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Franchising – assessing ‘good faith’ and ‘protected business’ rights

30 July 2014

In the recent case of Carewatch Care Services Ltd v Focus Caring Services Ltd & Ors the High Court granted the claimant franchisor injunctive relief to enforce restrictive covenants and the ‘step-in’ provisions under a franchise agreement. This was despite arguments put forward by the defendant franchisee that the franchisor had breached an implied obligation of good faith by opening up numerous branches (owned by the franchisor) rather than supporting the franchisee. The Court held that there was no need to imply any terms (including as to good faith) as there was no ‘clear lacuna’ in the detailed provisions of the franchise agreement.

Interestingly, the Court also held that the definition of what amounted to the protected business within the restrictive covenants should be judged with regard to the current position and not by reference to the circumstances as they existed at the date the agreement was entered into. It remains to be seen if the judgment is appealed on this point. This case will provide reassurance to franchisors that their business interests will be protected, while it should serve as a warning to franchisees to carefully check the terms of any franchise agreement before signing up to one.

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