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Neutral Citation Number: [2007] EWHC 2433 (QBD)

Claim No: HQ 06X02321

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

St Dunstan‟s House

133-137 Fetter Lane

London, EC4A 1HD

Date: 23rd October 2007

Before:

HIS HONOUR JUDGE PETER COULSON QC

(SITTING AS A JUDGE OF THE HIGH COURT)

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Between:

JANI-KING (GB) LIMITED Claimant

- and -

(1) PULA ENTERPRISES LIMITED

(2) BARRY BRUCE

(3) MARCIA BRUCE

Defendants

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- - - - - - - - - - - - - - - - - - - - -

Mr Jason Evans-Tovey (instructed by Cubism Law) for the Claimant

The Defendants did not appear and were not represented

Hearing dates: 15 and 23 October 2007

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APPROVED JUDGMENT

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His Honour Judge Peter Coulson QC:

A. INTRODUCTION

1. The Jani-King organisation is based in America. It is the largest commercial cleaning

franchise company in the world. The Claimant is responsible for its operations in

Great Britain. Although the Claimant has its own management, sales and cleaning

departments, its principal business comes through the sale of franchise agreements.

The prospective franchisee is trained in the Jani-King cleaning system and then

offered a certain amount of initial business by the Claimant. Thereafter, the

franchisee will be offered new contracts negotiated by the Claimant‟s sales team, and

also encouraged to seek its own cleaning contracts. The purpose is to provide a

standardised cleaning service utilising the Jani-King system and manual.

2. The Second and Third Defendants signed a franchise agreement (“the first franchise

agreement”) with the Claimant on 3 September 2003. There was also an addendum

to that first franchise agreement, also dated 3 September 2003. The documents

demonstrate that, between 15 and 19 September 2003, the Second and Third

Defendants went through the Jani-King initial training process. Thereafter, they

commenced operating under the first franchise agreement. The parties had agreed

that, over the first two years, they would be provided by the Claimant with initial

business which comprised cleaning contracts that paid a cumulative total of £22,000

per month. It appears that this figure for initial business was achieved in April 2004.

3. For reasons which are explored in greater detail below, later in 2004, the Claimant

required all its franchisees to enter into a new franchise agreement. By this time, the

Second and Third Defendants had set up a company called Pula Enterprises Ltd, the

First Defendant in these proceedings, to act as the corporate franchisee under the new

agreement. The extent of the Third Defendant‟s formal involvement in that company

is unclear. When the second franchise agreement was signed on 26 November 2004,

the parties were therefore the Claimant and the First Defendant. For reasons which

will become apparent below, it is this second franchise agreement that lies at the heart

of these proceedings. There was an addendum to the second franchise agreement,

also dated 26 November 2004 and, following further changes to the Claimant‟s

commercial strategy, a second addendum dated 28 April 2005. This second

addendum to the franchise agreement was signed by the Claimant and the First

Defendant, and by the Second and Third Defendants as guarantors.

4. On 1 August 2006, the Second Defendant wrote to the Claimant on behalf of the First

Defendant, purporting to terminate the franchise agreement. The letter suggested

that the Claimant was in breach of the terms of the second franchise agreement,

although no details of the alleged breaches were identified. It was and is the

Claimant‟s case that this letter constituted a wrongful repudiation of the second

franchise agreement. These proceedings were commenced on 10th

August 2006,

seeking damages in consequence of that wrongful repudiation. By way of their

defence and counterclaim, the Defendants sought to justify the termination by

reference to alleged breaches by the Claimant of the second franchise agreement. It

is the Claimant‟s case that those alleged breaches are based on an erroneous

construction of the express terms of the second franchise agreement and/or are

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founded on implied terms which cannot be justified in fact or in law. In

consequence, the Claimant obtained an order from Master Fontaine dated 18 June

2007 for the hearing of certain preliminary issues arising out of the Defendants‟

construction of the second franchise agreement. This Judgment is solely concerned

with the answers to those preliminary issues.

5. Although the Second and Third Defendants were present on 18 June, and were thus

aware of this hearing of the preliminary issues, and although they provided witness

statements to the Claimant‟s solicitors on 10 August 2007 dealing with the issues, all

subsequent attempts to contact them have proved unsuccessful. The address in High

Wycombe that had been used for the purposes of contacting the Defendants appears

now to be unoccupied. The telephone numbers provided are live but are always

switched to voicemail. The Claimant suspects that the Second and Third Defendants

have gone back to South Africa, from whence they originally came.

6. In those circumstances, Mr Evans-Tovey, who appeared on behalf of the Claimant,

invited me (pursuant to CPR Part 39) to continue to deal with the Preliminary Issues

in the absence of the Defendants. In accordance with the over-riding objective (CPR

1.1), and because the issues raised are almost entirely matters of construction, I

acceded to that request. In reaching the conclusions set out in this Judgment, I have

had regard to the written and oral evidence of Mr Ian Thomas, a director of the

Claimant. I have also had regard to the written statements of the Second and Third

Defendants, referred to above, although I consider that most of their content relates to

matters which are irrelevant to the issues with which I am presently concerned. I

have also paid particular regard to the Defendants‟ pleaded defence, which was settled

by experienced commercial counsel. I have been carefully through the documents,

including the many agreements between the parties. As to the relevant principles of

law, I should express my gratitude to the considerable assistance on this topic that I

have received from Mr Evans-Tovey.

B. THE CORRECT APPROACH TO ISSUES OF CONSTRUCTION

B1. The Importance Of The Factual Background

7. The leading case on this area of the law is, of course, Investors Compensation

Scheme v West Bromwich Building Society [1998] 1 WLR 896. In his speech,

Lord Hoffmann identified five key principles relating to the interpretation of

contracts. For present purposes they can be summarised as follows:

“(1) Interpretation is the ascertainment of the meaning

which the document would convey to a reasonable

person having all the background knowledge which

would reasonably have been available to the parties in

the situation in which they were at the time of the

contract.

(2) The background was famously referred to by Lord

Wilberforce as the „matrix of fact‟ but this phrase is, if

anything, an understated description of what the

background may include. Subject to the requirement

that it should have been reasonably available to the

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parties and to the exception to be mentioned next, it

includes absolutely anything which would have

affected the way in which the language of the

document would have been understood by a reasonable

man.

