Grow With Us Ltd. v Green Thumb (UK) Ltd. [2006] EWCA Civ 1201

Case No B5/2006/0338[2006] EWCA Civ 1201
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)
Venue Royal Courts of JusticeDate Thursday, 27 th July 2006
Strand
London, WC2
B E F O R E:
LORD JUSTICE BUXTON
LORD JUSTICE MAURICE KAY
SIR MARTIN NOURSE
Between
GROW WITH US LTDAppellant- v -
Between
GREEN THUMB (UK) LTDRespondent
(DAR Transcript ofSmith Bernal Wordwave Limited190 Fleet Street, London EC4A 2AGTel No: 020 7404 1400 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
MR P COPPEL (instructed by TWM Solicitors LLP, 16-18 Quarry Street, GUILDFORD GU1 3UF) appeared for Appellant.MR N JONES QC & MR G CUNNINGHAM (instructed by Messrs Hamilton Pratt, 120 Edmund Street, BIRMINGHAM B3 2ES) appeared for Respondent.
J U D G M E N T(As Approved by the Court)

Crown copyright©

LORD JUSTICE BUXTON:

This

[1]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.[2]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.”
[3]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.[4]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.”
[5]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.”
[6]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.[7]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.[8]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.[9]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.[10]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.[11]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.”
[12]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%.”
[13]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.[14]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 requirement and then for the franchisee to decide whether he would accept the new contract on those terms or not. That the uplifted minimum performance requirement might be more onerous than what was contained in or deducible from the current agreement was shown by the second part of 4.1.20.5 which, in providing for a new agreement as a possible alternative to an extension of the current agreement, said that the terms of the new agreement should not be more onerous than the existing agreement but specifically excluded the uplifted MPR from that limitation. This case was at some stages of the exchanges between the parties and in the argument below expressed in the perhaps somewhat aggressive language of the franchisor having an “absolute right” to set the uplifted minimum performance requirement figures. The same approach to the construction of the clause was expressed in more detailed terms which read back clearly to the terms of the clause itself in paragraph 2 of the respondent’s notice served in this court, which said this:
“The Learned Judge should have held that on the proper construction of the Agreement the Respondent was free to require the MPRs of its choice to be inserted in any extended or renewed agreement while recognising that the Appellant was not then bound to commit itself to the extended agreement if it did not wish to be bound by such MPRs.”
[15]The franchisee took a completely different approach. That rejected any appeal to the literal words of the contract. Rather, Mr Coppel argued on its behalf, as he had argued below, that against the background of a five-year commercial relationship under the franchise and the investment by the franchisee in building up the business, it could not be right that the franchisor could frustrate the assumption in the agreement that the franchise would be continued simply by setting a level of uplifted minimum performance requirements that the franchisee could not attain. That would have the effect of terminating the franchise and allowing the franchisor to take the fruits of the franchisee’s work and investment.[16]In order to avoid that outcome, Mr Coppel said that the parties should be taken to agree that any uplifted minimum performance requirement proposed by the franchisor should be reasonable, that to be achieved by the reading in of the word “reasonable” before the first reference to uplifted minimum performance requirements in clause 4.1.20.5. That step, if correct, was said by Mr Coppel to generate the following relief for his clients. The claim in the claim form, which was the proceeding before the judge, sought a mandatory injunction simply to extend the franchise agreement with nothing stated as to the terms on which that extension should take place. The order sought from this court in the grounds of appeal was that the agreement should be extended but on the terms of the letter of 5 August 2005 already referred to. Mr Coppel said that those terms should be found by this court to be reasonable within his proposed reading of the clause. If the court did not feel able to make that determination for itself, it should remit the matter to the judge for him to determine what would be reasonable. Alternatively, at least at one time it was suggested that the question should be submitted to some form of arbitration.[17]None of this latter form of relief was proposed in the grounds but we allowed Mr Coppel to include the possibility of it in his submissions. The judge dealt with this argument initially in paragraphs 60 to 63 of the judgment. “60. In the absence of any express provision as to how, on the exercise of the option which clause 4.1.20 provided, the uplifted minimum performance requirements were to be determined, the conclusion that that was to be done by the franchisor alone at his whim would only be justified as a matter of contract if it could be said that there was an implied term of the agreement to that effect. “61. I see no justification in law for the implication of any such term. Such a term would not satisfy the test often applied in relation to the implication of terms in a contract of representing the actual but unexpressed agreement of the parties, not least because it would be commercially highly unwise for a party with an option to renew an agreement to entrust his fate as to whether the renewal was advantageous to him or not entirely to the other party, whose commercial interests might lie in engineering a failure of the adventure. “62. However, although not as a matter of law, as a matter of practical reality it was the case that the fixing of the uplifted minimum performance requirements was a matter concerning which the franchisor was in a position to dictate his will because in order to bring about an enforceable agreement for an extended term it was necessary for the parties to agree what the uplifted minimum performance requirements were to be. The franchisor had an unfettered choice as to that to which he would agree and in that sense it was entirely up to him to fix the uplifted minimum performance requirements. “63. I reject the submissions of Mr. Coppel that any term can or should be implied into the agreement to the effect that the uplifted minimum performance requirement should be reasonable. There was in fact no indication in the agreement, as was accepted, as to how they should be set. I also reject the submission of Mr. Coppel that it was an implied term of the agreement that the parties should cooperate to fix the uplifted minimum performance requirements. On analysis all Mr. Coppel was contending for was the implication of a term that the parties would make an agreement about the uplifted minimum performance requirements. There certainly seems to be no warrant for implying into the agreement some procedure for the resolution of disputes which the parties had not expressly agreed.”