Franchise, Breach of Contract, Damages

Quentin

They, and their solicitor clearly feel they can issue the invoice(s), and enforce payment of the debt.

But do get some advice as already has been posted - this could easily escalate if you aren't able to resolve it.

paulwf

Sadly this is going to require a specialist franchise solicitor. Franchise agreements are long and complex but this means it should be very clear what the termination process is. If they are a member of the BFA could you perhaps contact the BFA and try to get some help and advice from them?

Franchisers do have to protect their reputation so they would want to take over your phone number and clients and not just leave potential and actual customers in the lurch. I'm sure most would be more helpful over your difficulties though.

The non-competitive clause is standard when selling a business and a franchise, it is likely to be enforceable as it is so widespread, and it sounds reasonable.

Not that it helps you in this case but 3 things can be learnt from this:

- be wary of agreements with a fixed franchise fee rather than a percentage. With a percentage there is a very big incentive for the franchiser to help you, and if the business fails there is no ongoing fee to pay.

- always get the agreement vetted, you would be in a better position to know where you stand now.

- if possible set your franchise business up as a limited company so they can't issue a charge against you directly. You'll still be liable for anything where you have given a personal guarantee (such as loans) but would probably be covered from actions of the franchiser.

chalkie99

they have a restrictive covenant preventing me from working as a cleaner in "the franchise" area for 12 months

I now run my own cleaning business

Checking out the contract wouldnt have made any difference??
I read it and understood what I was undertaking

Doesn't seem as though you did understand it.

Why would you sign a contract agreeing not to set up on your own (which is fairly standard in a variety of trades and businesses) and then go and do exactly that?

It can hardly be surprising that they are pursuing it in those circumstances.

paulwf

Just re-reading this could you clarify something please OP?

Is the £5K the charge from Nov 08 to now or a penalty clause from June onwards?

Sorry if I'm being thick but it would make a difference to where you stand.

DireStraits_2

its a penalty clause from June onwards.

I contacted them to explain I;d had difficulties with the telecoms company and asking them to explain who would be paying the line fees etc. (we were in severe financial difficulty.

...I also explained that I didnt have the client information.

I did read and did understand: franchise clauses "are designed to be frightening to exit" but largely unenforceable due to european rights etc.

I never infringed their logo or copyrights, never posed as them, or deceived anyone that called over a six week period, where I was trying to get the phones sorted.

The limited company, could no longer financially continue, due to being unable to pay its debts...or the staff wages!

I also had to relocate 100 miles away for over a month due to a death in the family and could not continue.

I cant believe they can just dream up a damages figure then go to court and deman it without first proving that they are entitled to it?

paulwf

Thanks for the clarification.

A £5K penalty clause does seem excessive. This should be made clear in the contract though...does the contract explicitly mention this?

Exit conditions are designed to leave the reputation of the brand intact (as there are other franchisees to consider), however it shouldn't be a punishment.

If you ran it as a ltd company are you sure they have the right to take out a charge against you personally?

My advice would be to try and get some advice for free from the BFA and free solicitor consultations and try and simplify the issue to the bare bones: does the contract mention a penalty clause and can they charge it to you not your ex-company? By doing this costs should be minimal...a lot of companies will try it on but will soon back down at the sight of a legal letter.

Best of luck with it, I feel for your situation.

DireStraits_2

The BFA were useless.
I wrote in to them, they wrote to the franchisor, who just wrote back and denied or refuted everything.

The BFA accepted it.

As for penalties, I'll dig out the document and note the exact phrasing, however, is it legal to claim damages in excess of any actual performance we achieved?

Is there any arbitration in such matters?

Can they charge this despite to the fact we were going and subsequently went bust?(Most of the debt went with the company, fortunately, but I had signed personal guarantees for things like the car)

Only I signed the contract, however everything is addressed to both me and my partner? Does their quest for punitive damages end at this technicality?

paulwf

I think some of what you say such as arbitration and the status of your company and your turnover and human rights and naming technicalities is deviating from the actual issues.

It's a case of:

-Are they in breach of the contract?

-If they aren't in breach is the contract compliant with the law?

-You have breached the contract on 3 points (telephone line & database handover, going against the non-competitive clause). How does this impact your position.

- Is the charge against your ltd co. or you personally? Was your partner a director of the company?

This really is going to require legal advice to unravel. Even a legal professional is going to struggle answering this on a forum as they might not get the full picture, for example you hint that you were unable to run the business for a month, if this was before you terminated the agreement did that go against any continuity of business clause? I'm not saying you are hiding anything, just that a face to face discussion is needed to get the full story.

If you are short on funds as before try and just focus on the key parts...are they in breach of contract and who is the charge against. Trying to say the contract isn't enforceable due to human rights issues will get expensive!

Tozer

SueSueSue wrote: »

If he has turned round and use the franchise knowledge or client base he could be in deep trouble.

Its convenient the "client list" was lost and he is now operating a cleaning business in the same area.

Your actions do not look good as it looks like you have deliberately dumped the franchise and stolen their knowledge to further increase your own profits.

Utter speculation... as ever.

DireStraits_2

Sue,
you raise some valid points - their "knowledge" was very limited, the training was the most abysmal I have ever attended (i was an IT professional, and have attended many courses)

Their methodolgy worked to a degree, but I had to rewrite almost everything the gave me as it looked like a 15y/o effort for a GCSE. The training manual I re-wrote and sent them back to highlight this - which they thanked me for (failing to see how bad their "offering" had been")

I have obtained much much more valuable knwoledge and advice from cleaning forums, derived our own cleaning methods sourced our own products, designed and written all our paperwork, bespoke vba apps in Excel to run things, in short, the only thing I "stole" from them was the idea that people want a cleaning service.

As for restraint of trade - nobody can deny you the right to earn a living (if you class £125 for 60hr weeks a living that is!) Even a bailiff cannot remove the tools of your trade. So how can they claim they own the rights to clean homes in my area?

Just for the record Sue, the losses in the first six months were £20K
The losses in my own venture are about £9K
Not sure where lining my own pockets comes into it?

Client base? 9 customers? What were they going to do with them?
You need to get the right idea about the size of this...our best month we turned over £2K...but this fell to less than £500 (It never paid me a penny back)