(3) The law excludes from the admissible background the

previous negotiations of the parties and their

declarations of subjective intent …

(4) The meaning which a document (or any other

utterance) would convey to a reasonable man is not the

same thing as the meaning of its words. The meaning

of words is a matter of dictionaries and grammars; the

meaning of the document is what the parties using

those words against the relevant background would

reasonably have been understood to mean …

(5) The „rule‟ that words should be given their „natural

and ordinary meaning‟ reflects the common sense

proposition that we do not easily accept that people

have made linguistic mistakes, particularly in formal

documents. On the other hand, if one would

nevertheless conclude from the background that

something must have gone wrong with the language,

the law does not require Judges to attribute to the

parties an intention which they plainly could not have

had …”

8. In BCC v Ali [2001] 1 AC 251 Lord Hoffmann said that the true test of admissible

extrinsic evidence was “anything which a reasonable man would have considered

relevant” and he went on to say that, in Investors Compensation Scheme, he was:

“… certainly not encouraging a trawl through „background‟

which could not have made a reasonable person think that the

parties must have departed from conventional usage.”

9. There has been a certain amount of debate as to whether or not the factual matrix is

always relevant to questions of construction, or only admissible where the words are

ambiguous or open to dispute. It seems clear that this debate has been settled firmly

in favour of the principle that the factual matrix should always be considered, even if

the wording is unambiguous and sensible: see, for example, Westminster CC v

National Asylum Support Services [2002] UKHL 38; [2002] 1 WLR 2956; and

Static Control Components (Europe) Ltd v Egan [2004] EWCA Civ 392; [2004]

2 Lloyds 429. Most recently, in Chartbrooke Ltd v Persimmon Homes Ltd & Ors

[2007] EWHC 409 (Ch); [2007] All ER (Comm) 1083, Briggs J said at paragraph 36

that ambiguity was no longer a pre-requisite for recourse to the admissible

background.

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10. Despite that principle, it is plain, as Lord Hoffmann noted in Investors

Compensation Scheme, and reiterated in BCC v Ali, that the most important source

of information about the agreement is the contract itself, and not the surrounding

documentation. As to the way in which the court should perform the necessary

balancing act between the two, I find myself particularly attracted to the reasoning of

Buxton LJ in Wayne Martin v David Wilson Homes Ltd [2004] EWCA Civ 1027;

[2004] E3 EGLR 77; when he said:

“One has to remember, when looking at issues about the factual

matrix, that although reference to that matrix is not limited to

cases where the words are clearly ambiguous, the first place

where one expects to find the meaning of the words and the

intention of the draftsman is in the words themselves. If they

yield a fairly clear solution, and in my judgment these words

do, then one has to pause long before concluding that at that

point the draftsman has used words with a meaning that do not

fit in with the objective that he was seeking to attain.”

B2. The Relevance Of Previous Contracts

11. I should also say a word about the relevance of previous contracts. As outlined

above, this is a case where there were a series of agreements. The question arises, at

least tangentially, as to the extent to which a previous contract can be regarded as

relevant to the construction of a later contract. It seems to me that the proper

approach was summarised by Rix LJ in HIH Casualty & General Insurance Ltd v

New Hampshire Insurance Co & Ors [2001] 2 Lloyds LR 161, at page 179, where

at paragraph 83 he said:

“In principle, it would seem to me that it is always admissible

to look at prior contracts as part of the matrix or surrounding

circumstances of a later contract. I do not see how the parole

evidence rule can exclude prior contracts, as distinct from mere

negotiations. The difficulty of course is that, where the later

contract is intended to supersede the prior contract, it may in

the generality of cases simply be useless to try to construe the

later contract by reference to the earlier one. Ex hypothesi, the

later contract replaces the earlier one and it is likely to be

impossible to say that the parties have not wished to alter the

terms of their earlier bargain. The earlier contract is unlikely

therefore to be of much, if any, assistance. Where the later

contract is identical, its construction can stand on its own feet,

and in any event its construction should be undertaken

primarily by reference to its own overall terms. Where the

later contract differs from the earlier contract, prima facie the

difference is a deliberate decision to depart from the earlier

wording, which again provides no assistance. Therefore a

cautious and sceptical approach to finding any assistance in the

earlier contract seems to me to be a sound principle. What I

doubt, however, is that such a principle can be elevated into a

conclusive rule of law.”

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12. With these various principles in mind I now turn to consider the agreements between

the parties.

C. THE RELEVANT AGREEMENTS

C1. The Background To The First Franchise Agreement

13. There are no specific matters arising from the factual background to the first franchise

agreement which have been pleaded by either side as having relevance to these

proceedings and, more particularly, to these preliminary issues. Indeed I note that the

defence does not admit that the first franchise agreement is of any relevance at all. It

seems to me that the relevant background to the first franchise agreement can be

stated shortly as follows:

a) Jani-King had developed a commercial cleaning system which was perceived

as having a number of benefits;

b) Through the Claimant, they offered a franchise arrangement whereby

interested parties could be trained in the Jani-King system, and offered a level

of initial business (the precise level being chosen by the franchisee himself);

c) The Second and Third Defendants considered that they would be able to make

a profit operating as the franchisees of the Claimant.

C2. The First Franchise Agreement

14. The first franchise agreement was dated 3 September 2003. Clause 7 set out the

Claimant‟s obligations in respect of initial business. The detail of that initial business

was set out in Schedule 1. The parties agreed that the initial offering period would be

540 days and that, during that time, the Claimant would offer the Second and Third

Defendants initial business up to £22,000 per month, within a 50 mile radius from

Bristol City Centre.

15. The initial term was for 7 years. The initial franchise fee was £81,000 together with

VAT, making a total of £95,175.

16. It is unnecessary in this Judgment to set out any of the other terms of the first

franchise agreement, since the Claimant does not rely on the first agreement and, as

previously noted, the Defendants‟ pleaded case does not admit the relevance of the

first agreement at all. Likewise, although there were two addenda to the first

agreement, one also dated 3 September 2003, and the second dated 19 November

2003, it does not appear that any point now turns on either of those supplemental

agreements.