[18]The judge then went on in his paragraphs 64 to 66 to described detailed submissions that apparently had been made to him as to what would be the proper or reasonable basis for determining uplifted minimum performance requirements if the court had to undertake that task. He did not reach any conclusions on that evidence because, on his view of the law, he did not think that it was his role so to do. I will say no more at this point other than the exposition of the matters that the parties sought to put before the judge in my view underlines the wisdom of the judge’s doubts as to whether the court should or could enter upon such an inquiry. I will have to return to that matter.[19]Having mentioned those points, the judge referred in his paragraph 67 to the reluctance of the court to make a contract for the parties, referring to the well-known words of Lord Pearson in Trollope & Colls Ltd. v North West Metropolitan Regional Hospital Board [1973] 2 AER 260 and then continuing thus in his paragraph 68:
“In the result, therefore, in my judgment the attempt to extend the term of the agreement failed in any event for want of certainty as to the important term as to uplifted minimum performance requirements. It was plain that each party was not prepared to agree to the provision as to uplifted minimum performance requirements in an agreement for an extended term which the other wanted, and neither was prepared to enter into such an agreement unless a term as to uplifted minimum performance requirements satisfactory to it had been agreed. Without certainty as to what the term as to uplifted minimum performance requirements was to be there was no agreement into which the court could require the franchisor to enter or in respect of which specific performance could be granted. Effectively the option provision in the agreement was not in enforceable as such, it was simply, on analysis, an agreement to agree.”
[20]Before turning to the substance of the judge’s reasons for that conclusion, it is necessary to clear one distraction out of the way. The passage just set out was misunderstood by the appellant franchisee in their written submissions to this court as saying that the clause, that is to say 4.1.20.5, was void for uncertainty. That led them to criticise the judge on grounds of procedural fairness, in that he had decided the appeal on a ground not advanced by either party and of which they had no warning. When the court attempted to explore this serious criticism with Mr Coppel, but only then, he told us that he no longer maintained the complaint, at least in the terms in which it was put in the skeleton argument.[21]I do not comment further. The point was, in any event, misconceived. It is plain from paragraph 68 just set out that the judge did not say that the clause was void for uncertainty. What he said was that since the clause which he applied required an agreement as to uplifted MPRs, and there was no certainty, by which he meant agreement, as to those MPRs, there was nothing for the clause to bite on.[22]I turn now to the central element of the franchisee’s argument, which was that the court should assume that it was intended that the franchise should be extended, and for that reason imply a term as to the reasonable MPRs to be inserted in it. We were shown authority in support of that contention and more was cited in Mr Coppel’s skeleton. All the cases were, however, ones where the court was able to find an intention on the part of both parties that the contract should continue or be performed, and implied a term to allow that intention to be carried into effect.[23]An example of that process set out in the appellant’s skeleton is to be found in Foley v Classique Coaches Ltd [1934] 2 KB 1. The passages upon which reliance is placed are a passage of Scrutton LJ at page 10 of the report:
“There is to be implied in this contract a term that the petrol shall be supplied at a reasonable price and shall be of reasonable quality.”
And a passage of Greer LJ:
“I think the words of Bowen LJ in The Moorcock are clearly applicable to a case of this kind, and that in order to give effect to what both parties intended the Court is justified in implying that in the absence of agreement as to price a reasonable price must be paid, and if the parties cannot agree as to what is a reasonable price the arbitration must take place.”
[24]There the contract provided for the price to be agreed and there was provision for arbitration. That this case is an example of an obligation to make an agreed contract work, and that that is the essence of the jurisprudence of this and other cases to which I shall refer shortly, is shown exactly by Greer LJ’s reference to the observations of Bowen LJ in the Moorcock case about giving efficacy to an agreed transaction. I venture to quote what Bowen LJ said in that passage at page 68 of the report in volume 14 of the Probate Division reports. He said this:
“The implication which the law draws from what must obviously have been the intention of the parties, the law draws with the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either side; and I believe if one were to take all the cases, and they are many, of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have.”
[25]But that is not this case, and is very far from this case. This is not a contract that is in the course of performance and which the parties must be taken to have agreed will be performed. This case concerns a contract that has reached the end of its agreed term, and where the issue of whether and on what terms it should be extended, alternatively be replaced by a different contract, is completely open. There is no reason at all to assume that the parties, and certainly not both of them, must have intended that the term be extended, and therefore some grounds must be found for doing that, and no reason to read terms into the contract to achieve that end.[26]Mr Coppel said that his best case in this respect was the decision of this court in F&G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Report 53. That case concerned a five-year agreement for the supply of chickens, the amount to be supplied being of the first year’s supply such amount as might be agreed between the parties. One side refused to agree that amount and repudiated the contract. In the passage relied on Lord Denning MR said this at page 57:
