"knew … he required more support and hand holding than any other franchisee in getting set up, including help with quite simple tasks … he struck [him] as someone who was overactive and tended to be easily agitated … he was needy, prone to agitation and had had difficulty in building relationships, including [subsequently] with customers"
"Post termination restrictions on the Franchisee 18.2.1 Following termination or expiration of this Agreement, the Franchisee will not for a period of one (1) year thereafter directly or indirectly: 18.2.1.1 be engaged concerned or interested in a business similar to or competitive with the Drain Doctor Business within the Exclusive Marketing Territory (save for a financial interest which does not allow the Franchisee to influence the economic conduct of such a business); 18.2.1.2 be engaged concerned or interested in a business similar to or competitive with the Drain Doctor Business which operates within a radius of five (5) miles from the Exclusive Marketing Territory;"
“I have considered the evidence of Mr Jeannes at paragraph 47 of his third witness statement dealing with the need for their application. There is no evidence, however, dealing with the intentions of the parties concerning the restraint of trade covenants either during negotiations or upon completion of the Agreement. There is no factual evidence to link the Claimant's inability to recruit a new franchisee to the continued trading of Fredbar Limited in its new business. There are no facts stated to establish the general proposition that continued operation of a former franchisee within the Claimant's territory makes recruitment difficult or prejudices the success of the future franchisee. The whole paragraph is short of evidence to support the statements made and appears more to be lawyer than witness led in its drafting.”
“It is obvious that the plaintiff will be likely, and one would have to judge this at the date of the agreement, to have far greater difficulty in attracting a new franchisee if the ex-franchisee is known as a Dyno Rod franchisee with all the Dyno Rod experience and contacts and is operating in the territory. An ex-franchisee has the benefit of considerable investment by the plaintiff which puts the ex-franchisee in a better position than others. Provided that it is reasonable in terms of the public interest and not unfair to the ex-franchisee in terms of time or area, the plaintiff is entitled in my judgment to ensure that his investments are protected by ensuring that unfair advantage is not taken by an ex-franchisee by for example for instance prematurely determining the franchise agreement and setting out on his own.”
“It might be but whether that is so will depend upon the circumstances of the particular agreement when it was entered into. It may be reasonable for one franchisor to be protected against another franchisee for 12 months or longer upon the terms drafted but not necessarily reasonable for another in different circumstances and/or on different terms.”
“Notwithstanding the goodwill to be protected by the restraint of trade clauses, they are unreasonable for the following reasons (which stand together and individually): a) When the Agreement was made the Claimant knew that Fredbar Limited with Mr Bartlett as its only employee was starting this type of business with no previous experience, with the risk that average projections achieved by other franchisees would not apply to the Cardiff territory and/or be achieved by Fredbar Limited taking into consideration the absence of any specific market information and/or that inexperience. In addition the Claimant knew that Mr Bartlett was investing all his savings, would have no other source of income other than his partner's relatively small one and would be at serious risk of losing the family home should Fredbar Limited's franchise business not succeed. b) In that context of knowledge, the Claimant through Mr Jeannes had formed the opinion that failure was foreseeable because Mr Bartlett "… required more support and hand-holding than any other franchisee in getting set up, including help with quite simple tasks … he struck [him] as someone who was overactive and tended to be easily agitated … he was needy, prone to agitation and had had difficulty in building relationships, including [subsequently] with customers" (see paragraph 108 above) and was only being accepted because "everybody deserves a chance". c) It would be wrong to draw a distinction between Fredbar Limited and Mr Bartlett in this context for the purposes of Fredbar Limited's clauses. That is because Fredbar Limited's business would start as and could remain in effect a service company for Mr Bartlett. The Claimant understood it to be Mr Bartlett's vehicle. d) There was no evidence of any discussion or negotiation of the restraint of trade terms to take into consideration the facts and matters above. This occurred in the context of a total inequality of arms. Instead the Agreement had to be accepted or rejected in its standard form. e) Despite those facts and matters, the prohibitions did not provide for them to be disapplied with written consent with or without (although that in itself would probably have been unreasonable) a "not to be unreasonably withheld condition". That was unreasonable in itself but also in the specific context of the prohibitions failing to distinguish between terminations at an early stage of the franchise and terminations towards the end of the ten year term when the goodwill to be protected would probably be substantially more valuable. It was unreasonable for the 12 month restraint to apply however early or late in the term the Agreement terminated. f) The first prohibition would prevent Fredbar Limited being used by Mr Bartlett or himself from being engaged or concerned in any plumbing or drainage business within the Cardiff territory without exception. It would mean, therefore, that Fredbar Limited could not act as a subcontractor and/or Mr Bartlett could not be employed by a plumbing or drainage company or use Fredbar Limited as his service company for that purpose. That would be the case even when such sub-contracting and/or employment would have no effect on the Claimant's protected goodwill. The unreasonableness of this is obvious in the circumstances known to the Claimant at the time the Agreement was made. In particular when it was reasonably foreseeable at the date of the Agreement that its application would seriously increase the risk of Mr Bartlett being unemployed and he and his family facing mortgagee possession proceedings for want of income. g) In that context it is to be noted that the