C3. The Background To The Second Franchise Agreement

17. The relevant background to the second franchise agreement is as follows:

a) By 2004, the Claimant was aware that market conditions for its commercial

cleaning operations were changing. In particular, it was becoming apparent

that the ultimate consumers of the cleaning services being offered were no

longer prepared to deal at a local level but wanted to negotiate regional or even

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national cleaning contracts. This had the obvious advantage, to them, of

economies of scale.

b) These changes meant that it became even more important for the Claimant to

be able to offer a standard service, which was less dependent on the variable

consistency and quality of the individual franchisees. A greater degree of

standardisation was required.

c) Accordingly, by March 2004, a new franchise agreement was being proposed

by the Claimant to all of its existing franchisees, including the Second and

Third Defendants. These were sent out in draft in June under cover of a letter

dated 7 June 2004. The drafts had been amended and approved by the

Claimant‟s solicitors. The Claimant recommended to its franchisees that they

seek legal advice before deciding whether or not to enter into the new

franchise agreement.

d) In addition, both parties wanted the new franchise agreement to be between the

Claimant and a company owned/controlled by the Second and Third

Defendants. Doubtless for that reason, the Claimant referred to the new

agreement as “the new corporate franchise agreement”. The First Defendant

was set up in order to become the franchisee under the new agreement.

C4. The Second Franchise Agreement

18. The second franchise agreement was dated 26 November 2004. It was made between

the Claimant and the First Defendant. Schedule 1 stated that the term of the second

franchise agreement was 20 years and referred to the initial franchise fee of £95,175

including VAT “which has been paid in full in accordance with the First Franchise

Agreement”.

19. I set out below those clauses of the second franchise agreement which are at the heart

of the Defendants‟ defence and counterclaim. They are:

Clause 9: Franchisor‟s Continuing Obligations

“Provided that the Franchisee shall not be in breach of a

substantial term of this agreement during the currency hereof

the Franchisor shall:

9.1 offer appropriate assistance and guidance until the

Franchisee has been offered Customer Accounts that

generate initial gross monthly invoices as required by

the Plan;

9.2 give the Franchisee, such reasonable continuing

assistance and advice as the Franchisor in its sole

discretion considers necessary for the efficient running

of the Franchisee‟s Jani-King Business when the

Franchisor in its sole discretion considers it to be

necessary to provide „on the spot‟ help and advice;

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…

9.5 at the Franchisee‟s expense and request make available

to the Franchisee with reasonable promptness a

member of the Franchisor‟s staff competent to provide

reasonable advice in connection with the system or

recommend to the Franchisee such independent experts

as may appear necessary: the Franchisee being

responsible for the fees and expenses of such experts

…”

Clause 13: Training

“13.1 The Franchisor shall provide an initial training

programme for the Franchisee and any guarantor of the

Franchisee‟s Jani-King business up to a maximum of

two persons in the operation of the Franchisee‟s Jani-

King Business using the System …”

Clause 26: Termination

This clause provided the Claimant with the right to terminate the agreement by notice

in writing on the occurrence of almost 30 different events, most of which were related

(in one way or another) to some degree of default on the part of the First Defendant.

Schedule 1

As noted above, Schedule 1 provided that the term was 20 years. It also referred to the

fact that the initial franchise fee had been “paid in full”. In relation to the initial

training programme, Schedule 1 said that the “initial training programme [was]

satisfactorily completed on 19 September 2003 under the terms of the first franchise

agreement”.

Schedule 2

Schedule 2 identified the initial business of £22,000 per month. It recorded that

“initial business offered to 31 May 2004” was £22,000 and, as against “initial

business outstanding as at end 31 May 2004”, the Schedule recorded the figure of

“£0.00”. There were additional pages to Schedule 2 identifying how the £22,000 had

been built up, and demonstrating that the cumulative target of £22,000 had been

reached on or about 22 April 2004.

20. There was a first addendum to the second franchise agreement which was also dated

26 November 2004. Nothing turns on the terms of that first addendum.

C5. The Background To The Second Addendum To The Second Franchise

Agreement

21. In the first part of 2005, the Claimant spent some time considering how the level of

service provided by the different franchisees could be improved and the necessary

consistency in standards maintained and enhanced. They concluded that they could

do this by implementing an audit programme and developing an IP system which

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(amongst other things) ensured that supervisors, employed by the franchisees, made

regular visits to see the cleaning work in action.

22. I consider that the background to the second addendum is adequately summarised at

recitals (c) and (d) of the addendum of 28 April 2005. These read as follows:

“(C) As a result, Jani-King has:

(1) implemented an Audit Programme to assess

whether its franchisees are implementing the

Seeing Is Believing Criteria (SIB criteria) and

Care as part of the Jani-King System,

(2) developed an IP system to allow franchisees

to implement and measure performance of the

Manager Role and Supervisor Role through

Journey Plans, Random Accompaniments and

Tracking.

(D) The Audit Programme aims to:

(1) provide an advisory service to franchisees

identifying the key (ie potential contract

losing) issues in Accounts being serviced by

franchisees,

(2) protect Jani-King customers, Jani-King

accounts and the Jani-King brand.”

C6. Second Addendum To Second Franchise Agreement

23. The bulk of the second addendum is concerned with the training agreement, the IP

agreement and the Audit Programme. Clause 1, however, is entitled „Settlement of

Claims‟ and is in the following terms:

“1.1 The Franchisee and Guarantors warrant that there are

no facts or circumstances giving rise to any claims by

the Franchisee or Guarantors against Jani-King.

1.2 The Franchisee and Guarantors agree that there are no

sums due or accruing to the Franchisee by Jani-King

under the Franchise Agreement.

1.3 If and to the extent that there may be any claims

against Jani-King and/or sums due by Jani-King to the

Franchisee and/or Guarantors, the Franchisee and

Guarantors expressly agree that any and all claims

(including any claims against the directors, officers or

employees of Jani-King) are hereby fully and finally

settled on the terms of this Agreement. The

Franchisee and Guarantors undertake not to bring any

proceedings against Jani-King (or its directors, officers

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or employees of Jani-King) in respect of any Claims

…”

D. PRELIMINARY ISSUES 1 AND 2: INITIAL BUSINESS OBLIGATIONS

D1. Preliminary Issue 1

24. Preliminary Issue 1 is in the following terms:

“1. Whether the parties agreed that the obligation

ordinarily on the Claimant under Clause 9.1 did not

arise under the second franchise agreement or had been

discharged by June 2004 and in any event by the date

of the Second Franchise Agreement.”

This issue arises because the Defendants allege that the Claimant failed to provide

them with any initial business pursuant to the second franchise agreement. The

issue, in essence, comes down to whether the parties intended that a second round of

initial business would be provided as a result of the second franchise agreement, or

whether the obligation to provide the initial business up to £22,000 per month was the

Claimant‟s only obligation in this regard, and one which they had fulfilled some

months before the second franchise agreement was entered into in November 2004.

D2. Construction

25. I have concluded that, on the true construction of the second franchise agreement, the

parties did not intend that any further initial business would be provided by the

Claimant to the Defendants after November 2004. The principal reason for that

conclusion lies in the terms of Schedule 2. That Schedule stated that, for the

purposes of the second franchise agreement, the initial business was to be a

cumulative total of £22,000 per month. The Schedule also made plain that this sum

had been offered to the Defendants by way of initial business by 31 May 2004, and

that there was therefore no outstanding initial business at the date of the second

franchise agreement. This is the only possible explanation for the express words:

“initial business outstanding…£0.00”. The rest of Schedule 2 makes clear how and

when the cumulative figure of £22,000 was achieved. In those circumstances, I

regard it as clear beyond doubt that, by the time of the second franchise agreement,

there was no further obligation on the part of the Claimant to provide initial business.

26. I am conscious that this construction makes Clause 9.1 of the second franchise

agreement redundant. A Court should always think long and hard before arriving at

a construction which renders otiose a part of the written agreement (see, for example,

Re Strand Music Hall Co Ltd (1865) 35 Beav. 153), although there is a good deal of

modern authority to the effect that this presumption against surplusage is relatively

weak (see, for example, Arbuthnott v Fagan [1995] C.L.C. 1396). However, it

seems to me plain that Clause 9.1 was simply a part of the general terms of the

Claimant‟s standard form franchise agreement, sent out to all prospective franchisees,

and was thus overridden by the specific contents of Schedule 2, which related directly

to the position as between the Claimant and the Defendants. It is a rule of

construction that specific conditions should outweigh the general if there is a conflict

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between them: see, by way of recent example, Lord Bingham‟s speech in Homburg

Houtimport BV v Agrosin Private Ltd [2003] 2 WLR 711.

27. I am fortified in this conclusion by the terms of Schedule 1, another part of the

contract that was specific to the relationship between the Claimant and the

Defendants. That made plain that the initial franchise fee had been paid in full, in

accordance with the first franchise agreement. In other words, there was no question

of the Claimant seeking a further franchise fee from the Defendants. They did not

seek such a fee, because such a fee had already been paid in accordance with the first

franchise agreement. In precisely the same way, the Defendants were not entitled to

further initial business from the Claimant, because the Claimant had provided the

agreed initial business in full, again pursuant to the terms of the first franchise

agreement.

D3. Factual Background

28. I ask myself whether the factual background, set out at paragraph 17 above, can make

any difference to this conclusion. In my judgment, it only serves further to

strengthen that conclusion. From that background, it is plain that the second

franchise agreement was required to amend and modernise the existing arrangement

between the Claimant and the Second and Third Defendants, and to put in their new

corporate entity as the franchisee. There was no question of that second agreement

taking the relationship between the parties back to square one, and there is nothing in

any of the surrounding documents that indicates even a passing suggestion by the

Defendants that they were entitled to additional initial business (or, for that matter,

that the Claimant was entitled to a further fee). Thus I consider that the factual

background only confirms my construction of Clause 9.1 and, in particular, the

specific words of Schedules 1 and 2.

D4. Preliminary Issue 2

29. Preliminary Issue 2 is in the following terms:

“2. Even if Clause 9.1 was breached by the Claimant,

whether

(a) any claim based upon a breach of Clause 9.1 has been

settled by Clause 1.3 of the Second Addendum;

(b) alternatively, whether the Claimant is entitled to

damages for breach of the warranty and/or promises in

Clauses 1.1 and 1.2 of the second addendum equal to

any sum claimed and recovered by Pula for the alleged

breach of Clause 9.1.”

This issue arises by way of a full-back argument on the part of the Claimant: if,

contrary to my primary view, there was an obligation by the Claimant to provide

further initial business, has the claim for breach of that obligation been compromised

by the terms of the second addendum agreement of 28 April 2005 (paragraphs 21-23

above)?

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D5. Analysis

30. Assuming that I am wrong in my construction of Clause 9.1, then the Claimant was in

breach of Clause 9.1 because it failed to provide a further round of initial business

following the second franchise agreement of 26 November 2004. Such a claim for

breach would plainly have been in existence by 28 April 2005, when the second

addendum to the second franchise agreement was agreed. Clause 1.3 of that

agreement states that any existing claims against the Claimant were fully and finally

settled by the terms of the addendum and that the Defendants undertook not to bring

any proceedings in respect of such claims. It is impossible to see an answer to the

contention that, if there was a claim in respect of outstanding initial business by April

2005, it was therefore compromised by the clear and unequivocal terms of the second

addendum.

31. Accordingly, I conclude that, even if my construction of Clause 9.1 is wrong, so that

the Claimant was in breach of its obligations under Clause 9.1, any claim for damages

for breach arose immediately after the second franchise agreement was signed on 26

November 2004 and was therefore settled by Clause 1.3 of the second addendum of

April 2005. That provision unequivocally settled “any claims” against the Claimant

and made plain that such claims would not be the subject of proceedings.

E. PRELIMINARY ISSUES 3 AND 4: ASSISTANCE AND ADVICE

E1. Preliminary Issue 3

32. Preliminary Issue 3 is in the following terms:

“Whether as a matter of necessary implication and/or by

operation of law the Claimant‟s discretion under Clause 9.2 of

the second franchise agreement had to be exercised

reasonably.”

This issue arises because, at paragraph 7(2) of the Defendant‟s defence, it is averred

that:

“As a matter of necessary implication and/or by operation of

law, the Claimant‟s discretion pursuant to this Clause had to be

exercised reasonably.”

The Defendants then go on in their pleaded defence to make a series of allegations

against the Claimant, to the effect that the Claimant was in breach of its obligation

under Clause 9.2, because it failed to exercise its discretion reasonably. Without the

implied term, the pleaded allegations would be doomed to fail.

E2. The Law

33. I consider that there is clear Court of Appeal authority, which is obviously binding on

me, for the proposition that there is no need or room in this agreement to imply the

term contended for by the Defendants. In Ludgate Insurance Company Limited v

Citibank NA [1998] Lloyds LR 221, it was submitted that a contractual obligation to

exercise discretion was qualified by an implication of reasonableness, even if such

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qualification was not expressly stated in the contract. The Court of Appeal rejected

this argument in round terms. At paragraphs 35 and 36 of his judgment, Brooke LJ

said as follows:

“35. It is very well established that the circumstances in

which a court will interfere with the exercise by a party

to a contract of a contractual discretion given to it by

another party are extremely limited. We were referred

to Weinberger v Inglis [1919] AC 606; Dundee

General Hospitals Board of Management v Walker [1952] 1 All ER 896; Docker v Hyams [1961] 1

Lloyd‟s Rep 487 and The Product Star [1993] 1

Lloyd‟s Rep 397. These cases show that provided the

discretion is exercised honestly and in good faith for

the purposes for which it was conferred, and provided

also that it was a true exercise of discretion in the

sense that it was not capricious or arbitrary or so

outrageous in its defiance of reason that it can properly

be categorised as perverse, the courts will not

intervene.

36. Mr Rowland sought to derive comfort from some of

the language used by Leggatt LJ with whom the other

members of this court agreed, in The Product Star at

page 404 in support of a contention that the courts are

more ready today to apply a standard of objective

reasonableness when assessing whether a discretionary

decision can stand. That Leggatt LJ had not the

slightest intention of watering down the well

established test is manifest from the passages of his

judgment … in which he applied the law to the facts,

where it is clear that he is using the epithet

„unreasonable‟ to characterise a view which no

reasonable decision-maker could reasonably have

formed on the material before him.”

34. It seems to me that this judgment, expressed in typically trenchant terms by Brooke

LJ, constitutes a complete answer to Preliminary Issue 3. There can be no basis in

law for the implied term contended for by the Defendants at paragraph 7(2) of their

defence. In exercising its discretion under Clause 9.2 of the contract, the Claimant

was obliged to exercise that discretion honestly and in good faith, and for the

purposes for which it was conferred. The Claimant was also obliged to ensure that it

was a true exercise of discretion and was not capricious, or arbitrary, or so outrageous

in its defiance of reason that it could be categorised as perverse. No breach of that

nature (which would have to be clearly spelled out) is alleged against the Claimant in

the Defendants‟ pleading. Any lesser allegation would not constitute a breach of the

obligation at Clause 9.2. Accordingly, the alleged breaches, which are based on the

incorrect premise that the obligation must be exercised reasonably, cannot succeed.

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E3. Preliminary Issue 4

35. The terms of Preliminary Issue 4 are as follows:

“Whether the facts and matters alleged in the second sentence

of paragraph 24(3), even if proved, would by reason of the

dates alleged have amounted to a breach of Clause 9.5 of the

second franchise agreement; alternatively whether any claim

based upon a breach of Clause 9.5 has been settled by Clause

1.3 of the second addendum; in the further alternative whether

the Claimant is entitled to damages for breach of the warranty

and/or promises in Clause 1.1 and 1.2 of the second addendum

equal to any sum claimed and recovered by Pula for the alleged

breach of Clause 9.5.”

36. There are essentially two limbs to this issue. Clause 9.5 of the second franchise

agreement is concerned with the Claimant‟s obligation to provide a member of staff to

give advice. Only one breach of this obligation is alleged, at paragraph 24(3) of the

defence. The relevant breach is dated July 2004. Accordingly, the first point is the

Claimant‟s case that this could not have been a breach of the second franchise

agreement at all, because the second franchise agreement did not come into force until

November 2004.

37. The second limb of Preliminary Issue 4 is the same as that covered by Preliminary

Issue 2 above, namely that if, contrary to the Claimant‟s primary case, the Claimant

was in breach of Clause 9.5, that claim for breach was settled by the terms of the

second addendum of 28 April 2005.

E4. Analysis

38. Paragraph 24(3) of the defence alleges that a Mr Knox was provided by the Claimant

in July 2004 to manage the business whilst Mr and Mrs Bruce were on holiday and

that he was not competent to provide the required assistance and advice. It seems

clear to me that this cannot be a breach of the second franchise agreement because the

agreement (and therefore the obligation at Clause 9.5), did not come into existence

until November 2004. There is nothing in the second franchise agreement to

indicate that it was in any way retrospective, neither is such a suggestion pleaded by

the Defendants in their defence. The allegation is therefore doomed to fail.

39. In those circumstances it is probably unnecessary for me to deal with the second limb

of Preliminary Issue 4. However, precisely the same points arise in respect of it as

arise under Preliminary Issue 2 (see paragraphs 29-31 above). If there was a breach

of Clause 9.5 it seems to me it must have been settled by the terms of the second

addendum of 28 April 2005. Therefore no claim can arise in any event.

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F. PRELIMINARY ISSUE 5: TRAINING

F1 Preliminary Issue 5

40. The terms of Preliminary Issue 5 are as follows:

“Whether the parties agreed that the obligations ordinarily on

the Claimant under Clauses 13.1 and 13.3 did not arise under

the second franchise agreement or had been discharged on 19

September 2003 and in any event by the date of the second

franchise agreement; alternatively whether any claim based

upon a breach of Clauses 13.1 and 13.3 has been settled by

Clause 1.3 of the second addendum; in the further alternative

whether the Claimant is entitled to damages for breach of the

warranty and/or promises in Clauses 1.1 and 1.2 of the second

addendum equal to any sum claimed or recovered by Pula for

the alleged breach of Clauses 13.1 and 13.3.”

In other words, the issues that arise here are precisely the same as those that arise

under Preliminary Issues 1 and 2 in relation to the initial business obligations, which

have been dealt with above at paragraphs 24-31.

F.2 Construction

41. For precisely the same reasons as outlined in paragraphs 25-28 above in relation to

initial business, I reject the suggestion that, as a matter of the true construction of the

second franchise agreement, the Claimant was obliged to provide a further initial

training programme to the Defendants. The reason for this can be found in the

express wording of Schedule 1, which stated that the initial training programme had

been “satisfactorily completed on 19 September 2003 under the terms of the first

franchise agreement”. Accordingly, although on their face the general provisions of

Clauses 13.1 and 13.3 obliged the Claimant to offer an initial training programme, the

words of Schedule 1 (which was specific to the relationship between these parties)

recorded that such a programme had been satisfactorily completed. There was

therefore no further obligation on the part of the Claimant to offer another initial

training programme.

42. Again I acknowledge that this construction means that Clause 13.1 is redundant.

Again, it seems to me that this is the result of using a standard form of words in

Clause 13 and a „case-specific‟ form of words in Schedule 1. The specific should

outweigh the general in such circumstances, and therefore the wording in Schedule 1

must be interpreted as meaning that there was no obligation on the part of the

Claimant to provide a (further) initial training programme.