“On this point we have once more gone through all the cases from May and Butcher, Ltd v The King, [1934] 2 KB 17n; Hillas & Co, Ltd v Arcos, Ltd, (1932) 38 Com. Cas. 23; (1932) 43 LL Rep. 359; Foley v Classique Coaches, Ltd, [1934] 2 KB 1: British Bank for Foreign Trade, Ltd v Novinex, Ltd [1949] 1 KB 623; and others. I would just say this. In a commercial agreement the further the parties have gone on with their contract, the more ready are the Courts to imply any reasonable term so as to give effect to their intentions. When much has been done, the Courts will do their best not to destroy the bargain. When nothing has been done, it is easier to say there is no agreement between the parties because the essential terms have not been agreed. But when an agreement has been acted upon and the parties, as here, have been put to great expense in implementing it, we ought to imply all reasonable terms so as to avoid any uncertainties. In this case there is less difficulty than in others because there is an arbitration clause which, liberally construed, is to sufficient to revolve any uncertainties which the parties have left.”
[27]That case is also different from this case on the broad ground that I have already indicated. But there are five particular ways in which Sykes differs from our case and why that observation of Lord Denning cannot be applied here. Those five differences are these:(1) In Sykes there was an extant ongoing agreement which the parties had to be taken to want to make work;(2) There was a specific provision in that case that the figures were to be agreed, but not in our case;(3) The refusal to agree constituted a repudiation of an existing obligation, again nothing like our case;(4) There was an arbitration clause which, as we have seen, Lord Denning thought to be of particular significance, and in the course of argument we identified that at least three of the four very distinguished commercial judges who were concerned in the case thought that point important;(5) As to Lord Denning’s remark that there would be in the course of the arbitration “less difficulty than in others” in finding the right terms, there were in that case guides as to the pattern of trading between the parties which could be followed in deciding what was reasonable.[28]Mr Coppel by contrast said that that task of finding a reasonable solution would be simpler in our case. I am afraid I have to say that that submission was completely unreal. As soon as I was told by him that the court would be expected to conduct an inquiry into the present structure and likely development over the next five years of competition in the lawn maintenance market in the Aldershot area, I realised that the allegedly simple and uncontroversial implied term that it was said to be necessary to imply meant that the contract could only work in the way that the franchisee required by imposing on the court an exercise that no common law court, as opposed possibly to the Competition Appeal Tribunal, is equipped to perform.[29]The judge was entirely right to reject the franchisee’s case on this point, but he could have gone further. I do not in fact think that he was right to call our contract an agreement to agree. It did not even get as far as that. Absent the franchisee’s implied term, for which there was no justification, it was properly characterisable as a provision by which the franchisor proposed a term and the franchisee had to decide whether to accept it or reject it.[30]I would therefore not only reject the franchisee’s argument but also uphold ground 2 of the respondent’s notice already cited. The judge, as we have seen, rejected the franchisor’s argument as a matter of law, though seeing its force as a matter of practical reality. If the argument had been put below in the precise terms that are found in the respondent’s notice in this court, I think that the judge might well have upheld that submission as a matter of law as well as a matter of practical reality.[31]Those considerations suffice to dispose of this appeal, but since a great deal of argument was also directed at the complaint about failure to provide the electronic data ,which is said to raise serious questions under the Data Protection Act, I will as a concession to the appellant say something about them also.[32]It is necessary to say and to emphasise that all that which follows is obiter. I make that point because some of the issues may be of general importance and we have not heard full argument about them and not seen them against their full background. The judge, I fear to say, felt that he had not been assisted in the way in which these points were presented to him. He said this in paragraph 52 of his judgment:
“The ventilation of the Data Protection Act 1998 issues which I have considered was solely in witness statements and in the course of the trial by argument. The point taken by Mr. Coppel in paragraphs 25 and 26 of his written outline closing submissions [I interpose, a matter to which I shall come] was not taken until then. In those circumstances it is perhaps unsurprising that the franchisor had not produced its certificate of registration under the Data Protection Act 1998. [I interpose again that is something else which we will have to look at in a minute. HHJ Seymour continued] Until the very end of the trial nothing had seemed to turn upon it. However, in my judgment the implicit suggestion that it was for the franchisor to prove that disclosure of the names, addresses and telephone numbers of the current customers of the franchisee was lawful, rather than for the franchisee to prove that it was unlawful, was misplaced.”
[33]I regret to have to say that the approach of producing argument on matters that are of considerable complexity was also apparent in the presentation of the case to us. Several points which I struggle to address in what follows emerged only ambulando in the course of argument or under questioning by the court.[34]The starting point for this inquiry is that the franchisee failed or refused to comply with the franchisor’s requirement, justified on the bare terms of the contract, to supply the data file, and it was that that led the franchisor to serve the notice of 17 February 2005 asserting a breach of the terms of the contract. The franchisee’s case was that to transfer the file would have constituted or led to various breaches in the Data Protection Act. The whole argument was bedevilled by the franchisee’s assertion or assumption that once the Data Protection Act issues had been raised, it was in some way for the franchisor to show that the Data Protection Act was not infringed. That was, I have to say, wholly misconceived. It was never suggested that the terms of the franchise agreement were in any way illegal or unlawful in themselves because of any Data Protection Act issues. So

the judge was correct in saying as he did in his paragraph 53:

“Once it was accepted that the franchisee had failed to provide to the franchisor information which it was contractually bound to provide, the evidential burden of proving that there was an excuse for that failure passed to the franchisee. In fact the franchisor ignored the incidence of the burden of proof in relation to this issue at the first level and produced evidence to show that in fact provision of information would not have contravened the 1998 Act. If the franchisee wished to counter that counter, as it were, it was for it to prove the counter.”
[35]This mistaken approach also seriously infected the argument before us. We start from the agreed position that there is no doubt that the names and addresses of customers and possibly, though this matter does not have to be determined, some other information about them, for instance the key code for their front doors, are personal data in terms of the Data Protection Act, and that electronic transfer of that personal data to the franchisor would constitute a processing of that personal data under the provisions of the Data Protection Act. On that basis, Mr Coppel made the following complaints, which I hope that I have fairly extracted from the material before us.[36]First, the transfer of data that was envisaged would not be fair processing under part 1 of schedule 2 to the Data Protection Act. That provides that personal data shall be processed fairly and lawfully and in particular shall not be processed unless at least one of the conditions in schedule 2 is met. We come back to the conditions in schedule 2 to another part of the argument. Before we get to those conditions, Mr Coppel urged, in my respectful judgement correctly, that you have to look at whether the processing would in any event be fair, conditions in schedule 2 met or not. For that you have to go to the interpretation section, part 2 of schedule 1.

