Spratt Endicott Wins High Court Victory for Sole Trader Against International Franchise Network
Law firm Spratt Endicott is celebrating a High Court victory on behalf of sole trader client Errol Kerr, against international franchising network ChipsAway International.
The decision follows a five month dispute in which ChipsAway International, which has a 370-strong franchise network in the UK, argued that Mr Kerr was in breach of restrictive covenants by continuing to independently operate his car body repair business, Spectrum Auto Solutions, in the same geographical area following the end of his franchise agreement. ChipsAway International sought an injunction to stop him trading until the covenants expire in 2009.
The judgment, given by Sir Andrew Park, dismissed the claim on the basis that the wording of the Restrictions on Termination clause in the franchise agreement was flawed and therefore unenforceable. The failure of the franchise company to recruit a new franchisee for the territory also called into question whether Mr Kerr was in competition with the franchise or had undermined goodwill due to them.
The decision underlines the importance of clearly worded and reasonable restrictive covenants in commercial agreements and is likely to raise some eyebrows in the franchising sector.
Estelle Dimelor, partner in charge of Dispute Resolution at Spratt Endicott Solicitors who successfully defended Mr Kerr, said: “This is an important win and underlines that, with a robust case, individuals can take on big business. The decision also highlights the unenforceability of restrictive covenants in commercial agreements where they are deemed to be unreasonable. In this case, the judge found fault with the wording of the restrictive covenant clause and recognised that my client had acted in good faith to comply with the covenant.
“I’m delighted that after a tremendously stressful period where his livelihood came under threat, Mr Kerr can now get on with running the business he worked so hard to build up.”
Explaining the background to the claim Ms Dimelor said that Mr Kerr had signed a five year franchise agreement and became a ChipsAway car care centre franchisee in 2002. His business did, and still does, trade as Spectrum Auto Solutions in Banbury, Oxfordshire. Under the agreement Spectrum Auto Solutions was entitled to carry out ChipsAway branded SMART1 (Small to Medium Area Repair Technology) repairs using the ChipsAway system, paints and products.
Not wishing to renew his agreement at the end of the five-year term, Mr Kerr advised ChipsAway International and confirmed that he would no longer use the company’s branded SMART repair system or any of its branded products in the course of his business. ChipsAway International immediately took action against Mr Kerr and the dispute reached Court for an interim hearing on 10 April this year. Undertakings given by Mr Kerr at that hearing have prevented him from trading offering SMART repairs until the Judgment in the High Court on 30 July found in his favour.
Mr Kerr had initially been advised on the enforceability of the restrictive covenants within his franchise agreement by Spratt Endicott Solicitors’ Company Commercial department. John Spratt, senior partner at the firm and partner in charge of Company Commercial, said: “I am delighted for Mr Kerr. We draft and advise on commercial agreements on a daily basis but it is always satisfying when our clients’ confidence in our advice is endorsed by decisions given by the Courts.”
Errol Kerr, owner of Spectrum Auto Solutions, said: “I’m thrilled with the outcome. When I took Spectrum Auto Solutions into the ChipsAway car care franchise network I did so with 20 years’ experience in car body repairs behind me. After completing my five-year agreement with the company, all I wanted to do was run my business independently. I have complied with all the clauses in my contract, apart from those which were an unenforceable restraint of trade, and it’s absolutely right that ChipsAway International have been prevented from making an example of my case. I’m relieved that I can get on with providing my customers with a first class repair service and put this behind me.”
Mr David Parry of 3 Paper Building acted as Counsel for Defendant Errol Kerr. The Claimant, ChipsAway International was advised by Victoria Hobbs of Field Fisher Waterhouse, with Mr Jason Evans-Tovey of Crown Office Chambers as Counsel. The Claimant has been granted leave to appeal by the Court of Appeal .
01 August 2008
