The recent English High Court decision in MCB Printing and Design Limited v. Kall Kwik UK Limited [2010] EWHC 624 (QB) establishes that a franchisor owes a duty of care to its franchisees and future franchisees.
In this case, the franchisee made 2 claims, 1 for negligent advice on build-out costs and 1 for failing to complete required assistance to get the franchisee up and running.
The first, a “premises claim”, focused on allegedly negligent advice that the franchisor gave on the cost of refitting the premises to the franchisor’s mandatory requirements. The actual costs were more than double the franchisor’s original assessment. The judge found the advice to be negligent, as the estimate was provided without consulting the franchisor’s own preferred supplier whose estimate later proved more accurate.
The second claim was a marketing claim based on the franchisor’s failure to provide the level and quality of marketing advice and support agreed by the parties. The judge found that the franchisor breached the franchise agreement by failing to complete installation of necessary technology that would have helped the franchisee manage its grand opening marketing campaign and by failing to provide the franchisee with advice, know-how and guidance in such areas as management, finance, marketing and methods of operation.
The court held that the franchisor’s inadequate assessment of refitting costs was a breach of its duty of care to the franchisee even though the franchisee had not yet signed a franchise agreement and become its franchisee.
This decision establishes that in the United Kingdom, a franchisor owes some duty of care to franchisees and even potential franchisees.
For United States franchisors that sell franchises in the United Kingdom, this case reinforces our conservative approach that offering initial investment costs, such as we offer in the United States, is risky business in the absence of a thorough knowledge of the U.K. market.
Tuesday, May 18, 2010
Subscribe to:
Posts (Atom)