(a) , which provides that data is not processed fairly unless:

“… in the case of data obtained from the data subject, the data controller ensures so far as practicable that the data subject has, is provided with, or has made readily available to him, the information specified in sub-paragraph (3)”
. When we go to sub-paragraph 3, the information required is:
“(a) the identity of the data controller, “(b) if he has nominated a representative for the purposes of this Act, the identify of that representative, “(c) [and this is the passage that we would be particularly concerned with] the purpose or purposes for which the data are intended to be processed.” the purpose or purposes for which the data are intended to be processed.”
[37]At this stage, and so far as the customers’ information held by the franchisee is concerned, the franchisee was the data controller. The judge dealt with this argument, which was put before him I think in broadly the terms that it was put before us, in his paragraph 50, which I will venture to quote:
“Mr Coppel objected that it was not relevant that in the circumstances of the present case the consent of the data subject might have been obtained [I interpose that that is a reference to one of the schedule 2 conditions to which I shall have to come] because even if that had been so the requirements of paragraph 2(1)(a) and 3(c) of part II of schedule 1 as to fair processing would not have been met. [I interpose those are the passages that I have just read. The judge continued] How he put the point in his written closing outline submissions was this: ‘The defendant has not produced the certificate of its registration under the Data Protection Act 1998 which would have identified the purposes for which it was at all relevant times registered to process personal data. The defendant has produced no evidence that any data subject was ever advised that their personal data was to be used for the purpose of transmission by the franchisee to the franchisor or internal evaluation by the franchisor. Mr Williams [I interpose, a representative of the franchisor] in his witness statement said that the purpose of the defendant requiring the data was to enable a franchisor [and I think I have to interpose the words “to make”] a complete analysis of the business carried out by the franchisee. The defendant gave as the purposes for which it required the franchisee to be registered advertising, marketing and public relations. The significance of this mismatch lay in paragraph 2(1)(a) of part II of schedule 1 to the 1998 Act. Under paragraph 2(3)(c) the data subject must be told of the purpose for which the data is to be processed. The defendant’s data protection policy, even if it were effective, which is not accepted as it did not seek consent from data subjects nor offer any opportunity to request non-processing, does not state these purposes.”
[38]As I have said, at this stage of the process the franchisee was the data controller. The responsibilities in the first instance were his. The franchisor, in my view, did not become the data controller until the data was transferred: so that the complaint that a customer was not properly informed of the purpose for which the data was to be used would in the first instance seem to beat the air.[39]The franchisee in argument raised, for the first time as far as I could see, what it described to be the franchisor’s statement of its data protection policy, and said that it was insufficient or misleading. That was to be found, according to the franchisee, on a promotional document prepared by the franchisor and circulated to its franchisee members, Mr Coppel told us under pain of breach of contract if they did not pass it on, described as the “recommend a friend promotion”. The substance of this document seems to me of no importance but broadly speaking it invited franchisees to recruit another customer and for that they would get paid a reward. Down at the bottom of this in very small print is a passage headed “Data Protection Policy” which said this:
“Green Thumb (UK) Ltd and its franchisees take the issue of protecting your Personal Information seriously and would be grateful if you would take the time to read the following information about our use of your Personal Information. We will use your Personal Information to provide and enhance our services to you; deal with enquiries, administration, security and market research.”
Then there is the usual threat or promise that the customer may be contacted by post to be offered other benefits.[40]The nub of the complaint appears to be that that did not say in terms that the information was to be used by the franchisor for the purpose for which the franchisee said it principally required it, and certainly the purpose for which it would be used, that is to say to check on the performance of the franchisee. That is a point which is linked to the complaint that we have already seen mentioned in passing about the content of the franchisor’s certificate of registration under the Data Protection Act, which was raised at the trial.

