A recent Court of Appeal case regarding the termination of a franchise agreement has highlighted the importance of ensuring that franchise agreements and any updates or amendments to them are properly
A recent Court of Appeal case regarding the termination of a franchise agreement has highlighted the importance of ensuring that franchise agreements and any updates or amendments to them are properly documented. Often franchisors will initially engage a franchise lawyer to draft their franchise agreement but they can be tempted to deal themselves with any changes to that agreement or renewals of it. This can take the form of issuing a side letter to a franchisee or even re-drafting certain parts of the franchise agreement to reflect new commercial terms.
In the case of Thorney Park Golf v Myers Catering [2015] EWCA Civ 19, a contract between a franchisor and franchisee was drafted by "lay people" and the franchisor had itself drafted the crucial clause relating to the term of the agreement. The dispute turned on how the provisions relating to the term and termination should be interpreted. The franchisee asserted that the agreement was for an "initial term" of three years terminable thereafter by either party on 4 months' notice. The franchisor argued the contract was for a fixed term of three years but terminable nonetheless at any time by four months' notice within the initial three years.
The franchisor believed, based on its strict interpretation of the express wording of the clauses of the agreement relating to the term and termination of the contract, that it had a right to terminate after the agreement had been operating for a year. The judge in the initial hearing agreed with the franchisor. However, the Court of Appeal disagreed and upheld the franchisee's interpretation of the agreement. In reaching this decision the court looked at: the wider commercial purpose of the arrangement; the fact that the clauses being examined were drafted by a layperson and may have been intended to have a different meaning to that normally given to them; and how term and termination were dealt with in a previous similar form of contract entered into by the parties.
This case illustrates the dangers for a franchisor in seeking to alter its franchising arrangements without seeking professional advice. Even by drafting a simple side letter or making what it thinks to be a straightforward amendment to a franchise agreement in order to achieve a particular outcome, a franchisor runs the risk of ending up with its agreement being interpreted to mean something completely different than he intended.
In the case of Thorney Park Golf v Myers Catering [2015] EWCA Civ 19, a contract between a franchisor and franchisee was drafted by "lay people" and the franchisor had itself drafted the crucial clause relating to the term of the agreement. The dispute turned on how the provisions relating to the term and termination should be interpreted. The franchisee asserted that the agreement was for an "initial term" of three years terminable thereafter by either party on 4 months' notice. The franchisor argued the contract was for a fixed term of three years but terminable nonetheless at any time by four months' notice within the initial three years.
The franchisor believed, based on its strict interpretation of the express wording of the clauses of the agreement relating to the term and termination of the contract, that it had a right to terminate after the agreement had been operating for a year. The judge in the initial hearing agreed with the franchisor. However, the Court of Appeal disagreed and upheld the franchisee's interpretation of the agreement. In reaching this decision the court looked at: the wider commercial purpose of the arrangement; the fact that the clauses being examined were drafted by a layperson and may have been intended to have a different meaning to that normally given to them; and how term and termination were dealt with in a previous similar form of contract entered into by the parties.
This case illustrates the dangers for a franchisor in seeking to alter its franchising arrangements without seeking professional advice. Even by drafting a simple side letter or making what it thinks to be a straightforward amendment to a franchise agreement in order to achieve a particular outcome, a franchisor runs the risk of ending up with its agreement being interpreted to mean something completely different than he intended.