clause itself recognised the need to distinguish and exclude circumstances where there would be no influence on the economic conduct of the business. However, that was only in respect of obtaining a financial interest in a plumbing and/or drainage business during the 12 months. Having recognised the reasonableness of such an exception, it was unreasonable for that exception not to apply in the context of "engagement [or] concern". h) The second prohibition extended the prohibition to an unreasonable radius. There would be no goodwill to protect insofar as Fredbar Limited had not provided services within any part of the extended area. The fact that Fredbar Limited was able to work outside its territory in limited circumstances under clause 3 of the Agreement did not mean it would be reasonable to prohibit engagement concern or interest outside the territory of the Agreement whether any goodwill had been established or not. Especially when clause 3 provided that Fredbar Limited could not actively solicit customers outside the area. i) Mr Grant's approximation of the area covered on a map clearly showed the unreasonableness of its coverage taking into consideration not just measurement but the different markets within the area outside Cardiff. In addition, this second provision did not even contain the financial interest exception appreciated as reasonable for the first prohibition. j) Although Fredbar Limited would gain knowledge from the Claimant concerning the operation of a plumbing and drainage business and the requirements of the services provided to customers during the franchise term, there were no trade secrets to be protected by these prohibitions. In any event insofar as there was knowledge to protect, protection could have been provided (to the degree entitled) by more specific provisions. For example, the prohibitions against soliciting or specifically from acting for former customers. k) There was no reciprocity to be applied should the Claimant have committed a repudiatory breach.”
“These prohibitions do not strike a reasonable balance between the freedom to contract and the freedom of trade. They are far more extensive than was required to provide reasonable protection.”
“The true view at the present time I think, is this: The public have an interest in every person's carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable - reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.”
“I think it clear that what is meant is that for a restraint to be reasonable in the interests of the parties it must afford no more than adequate protection to the party in whose favour it is imposed. So conceived the test appears to me to be valid both as regards the covenantor and covenantee, for though in one sense no doubt it is contrary to the interests of the covenantor to subject himself to any restraint, still it may be for his advantage to be able so to subject himself in cases where, if he could not do so, he would lose other advantages, such as the possibility of obtaining the best terms on the sale of an existing business or the possibility of obtaining employment or training under competent employers… If it be reasonable that a covenantee should, for his own protection, ask for a restraint, it is in my opinion equally reasonable that the covenantor should be able to subject himself to this restraint. The test of reasonableness is the same in both cases.”
“When a business is sold, the vendor, who, it may be, has inherited it or built it up, seeks to realize this piece of property, and obtains a purchaser upon a condition without which the whole transaction would be valueless. He sells, he himself agreeing not to compete; and the law upholds such a bargain, and declines to permit a vendor to derogate from his own grant. Public interest cannot be invoked to render such a bargain nugatory: to do so would be to use public interest for the destruction of property. Nothing could be a more sure deterrent to commercial energy and activity than a principle that its accumulated results could not be transferred save under conditions which would make its buyer insecure.”
“30… it was submitted that clause 9 was invalid because the additional restraint imposed on the defendant by the choice of covenant was out of all proportion to the additional benefit obtained thereby by the plaintiffs. To protect the speculative prospect of securing future clients at the rate of some 30 a year at the most, the plaintiffs were seeking to deny the defendant access to a market many thousands of times larger than the business which he had sold, a market in which there are millions of prospective clients and 100,000 sales associates all told. This, it was submitted, might seem reasonable from the point of view of the plaintiffs but it was certainly not reasonable from the point of view of the defendant. The need, well established by the authorities, to show that the covenant is reasonable from the point of view of both parties introduces, it was said, the now fashionable concept of proportionality. 31. In my judgment, this is a novel and dangerous doctrine. It is certainly novel, or perhaps more accurately a revival, in modern dress, of an obsolete and discredited theory. There is no trace of it in the modern cases, in which it is assumed that, in order to show that the covenant is reasonable as between the parties, it is sufficient to show that it is no greater than is reasonably required to protect the legitimate interests of the covenantee. [Millett J then cited the passage from the speech of Lord Parker of Waddington in Morris v Saxelby which I quoted at [36] above].”
“One way perhaps of looking at a franchise agreement is that this is a form of lease of goodwill for a term of years, with an obligation on the tenant, as it were, to retransfer the subject matter of the lease at the end of the lease in whatever state it is. So to that extent there is an obligation to transfer goodwill in a particular form which is much more akin. I think, to the goodwill cases than to the servant cases.”
“I consider that the lease analogy of Judge Cook[e] has its attractions. If one goes through the terms of the agreement in the present case, it seems to me that the point is rather re-enforced; the franchisor, that is the plaintiff, and the franchisee, that is essentially Mr Reeve, each have a business. They are symbiotic businesses, and the goodwill provision, to which I have made reference in clause 5.3, while it emphasises that the goodwill is ultimately to be that of Dyno Rod, the plaintiff, it nonetheless indicates that the franchisee, Mr Reeve, has the benefit of the goodwill so long as he is the franchisee.”
“…during the term of a franchise, goodwill is built up in the franchise territory with the use of a franchisor's name and branding. Such goodwill is a potentially valuable asset in the hands of the franchisee so long as he continues to trade in the franchise territory, and in the hands of a franchisor at the termination of the franchise agreement. A franchisor's interest in that goodwill is vulnerable to competition from a former franchisee who has knowledge of the area and experience of dealing with particular groups of customers. The commercial purpose of a post-termination covenant against competition is to prevent the franchisee for a period of time from continuing and competing in his former territory in the same line of business so as to enable the franchisor to exploit the goodwill that he has built up during the term, most obviously by recruiting another franchisee for the same area.”
“The purpose of Clause 23.1(a), therefore, was to allow the claimant a breathing space of twelve months in which to establish a replacement franchisee and to protect its goodwill, free from competition, from a franchisee who had previously operated within the franchise territory. The fact that, in the event, the claimant did not seek to find a replacement franchisee in the months following the termination has no relevance. The meaning of the clause cannot depend on what happened after the contract was made.”
“Apart from the provision of goodwill to the franchisee, other legitimate interests which a franchisor may reasonably protect are likely to include its confidential information and know-how, the loyalty of clients of the franchise brand, and the loyalty of employees by whom the franchise system is operated.”
“To a certain extent, different considerations must apply in cases of apprenticeship and cases of that sort, on the one hand, and cases of the sale of a business or dissolution of partnership on the other. A man is bound an apprentice because he wishes to learn a trade and to practise it. A man may sell because he is getting too old for the strain and worry of business, or because he wishes for some other reason to retire from business altogether. Then there is obviously more freedom of contract between buyer and seller than between master and servant or between an employer and a person seeking employment.”
“In order to determine whether this case is one in which that power [to relieve the songwriter of his obligations] ought to be exercised, what your Lordships have in fact been doing has been to assess the relative bargaining power of the publisher and the song writer at the time the contract was made and to decide whether the publisher had used his superior bargaining power to exact from the song writer promises that were unfairly onerous to him… It is, in my view, salutary to acknowledge that in refusing to enforce provisions of a contract whereby one party agrees for the benefit of the other party to exploit or to refrain from exploiting his own earning power, the public policy which the court is implementing is not some 19th-century economic theory about the benefit to the general public of freedom of trade, but the protection of those whose bargaining power is weak against being forced by those whose bargaining power is stronger to enter into bargains that are unconscionable. Under the influence of Bentham and of laissez-faire the courts in the 19th century abandoned the practice of applying the public policy against unconscionable bargains to contracts generally, as they had formerly done to any contract considered to be usurious; but the policy survived in its application to penalty clauses and to relief against forfeiture and also to the special category of contracts in restraint of trade. If one looks at the reasoning of 19th-century judges in cases about contracts in restraint of trade one finds lip service paid to current economic theories, but if one looks at what they said in the light of what they did, one finds that they struck down a bargain if they thought it was unconscionable as between the parties to it and upheld it if they thought that it was not. The same presumption, however, does not apply to the other kind of standard form of contract [the first kind Lord Diplock had identified as mercantile transactions such as bills of lading, charterparties and policies of insurance]. This is of comparatively modern origin. It is the result of the concentration of particular kinds of business in relatively few hands. The ticket cases in the 19th century provide what are probably the first examples. The terms of this kind of standard form of contract have not been the subject of negotiation between the parties to it, or approved by any organisation representing the interests of the weaker party. They have been dictated by that party whose bargaining power, either exercised alone or in conjunction with others providing similar goods or services, enables him to say: “If you want these goods or services at all, these are the only terms on which they are obtainable. Take it or leave it.”
“I should make some general observations about restrictive covenants between employees and employers. It is very well settled that they are scrutinised more closely and critically by the court. This is sometimes ascribed to the supposed inequality of bargaining power between the parties, and such inequality is no doubt often an important factor. But the fundamental reason for the stricter approach is that it is a stronger thing, requiring more cogent justification (both as between the parties and in the public interest) to prevent a working man or woman from earning his or her living as he or she chooses.”
“As I understand these references, they establish that while the Court is in general slow to substitute its (objective) view as to the interests of the contracting parties for the (subjective) views of the contracting parties themselves in electing to enter into the contract, that consideration will carry less weight, and may (depending on the particular facts) carry no weight at all, where the evidence establishes that the contracting parties were negotiating on other than equal terms.”
“…inequality of bargaining power may (depending on the facts of the particular case) be relevant to negative an argument to the effect that the covenantor cannot complain that the terms of the contract are capable of being worked unreasonably against him, since in entering into the contract he chose to repose a measure of confidence in the covenantee.”
“(objectively) intended or contemplated, consequent on the contract, at the time the contract was made as well as the contract terms.”