The judge said this about that in his paragraph 54:

“However, assuming, as I was invited to by Mr. Coppel, that the franchisor’s certificate of registration permitted it to receive information for advertising, marketing and public relations, it seemed to me that, broadly, the purposes for which Mr. Williams said that the franchisor wished to receive the names, addresses and telephone numbers of current customers of the franchisee fell under the heading ‘marketing’. “55. It does not seem to me that the registration requirements of the 1998 Act require the applicant for registration to set out exhaustively, as opposed to sufficiently to give an understanding of the general nature of the processing intended, what it proposes to do with the data obtained.”
[41]I would respectfully agree. But in any event, and subject to an argument which I shall address under the issue of customer consent, if the franchisee was worried about this clause, that is to say worried that the customer had not been given full information as to why the information was being transferred and what was going to be done with it when the franchisee got it (and I have to say they had no sign of such a worry that I could see until these proceedings started), they could themselves have told the customer in more detail how that information was to be used.[42]The second complaint was that the conditions in schedule 2 had not been met. Schedule 2 provides, over and above fair processing that I have already referred to, that data should not be processed unless one or a series of conditions is met, of which those relevant to the argument are first, the data subject has given his consent to the processing; and secondly the sixth provision:
“6.(1) The processing is necessary for the purposes of legitimate interests pursued by the data controller or by the third party or parties to whom the data are disclosed, except where the processing is unwarranted in any particular case by reason of prejudice to the rights and freedoms or legitimate interests of the data subject.”
[43]First of all, condition (1): the data subject has given his consent to the processing. Why could the franchisee not have obtained that consent from the customers? Granted, which the franchisee as we have seen did not accept, that it was for him to comply with the terms of the contract rather than for the franchisor to deal with the matter of consent. Before the judge it was said that it would be impracticable to do so by reason of the numbers of customers, their turnover and so on. The judge rejected that case, and it was not clear to me that that rejection was appealed. In any event, no cogent argument was produced to justify our differing from the judge’s view.[44]Before us a different argument was produced. Mr Coppel said that the franchisee was so tightly bound by the terms of the franchise agreement that he could not do anything that was not provided for in the franchise agreement and the company Manual. Reliance was placed on three clauses in particular: 5.1.10, to conform in all respects and at all times with the method, modified from time to time by alteration of the manual; 5.1.11, not to do or suffer to be done anything in addition to or not in accordance with the method without the previous consent in writing of the franchisor; and 5.1.54:
“If required by the Franchisor to make contracts with customers for the Services and/or Business on the standard terms and conditions set out in the Manual and not to take orders from customers unless they have consented to such terms and conditions.”
[45]On that basis it was argued that the franchisee can do nothing, not even ask customers for consent to transfer their information, without the consent of the franchisor. This argument is misconceived. 5.1.54 is about making agreements with customers not about seeking consent from them. 5.1.10 and 5.1.11 are familiar terms in franchise agreements about the conduct of the franchisee, but they relate to a matter about which franchisors as a class are habitually concerned, that is to say, the conduct of and method and form of delivery to the customer of the franchise services themselves. They are not about compliance with the law. But if that was seen as a problem, and that problem does not seem to have arisen before this case started, I do not see why the franchisor could not have been approached for his consent, which as far as I can see he never was.[46]Thirdly, there were difficulties, it is said, about clients who had positively said they did not want their names to be given, and others who had said that they did not want, for instance, the gate code of their garage or of their garden to be given, assuming for the moment that the latter would indeed be personal data. We were told that it was, as a matter of electronic management, not possible to strip out the names of such customers from the database; the judge had been told that and had not taken it into account. We indulged Mr Coppel to the extent of adjourning to give him an opportunity to show us evidence at the trial on which the point of impossibility is made. No such evidence was in fact shown to us.[47]We were also told that the point had been made to the franchisor and had been ignored. To the extent that anything was said, on this point the exchanges seem to occur after the franchisor had served its notice of breach and when the parties were in or threatening litigation. The only other exchange seen was not about the transfer of names but about the transfer of (for instance) data about gate codes, where the franchisor’s response indicated a willingness to discuss the matter in terms that never seem to have happened.[48]Accordingly, the franchisee failed to demonstrate any good reason in terms of condition 1, customer consent, for its failure to transfer the data file. That being so, condition 6, that the processing was necessary for legitimate interests of the franchisor does not have to be pursued. But I will quote what the judge said of it in paragraphs 44 to 45 of the judgment: “44. However, condition 6 might be satisfied, for if the franchisor has a legitimate interest in receiving the information as to the names and addresses of the franchisee’s customers, it is not obvious that passing on that information would cause prejudice to the rights and freedoms of the customers. It is the case of the franchisor in this action that in fact it did have a legitimate interest in the information as to the names and addresses of the customers of the franchisee. The evidence about it was contained in paragraph 29 of the first witness statement of Mr. Jeff Williams, the franchise director of the franchisor. He said: “‘The provision of customer information pursuant to clause 5.1.34 is particularly important for Green Thumb for the following reasons: “‘We are unable to monitor the growth of a franchise and thus offer necessary and required assistance without access to the data. “‘We are unable to monitor customer churn’ [that is turnover] ‘accurately and provide necessary assistance and advice to the franchisee without access to the data. “‘We are not able to audit turnover and ensure correct returns without access to the data. “‘We are not able to monitor compliance with our pricing policies and thus ensure continued growth of the business, and protection of the bran and the interests of neighbouring franchises without access to the data.’ “45. Those considerations, which were not extensively investigated during the trial, may well amount to a legitimate interest for the purposes of condition 6 of Schedule 2 to the Data Protection Act 1998. When Mr. Agnew was asked about them in examination in chief he did not accept that the first two reasons advanced were valid, but he did seem to accept that reasons (3) and (4) were sound. However, even if, on a more detailed examination than has taken place during the trial, that did not prove to be the case, it is plain that it was not unlawful for the franchisee to supply the franchisor details of the names and addresses of its customers as long as it obtained the consent of the customers to the disclosure.” “‘We are unable to monitor the growth of a franchise and thus offer necessary and required assistance without access to the data. “‘We are unable to monitor customer churn’ [that is turnover] ‘accurately and provide necessary assistance and advice to the franchisee without access to the data. “‘We are not able to audit turnover and ensure correct returns without access to the data. “‘We are not able to monitor compliance with our pricing policies and thus ensure continued growth of the business, and protection of the bran and the interests of neighbouring franchises without access to the data.’[49]Mr Coppel said that that treatment did not give weight to the need for the processing to be necessary for the interests of the franchisor. I would think that that argument puts too much weight on the word “necessary”. That word does not mean “essential” or “unavoidable”. However, we are not required to decide that point and in this case I do not propose to do so.[50]Thirdly, it was said that the judge wrongly implied a term into the contract requiring the franchisee to obtain the consent of the customers. This is not a technical but simply a contractual issue. It stems from the error as to the structure of the contract that I have referred to earlier in this judgment. The judge did not imply any term but simply said that since the obligation to perform was an obligation of the franchisee, and the franchisee had not performed, it was for it to show a good reason why it had not done so. This point adds nothing to the data protection arguments that have gone before.[51]I thus am not persuaded by the franchisee’s case on the data protection issues but as already indicated, in my judgement the appeal fails in any event.

