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Jason Evans-Tovey successfully beats off good faith & competition law defences in franchise case

Jason Evans-Tovey successfully enforces restrictive covenants and step-in provisions in franchise agreements in a case which dispels some myths and gives modern guidance on an implied duty of good faith and competition law issues in franchise agreements.

On 11 July 2014, Mr Justice Henderson handed down judgment in Carewatch Care Services Ltd v Focus Caring Services Ltd & Ors [2014] EWHC 2313 (Ch).

Carewatch franchises care services. One franchisee wanted to leave the franchise network. The franchisee purported to accept an alleged, but non existent, repudiatory breach of (amongst others) alleged implied duties, including ones of good faith, and declined to honour post termination restrictive covenants and step-in provisions all the way through to a 6 day expedited trial.

The case:

  • confirms judicial reluctance to pick up and run with observations of Leggatt J in Yam Seng and to find within detailed franchise agreements implied terms including ones of good faith;
  • provides additional authority in favour of upholding at common law and under EU law both post termination non compete and non solicitation covenants in franchise agreements, including a non compete covenant extending beyond the franchised territories and a covenant against the solicitation of employees;
  • provides authority in favour of upholding post termination step-in provisions.

Amongst other things, the franchisee was ordered to pay the franchisor’s costs which were in excess of £600,000 plus interest such that the case provides a reminder to franchisees of the financial risks of seeking to break away from a network and running lots of unmeritorious defences to trial.

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