Prior to the entering into a franchise agreement a franchisor had negligently advised a franchisee as to the cost of re-fitting premises and had subsequently been in breach of a marketing launch plan agreement by failing to provide the agreed materials and services to enable the franchisee to market the business.

The claimant (M) claimed damages for negligent advice and breach of contract from the defendant franchisor (K). K sold franchises which licensed others to conduct the business of print copy design and ancillary services under its name. M contacted K and expressed an interest in purchasing an existing franchise business as a going concern and K put them in touch with one of its existing franchisees (X). The premises had not been fully maintained or re-fitted for some time and figures as to the cost of shop fitting were discussed. K advised M that the cost of the average re-fit was ?15,000 and that figure was subsequently put into the cash flow documents. K informed M that client related data stored by X would be transferred to the computer system that would be used prior to the launch of the business. K and M entered into a franchise agreement and a marketing launch plan agreement. K subsequently refused to enter the customer details onto the system. It later transpired that the cost of shop fitting was at least double the amount stated by K. M contended that K had held itself out as able to provide advice about shop fitting and had failed to exercise reasonable care and skill when giving advice. M contended that if it had known the true figure it would have negotiated a reduction in the purchase price. M contended that K had breached the franchise agreement and, as a result of that breach, the business was not properly marketed and promoted prior to opening and in its first year. M submitted that the system provided by K meant it was unable to cost and price jobs properly as it had been offered no support in the system and as a result turnover and profit had been adversely affected.

HELD: (1) In respect of the claim in relation to the premises and cost of shop fitting, K owed M a duty of care and the advice given to M, in relation to the adequate budget for the shop fit was negligent and in breach of that duty of care. (2) There was a contractual obligation on K, arising out of the marketing launch plan agreement, to add to the system X’s customer data which had been supplied to K, including the data relating to X’s top 200 clients. K was in breach in failing to complete the installation of that data. Further, under the franchise agreement K had agreed to provide M with advice, know-how and guidance in various methods and areas employed by K’s business. Such advice was either deficient or entirely lacking. K had failed to provide materials or services that had been specified in the marketing launch plan and as such had been in breach of the agreement. Accordingly, M had established K’s liability.

Judgment for claimant

[2010] EWHC 624 (QB)

MGB PRINTING & DESIGN LTD v KALL KWIK UK LTD (2010)

QBD (Penry-Davey J) 31/3/2010