LORD JUSTICE MAURICE KAY: I agree.

SIR MARTIN NOURSE: I also agree that the appeal should be dismissed for the reasons given by my Lord, Lord Justice Buxton. I add some observations of my own on the question of construction.

[54]The effect of clause 4.1.20.5 of the franchise agreement was that, in order to acquire an extension of the term, the franchisee had either to accept that the terms of the agreement should apply to the extension “with uplifted minimum performance requirements” or to execute a new agreement on the franchisor’s standard terms current on 14 January 2006. That provision seems clearly to contemplate that it would be for the franchisor to make a proposal to the franchisee as to the uplifted minimum performance requirements and for the franchisee then to decide whether he wished to accept the proposal or not; alternatively, to execute a new agreement on the terms stated.[55]Mr Coppel, for the franchisee, has submitted that clause 4.1.20.5 contains an implied term that the uplifted minimum performance requirements proposed by the franchisor should be reasonable. While I have an emotional sympathy with that submission, it is contrary to the well-established principles on which terms may be implied into commercial contracts as explained by my Lord. It is unnecessary to make the implication suggested in order to give efficacy to clause 4.1.20 of the franchise agreement. On the plain language of clause 4.1.20.5 the parties agreed that the franchisor should be able to propose uplifted minimum performance requirements to the franchisee on a take-it-or-leave-it basis.[56]I would therefore decide the contract point in accordance with ground 2 of the respondent’s notice, which my Lord has read. With respect to the judge, I do not agree that clause 4.1.20.5 was unenforceable on the ground that it was effectively an agreement to agree. It was and is enforceable, but not with the implied term suggested by the franchisee.

LORD JUSTICE BUXTON: The appeal is therefore dismissed.

Order

Appeal dismissed.

Cited in 1 later judgment