F3. Background

43. Again, I consider that a consideration of the factual background only serves to

confirm my conclusion as to the true construction of the relevant provisions. There is

no dispute that the Second and Third Defendants went on the Claimant‟s initial

16

training course between 15 and 19 September 2003; indeed, according to the

questionnaire which they completed at the end of that programme, they both gave it a

very positive assessment. There is nothing in the documents to suggest that the

Defendants ever thought that they were obliged (or entitled) to go on a further training

course once the second franchise agreement had been reached, and no indication of

what they might have hoped to gain from going through the initial course all over

again.. They had been trained by November 2004 and were running what was, on all

the evidence, a successful franchise. Neither they nor the Claimant apparently thought

that there was any further need for training. Accordingly, the factual position only

bears out what I consider to be the true construction of the second franchise

agreement.

F4. The Fallback Position

44. For the same reasons as are outlined in paragraphs 29-31 above, I consider that, if I

am wrong, and there was a breach of Clause 13.1 and 13.3 of the second franchise

agreement, any such claim was compromised by the express words of the second

addendum. There is therefore no claim in any event.

G. PRELIMINARY ISSUES 6, 9, 10 AND 11: TRUST AND CONFIDENCE

G1. Preliminary Issue 6

45. Preliminary Issue 6 is in the following terms:

“Whether as a matter of necessary implication and/or by

operation of law there was an implied term of the Second

Franchise Agreement that the Claimant would not act in such a

way as to destroy or seriously damage the relationship of trust

and confidence between the Claimant and Pula, including for

the avoidance of doubt whether there was a relationship of trust

and confidence between the Claimant and Pula.”

This issue arises out of the implied term alleged at paragraph 8 of the defence, to the

effect that there was a relationship of trust and confidence between the Claimant and

the First Defendant, and the consequential allegations of breach of that implied term

at paragraph 25 of the defence.

G2. Implication Of Terms/General

46. It is unnecessary for me to set out at length in this Judgment the general principles

relating to the implication of terms into contracts such as this. It is trite law that a

term will only be implied into a contract if it is necessary to give efficacy to that

contract: see The Moorcock [1889] 14 PD 64, at 68. In Trollope & Colls v North

West Metropolitan Regional Hospital Board [1973] 1 WLR 601, at page 609, Lord

Pearson said:

“An unexpressed term can be implied if and only if the court

finds that the parties must have intended that term to form part

of their contract; it is not enough for the court to find that such

a term will have been adopted by the parties as reasonable even

17

if it had been suggested to them; it must have been a term that

went without saying, a term necessary to give business efficacy

to the contract, a term which, though tacit, formed part of the

contract which the parties made for themselves.”

47. The question for any court considering an alleged implied term is to ask whether the

contract was “inefficacious, futile and absurd” without the alleged implied term: see

the speeches in the House of Lords in Tai Hing v Liu Chong Hing Bank [1986] AC

80 at 104, citing Liverpool City Council v Irwin [1977] AC 239.

G3. Implication Of Term As To Trust And Confidence

48. If I was unconstrained by authority, I would conclude that the implied term alleged by

the Defendant at paragraph 8 of their defence does not come close to meeting the test

of necessity set out above. The contract works perfectly well without it.

49. Further, I consider that there is authority directly in point which demonstrates that, in

a complex commercial contract of this sort, there is no room for the implied term

alleged. In Bedfordshire County Council v Fitzpatrick Contractors Ltd [1998]

62 Con LR 64, Dyson J (as he then was) rejected the contention that a highway

maintenance contract included an implied term as to trust and confidence. He found

that the implied term contended for did not satisfy the test of necessity and went on to

say this:

“Second, the court should in any event be very slow to imply

into a contract a term, especially one which is couched in rather

general terms, where the contract contains numerous detailed

express terms such as the contract in this case. In my

judgment, in such a case, the court should only do so where

there is a clear lacuna. The parties in this case took a great

deal of trouble to spell out with precision and in detail the terms

that were to govern their contractual relationships. The alleged

implied term is expressed in broad and imprecise language. I

can see no justification for grafting such a term onto a carefully

drafted contract such as this.”

I would respectfully adopt that reasoning and approach in the present case.

50. There is a third reason why I reject the alleged implied term. It is well established

that, in a contract of employment, an implied term of trust and confidence is to be

implied: see Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666 at

670. Indeed, in Bedfordshire CC, Dyson J distinguished between, on the one hand,

contracts of employment, where such a term truly was necessary to make the contract

work, and on the other, commercial arrangements of the sort with which he was

dealing, where such a term did not satisfy the test of necessity. That leads on to this

question: was the relationship between the Claimant and the Defendants in this case,

being a relationship between a franchisor and a franchisee, closer to the commercial

arrangement in Bedfordshire CC, or a contract of employment?

51. I am in no doubt that, as a matter of common sense, and on the authorities, the

relationship is much closer to an ordinary commercial relationship, than one between

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employer and employee. There are a variety of reasons for this. First, Clause 32.11

of the second franchise agreement expressly stated that the Defendants‟ relationship

with the Claimant was that of an independent contractor and was not a relationship of

either agency or employment.

52. Secondly, the authorities demonstrate that the relationship between franchisor and

franchisee is akin to the relationship between lessor and lessee. In Kall Kwik

Printing (UK) Ltd v Frank Clarence Rush [1996] FSR 114 at 119, HHJ Cooke

said:

“One way perhaps of looking at a franchise agreement is that

this is a form of lease of goodwill for a term of years, with an

obligation on the tenant, as it were, to retransfer the subject

matter of the lease at the end of the lease in whatever state it is.

So to that extent there is an obligation to transfer goodwill in a

particular form which is much more akin, I think, to the

goodwill cases than to the servant cases.”

Likewise, in Dyno-Rod v Reeve [1999] FSR 149, at page 153, Neuberger J (as he

then was) said that, whilst a franchise arrangement fell somewhere between the

vendor/purchaser cases and the employer/employee cases, he agreed with HHJ Cooke

that the franchise agreement was closer to a vendor/purchaser agreement and thought

that the lease analogy had its attractions.

53. Accordingly, I find that, not only was this not a contract of employment, it was not

even akin to such a contract. It was closer to the commercial relationship that

existed in Bedfordshire CC. That is a third reason why I reject the implication of

the alleged term as to trust and confidence in the present case.

G4. Preliminary Issues 9, 10 and 11

54. The terms of Preliminary Issues 9, 10 and 11 were as follows:

“9. Whether the facts and matters alleged in paragraph

25(1), even if proved would, by reason of the dates

alleged, have amounted to a breach of the alleged

implied term in the second franchise agreement of trust

and confidence; alternatively whether, even if there

had been a breach of the alleged implied term of trust

and confidence by reason of the matters alleged in

paragraph 25(1), any claim based upon such breach

has been settled by Clause 1.3 of the second

addendum; alternatively whether the Claimant is

entitled to damages for breach of the warranty and/or

promises in Clauses 1.1 and 1.2 of the second

addendum equal to any sum claimed and recovered by

Pula for the alleged breach of the implied term as a

result of the matters alleged in paragraph 25(1).

10. Whether the facts and matters alleged in paragraph

25(2), even if proved would, by reason of the dates

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alleged, have amounted to a breach of the alleged

implied term in the second franchise agreement of trust

and confidence; alternatively whether, even if there

had been a breach of the alleged implied term of trust

and confidence by reason of the matters alleged in

paragraph 25(2), any claim based upon such a breach

has been settled by Clause 1.3 of the second

addendum; alternatively whether the Claimant is

entitled to damages for breach of the warranty and/or

promises in Clauses 1.1 and 1.2 of the second

addendum equal to any sum claimed and recovered by

Pula for the alleged breach of the implied term as a

result of the matters alleged in paragraph 25(2).

11. Whether the facts and matters alleged in paragraph

25(3), even if proved would, by reason of the dates

alleged, have amounted to a breach of the alleged

implied term in the second franchise agreement of trust

and confidence; alternatively whether, even if there

had been a breach of the alleged implied term of trust

and confidence by reason of the matters alleged in

paragraph 25(3), any claim based upon such a breach

has been settled by Clause 1.3 of the second

addendum; alternatively whether the Claimant is

entitled to damages for breach of the warranty and/or

promises in Clauses 1.1 and 1.2 of the second

addendum equal to any sum claimed and recovered by

Pula for the alleged breach of the implied term as a

result of the matters alleged in paragraph 25(3).”

55. These issues arise in this way. Even if, contrary to my finding, the contract contained

the alleged implied term as to trust and confidence, the Claimant alleges that the

claims outlined in paragraphs 25(1), (2) and (3) of the defence and counterclaim

cannot legitimately be brought by the Defendant. This is because:

a) The facts and matters alleged arose before the second franchise agreement was

signed and cannot therefore amount to breaches of that agreement;

b) Any such claims were compromised as a result of the terms of the second

addendum to the second franchise agreement.

G5. Analysis

56. If, contrary to my conclusion set out above, the contract contained the alleged implied

term as to trust and confidence, then it seems to me that the allegations of paragraphs

25(1), (2) and (3) are doomed to fail. They allege breaches of the second franchise

agreement, respectively, in March 2004, July 2004 and September 2004. All such

events occurred before the second franchise agreement was signed. As I have

already noted, there is nothing to suggest that the second franchise agreement was in

any way retrospective, or that the Defendants even suggest such a case. Thus the

20

matters alleged in those sub-paragraphs cannot amount to breaches of the second

franchise agreement in any event.

57. Further, for the reasons set out at paragraphs 29-31 above, even if there was such an

implied term, and even if these three claims could be brought as breaches of the

second franchise agreement, all such claims would have been settled by the clear

terms of the second addendum of 28 April 2005. These claims are therefore doomed

to fail.

H. PRELIMINARY ISSUE 7: TERMINATION ON NOTICE

H1. Preliminary Issue 7

58. The terms of Preliminary Issue 7 are as follows:

“7. Whether as a matter of necessary implication and/or by

operation of law there was an implied term of the

second franchise agreement that it was terminable by

Pula on reasonable notice to be given by Pula and if so

what was reasonable notice in the circumstances.”

This claim arises by reason of paragraph 9 of the Defendant‟s defence, which alleges

that there was an implied term of the second franchise agreement that it was

“terminable by Pula on reasonable notice to be given by Pula to the Claimant. Pula‟s

case is that a reasonable period for such notice was 30 days, alternatively 3 months,

alternatively such other period as the court shall determine.” The relevance of this

further implied term is apparent from paragraph 31 of the Defendants‟ defence which

alleges that, even if the First Defendant was in repudiatory breach by writing as it did

on 1 August 2006, the First Defendant was always entitled to terminate the second

franchise agreement in accordance with the implied term, so that “the Claimant‟s

claim must be confined to the fees that would have been payable during that period of

notice”.

H2. Implication Of Terms/General

59. I have already set out, at paragraphs 46 and 47 of this Judgment, the general

principles of law applicable to the implication of terms into contracts such as this.

The term must be necessary, not merely reasonable.

H3. Implication Of Term As To Termination On Reasonable Notice

60. Where commercial contracts have no fixed term, the courts have been willing to

imply a notice provision of the sort alleged: see, for example, Staffordshire Area

Health Authority v South Staffordshire Waterworks Co [1978] 1 WLR 1387.

However, Mr Evans-Tovey was unable to identify any case in which an implied term

as to termination on reasonable notice was implied into a contract with a fixed term.

That is, perhaps, unsurprising: the whole point of a commercial contract which will

last for a particular period (or until a specified event has happened) is that the

contracting parties are committed to both the contract and each other for a known

period. It seems to me that it would make a nonsense of such an arrangement if either

party could give notice of termination at any time during the term, with minimal

21

consequences, because, say, that party has received a more attractive proposal from

someone else.

61. In addition, it is of course trite law that the court will never imply a term which is

inconsistent with the express terms of the contract or which introduces an obligation

which goes beyond the limits of the express terms that have been agreed. In Broome

v Pardess Co-Operative Society of Orange Growers (Est 1900) Ltd [1940] 1 All

ER 603, recently cited with approval by Patten J in WX Investments Ltd v Begg

[2002] 1 WLR 2849, MacKinnon LJ said:

“Where the parties have made an express provision as regards

some matter with regard to the contract, it is, and must be,

extremely difficult for either of them to say in regard to that

subject-matter, as to which there is an express provision, that

there is also an implied provision or condition in the contract.”

H4. Analysis

62. I am in no doubt that it is wholly unnecessary to imply the alleged term into the

second franchise agreement. There are a number of different reasons for this. First

and foremost, this was a contract which had a fixed term. There is no authority that

suggests that there can ever be room, in a fixed term contract, for an implied

termination provision of the sort alleged. For the reasons stated in paragraph 60

above, it is difficult to see how such a term could ever be implied into a fixed term

contract.

63. Secondly, Clause 4.1 provided that the second franchise agreement “will continue in

force thereafter for the term, unless and until terminated in accordance with the terms

set out in this agreement”. That makes it clear that termination could occur only in

accordance with the express provisions of the second franchise agreement. In those

circumstances, I conclude that the implied term relied on by the Defendants is

contrary to Clause 4.1 of the second franchise agreement, because it seeks to provide

for a termination process which is not „set out in this agreement‟. There can be no

basis in fact or in law for implying a term into the second franchise agreement that is

contrary to the express terms of that agreement.

64. Thirdly, Clause 26 of the second franchise agreement contained detailed provisions

allowing the Claimant to terminate the agreement, on the occurrence of a variety of

events, on 30 days notice. That again must point strongly to the conclusion that the

parties did not intend that the right to terminate on 30 days notice was somehow

shared by the Defendant, but not expressed in the second franchise agreement at all.

Moreover, if the Defendants are right, and they had an unfettered right to terminate on

30 days notice, regardless of the circumstances, then (through the implied term) they

would find themselves in a much more beneficial position than the Claimant, who

could only terminate under Clause 26 on the happening of very particular events,

usually requiring default on the part of the First Defendant. That anomaly, too, makes

it plain that there can be no room in the second franchise agreement for the term

alleged.

22

65. There is a suggestion in documents emanating from the Defendants that the second

franchise agreement was in some way unfair because it provided the Claimant with a

variety of reasons for early termination, but allowed the Defendant no similar rights.

Plainly, questions of fairness are irrelevant to the implication of contract terms: as

noted above, the basis for the implication of any term must be necessity, never

reasonableness. Moreover, it cannot be said that a term contract of this sort is

unreasonable merely because there were no express rights on the part of the

Defendants to terminate. The Defendants would have been able to terminate at

common law had the Claimant been in breach of the agreement. Beyond that, it

seems to me that, maintaining the analogy between a franchise agreement and a lease

originally drawn by HHJ Cooke in Kall Kwik, a term contract of this sort is akin to a

lengthy lease without a break clause.

66. For all these reasons, therefore, I reject the alleged implication of the term purporting

to allow the Defendants to terminate on notice.

I. PRELIMINARY ISSUE 8: NEGATIVE CASH FLOW

I1. Preliminary Issue 8

67. The terms of Preliminary Issue 8 are as follows:

“Whether, even if there had been a breach of Clause 15.1.36 in

relation to the Brewsters Bridgewater customer account, any

claim based upon such a breach has been settled by Clause 1.3

of the second addendum; alternatively whether the Claimant is

entitled to damages for breach of the warranty and/or promises

in Clauses 1.1 and 1.2 of the second addendum equal to any

sum claimed and recovered by Pula for the alleged breach of

Clause 15.1.36.”

68. This issue arises in this way. At paragraph 24(5)(a) of their defence, the Defendants

allege that the Claimant was in breach of Clause 15.1.36 in respect of a particular

contract. The Claimant alleges that, even if that were right, on the Defendant‟s own

pleading, the breach occurred before the second addendum to the second franchise

agreement was agreed and was therefore settled by the terms of that addendum.

I2. Discussion

69. Clause 15.1.36 was designed to allow the Claimant to negotiate national accounts

with customers and to transfer to the Defendants contracts from other franchisees. In

either case, Clause 15.1.36.1 expressly obliged the Claimant to take such steps as it

reasonably deemed appropriate to remove any negative cash flow that the Defendant

would otherwise suffer as a result of servicing that particular contract.

70. Paragraph 24(5) of the defence alleges four breaches of that obligation. I am not

concerned with those alleged at sub-paragraphs (b) – (d) inclusive. The allegation at

(a) is in respect of a sale in December 2004 to Brewsters in Bridgewater, the

allegation being that the sales person who sold the contract at this time failed to take

any or any proper account of the extent of the work required, by comparison with the

charges agreed. It seems clear, therefore, that the relevant breach occurred in

23

December 2004. That was at a time when the second franchise agreement was in

force. A claim for breach therefore existed as at 28 April 2005, and was thus settled

by the addendum agreement of that date (see paragraphs 29-31 above).

J. SUMMARY OF ANSWERS TO PRELIMINARY ISSUES

J1. Preliminary Issue 1

71. I have concluded that there was no obligation on the part of the Claimant under the

second franchise agreement to provide any further initial business, because the parties

were agreed that the initial business had already been supplied. My reasons are set

out at paragraphs 24-28 above.

J2. Preliminary Issue 2

72. I have concluded that if, contrary to my primary view, the Claimant was obliged to

provide further initial business under the second franchise agreement, the Claimant

was in breach of that obligation from November 2004 onwards, and therefore any

claim based on that breach was compromised by the terms of the second addendum of

28 April 2005. My reasons are set out at paragraphs 29-31 above.

J3. Preliminary Issue 3

73. I have concluded that there was no implied term as to the reasonable exercise of

discretion. My reasons are set out at paragraphs 32-34 above.

J4. Preliminary Issue 4

74. I have concluded that the claim at paragraph 24(3) of the defence cannot amount to a

breach of the second franchise agreement because the relevant event occurred before

the second franchise agreement was agreed. Alternatively I have concluded that any

claim was compromised by the second addendum agreement. My reasons are set out

at paragraphs 35-39 above.

J5. Preliminary Issue 5

75. I have reached the same conclusion on Preliminary Issue 5 as I have reached on

Preliminary Issues 1 and 2, and for very similar reasons. Those reasons are set out at

paragraphs 40-44 above. There was no obligation to provide initial training under

the second franchise agreement and, even if I was wrong about that, any claim for

breach was compromised by the terms of the second addendum.

J6. Preliminary Issues 6, 9, 10 and 11

76. I have concluded that there was no implied term as to trust and confidence for the

reasons set out at paragraphs 45-53 above. However, if I were wrong about that and

there was such an implied term, the claims made in the defence at paragraphs 25(1),

(2) and (3) could not amount to breaches of the second franchise agreement because

the relevant events occurred before the agreement had been reached. Furthermore if I

was also wrong about that, then any such claims would have been compromised by

the second addendum agreement. The reasons for these subsidiary conclusions are

set out at paragraphs 54-57 above.

24

J7. Preliminary Issue 7

77. I have concluded that there was no implied term allowing the Defendant to terminate

on notice. Such a term was contrary to the express terms of the contract and could

not be regarded as necessary in any event. My reasons are set out at paragraphs 58-

66 above.

J8. Preliminary Issue 8

78. I have concluded that, if the Claimant was in breach of Clause 15.1.36.1 then the

claim at paragraph 24(5)(a) was compromised by the terms of the second addendum

of 28 April 2005. My reasons are set out at paragraphs 67-70 above.