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Sherrards obtains landmark judgment for UK franchise industry

bfa affiliate legal firm Sherrards Solicitors has obtained an important ruling for the UK franchise industry in a case concerning the enforcement of post-termination restrictive covenants in a franchise agreement.

On 20th December 2012, the High Court handed down the judgment in a case brought by a franchisor against one of its franchisees, who had engaged in a competing business after their franchise agreement had expired. The franchisor in question sought to stop the franchisee from doing this.

The case has important implications for the franchising industry:

It marks a significant potential shift in the legal position as to whether a clause in a franchise agreement, in which the franchisee promises his franchisor that he will not compete with his franchisor after the agreement has expired, can be enforced

It demonstrates that the Court will grant an order to protect a franchisor from the unlawful actions of franchisees

It shows that the Court will strive to interpret such a restrictive covenant in a way that makes it enforceable

Barney Laurence, associate at Sherrards Solicitors LLP and specialist in franchise dispute resolution, acted on behalf of the franchisor. Following the judgment, he said: “I am delighted for the client. This was a case in which [the franchisor’s] commercial interests were significantly under threat, such that it was compelled to take action. It did so in the face of stiff resistance from the franchisees.

“The outcome was the right one, both from a legal perspective and in terms of justice for the franchisor, especially in the light of the fact that the judge considered the franchisees’ case to have been made in some respects in bad faith.

“Franchisors can take considerable comfort from knowing that the Court will strive to uphold restrictive covenants that are intended to protect a legitimate business interest and are no more extensive than reasonably necessary to achieve that end.”

The franchise agreement in question was originally drafted by Manzoor Ishani of Sherrards, who leads the firm’s franchising practice.

Affiliate Member
Sherrards Solicitors

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