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UK Company in Breach of Franchise Agreement over E Commerce Activities
A company in the UK has been found by the England and Wales Court of Appeal to have wrongfully repudiated its franchise agreement for deducting an additional fee for the cost of running a website, and by requesting its franchisees to re-brand in a way that focuses on its e-commerce services.
Fleet Mobile Tyres Ltd. (“FMT”) is a company that offers tire-fitting services in the UK. It enters into franchise agreements (“Agreement”) with persons who then operate a mobile tire business in a particular area. In 1997, FMT developed a website, www.eTyres.co.uk. To pay for maintenance of this website, FMT decreased the payments it paid to the franchisees under the Agreement. In addition, FMT instructed its franchisees to promote its new “eTyre” business in favour of the original “Fleet Mobile Tyres”. Two franchisees initiated legal proceedings alleging that FMT had wrongfully repudiated the Agreement by:
- deducting an amount greater than contracted under the Agreement; and,
- imposing restrictions on the franchisees’ ability to promote the “Fleet Mobile Tyres” business under the Agreement.
The English Court of Appeal held that the eTyre work was part of the franchised business. The franchisor was only entitled to the percentage contracted under the Agreement notwithstanding the introduction of the online activities under the eTyre brand. By increasing payments due to the franchisor for eTyre work, the franchisor had wrongfully repudiated the Agreement.
Accordingly, the franchisees were discharged from their obligations under the agreement, and entitled to the sums wrongfully retained by the franchisor.
The key lesson for franchisors arising out of this decision is that they need to be extremely careful if they wish to engage in online sales when their existing franchise agreements do not specifically deal with this issue. In turn, this point highlights the importance of dealing in detail with e-commerce related matters in franchise agreements.
For a copy of the Court of Appeal ( UK) decision, visit: