18 Quarry Street, GUILDFORD GU1 3UF) appeared on behalf of the Appellant.
MR N JONES QC & MR G CUNNINGHAM (instructed by Messrs Hamilton Pratt, 120 Edmund Street, BIRMINGHAM B3 2ES) appeared on behalf of the Respondent.
1. This appeal from a judgment of HHJ Seymour QC sitting as a judge of the Queen's Bench Division concerns a franchise agreement entered into on 8 December 2000 between Green Thumb United Kingdom Limited ("the franchisor") and Grow With Us Limited ("the franchisee") . The nature of the business with which the franchise was concerned was set out by the judge in paragraph 2 of his judgment:
"The business of the franchisor consists in large measure in the granting of permission by the mechanism of franchises to those desirous of obtaining them for the undertaking by the franchisees of the business of treating lawns in accordance with the method advised by the franchisor utilising the intellectual property of the franchisor and being permitted to use as business names Green Thumb Lawn Service and Green Thumb Lawn Treatment Service."
The judge added that the franchisor also operates itself direct in some areas, providing the services to the public which otherwise franchisees provide.
The central operative provision is to be found in clause 2(1) of the contract and is in familiar terms so far as a franchise agreement is concerned. It reads as follows:
"In consideration of the payment of the Initial Fee, the Marketing Promotion Contribution and the Continuing Fees by the Franchisee for the Franchisor on the Payment Dates and of and subject to the agreements on the part of the Franchisee and the Principal …"
I interpose that the "principal" is three gentlemen responsible for the management and indeed the ownership of the franchisee. The clause continues:
"… in this Agreement the Franchisor hereby grants to the Franchisee during the Term sole and exclusive right and licence to carry on the Business under the Permitted Name in the Territory using the Intellectual Property in accordance with the Method and the Manual."
There are definitions of all of those terms, none of which I need go into. The franchisee was given permission to operate a closely defined business and was required to follow the method for that business approved by the franchisor; that is an extremely common provision in such an agreement.
This case concerns the extension, or rather the non-extension, of the franchise at the end of the original term. The expiry date given in the agreement was:
"14 January, 2006 or such later date as shall result from any extension of the Term under clause 4.1.20."
That clause referred to comes in a part of the agreement headed "Franchisor's Obligations" and clause 4.1.20 reads as follows:
"To extend the Term at the option of the Franchisee for further periods of seven years commencing on the day following the Expiry Date PROVIDED THAT the Franchisee:
"4.1.20.1 has achieved the Minimum Performance Requirements throughout the Term as required by this Agreement.
"4.1.20.2 has properly observed and performed his obligations under this Agreement throughout the Term;
"4.1.20.3 pays to the Franchisor a renewal fee of 1% (one per cent) of the Gross Turnover for the calendar year prior to the Expiry Date;
"4.1.20.4 serves a notice on the Franchisor requiring such extension no more than six calendar months and not less than 90 days before the Expiry Date;
"4.1.20.5 accepts that the terms of this Agreement shall apply to any extension of the Term under this clause 4.1.20 with uplifted Minimum Performance Requirements or executes a new agreement on the Franchisor's standard terms current at the Expiry Date which agreement (save for variation to Minimum Performance Requirements) shall not be substantially more onerous to any of the parties than the terms of this agreement."
The concept of minimum performance requirements is important in this case. They are to be found at clause 7 of the franchise agreement. That provides that "the franchisee shall use best endeavour to achieve minimum performance requirements in respect of the business as follows", and then there are set out the number of current customers (which are defined effectively as customers who are, at least for the moment, committed to the business) that have to be achieved by the franchisee during the periods ending two, three, four and five years after the commencement of the agreement. The figures were on an increasing scale, starting with 600 at the end of two years and running to 1,170 at the end of five years. That is of importance in looking at clause 4.1.20.5.
So far as the question under 4.1.20.2 as to whether the franchisee had properly observed and performed his obligations, the only obligation that is now in issue, although some others were disputed earlier in the history, is that provided by clause 5.1.30 and 5.1.34. The clause 5.1.30 required the franchisee:
"To supply to the Franchisor by electronic means (if required by the Franchisor) monthly sales reports and other information in the form stipulated by the Franchisor in the Manual concerning the Business."
By clause 5.1.34 the franchisee was to keep a list of actual and potential customers of the business and supply a copy of it to the franchisor on request.
The franchisor alleged that the franchisee was in breach of the requirements of both of those clauses, and more particularly 5.1.30, by not providing to it as requested details of the names and addresses of its customers. By an amendment to the Manual, which it is not suggested it was not open to the franchisor to make, the franchisee was required to maintain a computer file called GT Data 53, which I shall endeavour to refer to as "the file" or "the computer file". That file contained names and addresses of customers, former customers and potential customers. That file was required by the franchisor to be transmitted to him electronically on the fifth day of every month. The franchisee persistently refused to transfer those details.
So the franchisor wrote to the franchisee on 17 February 2005, serving what it described as a notice under clause 5.1.36 specifying that the agreement had been breached, and that the matter must be corrected. The franchisee did not comply with that notice within the time specified. Therefore, the franchisee argues in this appeal that, quite apart from the issue about minimum performance requirements, to which I shall shortly come, the franchisee had been in breach of its obligations under 5.1.30, and therefore was not qualified in any event to seek a renewal by reason of the terms of clause 4.1.20.2.
So far as the other aspect of renewal was concerned, that is to say the acceptance of uplifted minimum performance requirements under 4.1.20.5, the agreement did not specify what should be the uplifted minimum performance requirements for the purpose of that clause, nor did it provide any machinery for determining them in the case of disagreement.
The franchisee rested on a letter that it had written on 5 August 2005 which described itself as exercising the franchisee's right to extend the term. The letter asserted, correctly, that the requirements in the current contract as to minimum performance requirements had been achieved. It denied that there was any other breach and then continued as follows:
"Conditional upon your confirmation of acceptance of this notice without material dispute, our client admits that appropriate 'uplifted minimum performance requirements' during the extended Term are …"
It then set out figures for the period from January 2007 to January 2013, providing in each year for an accumulative increase of the number of customers of 450. It is not necessary to set out the actual figures. The letter then continued:
"On the above figures, we would in passing observe that MPRs have a fundamental effect as giving a right to terminate the Agreement (rather then just leading to incidental financial adjustments) and accordingly should allow considerable headroom—they should not be commercial targets, but a safety net."
That letter elicited a response from the franchisor on 7 October 2005 which dealt with a series of matters, but as to minimum performance requirements said this:
"All current franchise renewals will be required to meet an MPR of 8.5% penetration following twelve years of trade i.e. at the end of your 7 year renewal. Our highest current penetration in a franchise territory is in excess of 8.00%."
That was not acceptable to the franchisee, who thought, and says in this case, that it was an unreasonable increase in the light of his current business and the competitive situation in the area in which he was franchised. There was therefore effectively an impasse between the parties. Since there was no agreement with regard to the minimum performance requirements, clause 4.1.20.5 was not satisfied and therefore there could be no extension.
The parties' respective cases as to whether that outcome was correct under the terms of the agreement, and what this court or any other court should do about it, were as follows. The franchisor relied on the terms of the clause. It was for the franchisor to propose an uplifted minimum performance...
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Fitzroy Robinson Ltd v Mentmore Towers Ltd & Others
...would be difficult to operate in practice. A relatively extreme example of such a case is Grow With Us Ltd v Green Thumb (UK) Ltd [2006] EWCA Civ 1201 where Buxton LJ refused to imply the term requested and said: “Mr Coppel by contrast said that that task of finding a reasonable solution w......