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Repudiation – royalties – breach of franchise agreement – entitlement to royalties – associated companies – performance interest

A alleged that D had breached their franchise agreement, enabling A to terminate the agreement and claim damages for unpaid royalties, and damages for repudiation of the agreement consisting of unpaid royalties and loss of profit upon stock which would otherwise have been sold to D during the notice period. D contended that the franchise agreement had not been intended to be legally binding, having been negotiated solely as a model for other franchisees, and that the payments made under it had not been royalties but a contribution to advertising costs.

Held, giving judgment for A, that the agreement was legally binding so that D was liable for unpaid royalties, and the stocking of unapproved products had amounted to a repudiation by D, even though the termination had been effected by the exercise of a contractual power, so that A were entitled to damages for non-performance of the contract. Such damages would include unpaid royalties for the duration of the notice period but could not include anticipated loss of profits on the sale of stock since those sales would have been made by A’s associated company rather than A itself and the associate had not been the intended recipient of the relevant contractual obligations. Furthermore, A did not have sufficient “performance interest” in the contract to justify recovery on behalf of its associate, Linden Gardens Trust Ltd v. Lenesta Sludge Disposals Ltd [1994] 1 A.C. 85, [1993] C.L.Y. 303 considered.

AND SO TO BED LTD v. DIXON [2001] F.S.R. 47, David Donaldson Q.C., Ch D.

“Current Law” January 2002