but I don't want to change my name!
The recent case of Thomas Brown Estates
Ltd v Hunters Partners Ltd ('Hunters') discussed whether a
franchisor could require a franchisee to rebrand pursuant to a term
in the franchise agreement. The case unfortunately did not
answer this question (Hunters changed its position prior to the
hearing scheduled for December 2011 and it meant the franchisee was
not required to rebrand) but some interesting points arise from the
case.
the facts
Countrywide Franchising Limited ('Countrywide
Franchising') granted franchises to franchisees allowing them to
use the "Bairstow Eves Countrywide" trade name and trade marks and
a business model for an initial term in return for initial and
ongoing fees.
Countrywide Franchising in fact did not own
the Bairstow Eves Countrywide trade marks itself but, under
licence, was able to grant its franchisees of estate agency and
letting agency services the right to use those trade marks and the
trade name.
The shares in Countrywide Franchising were
sold to another company hat operates its own estate agency and
lettings agency business under the Hunters name. Countrywide
Franchising's name was changed to Hunters Partners Limited. As the
franchisor was now associated with the Hunters brand the
franchisees were told that they would have to rebrand and
relinquish the goodwill associated with Bairstow Eves
Countrywide. The franchise agreements included a
clause that granted the right to use the trade name "as
the same may be amended from time to time by the
Franchisor".
The question that arose was, of course,
what does "amended" mean? Hunters said it means they
had an unlimited right to replace or to substitute the name
"Bairstow Eves Countrywide" with any other name. The
franchisee said that "amend" was limited in scope and that
any amended name still needed to have some sort of correlation or
link with the original name. The franchisee issued
proceedings for breach of contract. It also sought a declaration
that Hunters could not require it to cease using or being
associated with the Bairstow Eves trade names or trade
marks.
the judgment
Before the hearing, Hunters reached an
agreement with the owner of the Bairstow Eves Countrywide trade
mark whereby the franchisee's businesses would be transferred to a
Countrywide company which would permit the franchisee to continue
to use the Bairstow Eves name.
Despite this, the franchisee still wanted the
court to grant the declaration. The Court declined to do
this.
The Court said the grant of any declaration is
a matter for the Court's discretion, that since the franchisee was
not required to rebrand the dispute had become academic and there
was no compelling reason why the Court should give a binding
decision in those circumstances. The judge was also not
persuaded by the franchisee's arguments that the declaration would
be useful for the purposes of the other Hunters franchisees despite
the fact their position remained uncertain (there were 50-60
franchisees who were also represented by the claimant franchisee's
solicitors but who were not parties to the claim and had not agreed
to be bound by the decision of the Court). The judge was
concerned that a determination of the declaration would result in
those remaining franchisees seeking to rely on the determination in
their favour and was also concerned that if he found in favour of
Hunters' construction of the contract then the other franchisees
would bring separate claims to try and achieve the declarations
sought unsuccessfully in the instant case (given the remaining
franchisees had not agreed to be bound by any decision of the
Court).
comment
A key selling point of a franchise to a
potential franchisee is often the benefit of being able to operate
a business under a recognised and trusted brand. However, virtually
all franchise agreements will allow the franchisor to change the
underlying system and branding at their discretion. An opinion from
the judge on the meaning of "amended" would have delivered
interesting reading for franchisors on this crucial element of
control over their business model but, even in the absence of such
an opinion, the case should serve as a warning to franchisors to
check the wording of their standard agreements carefully to ensure
they clearly provide a right to change trade marks and trade names
without any limitation (assuming that that is the franchisor's
desired intention). It should also serve as a warning that in
circumstances where the use of a brand is dependant on a licence
from a third party, as in this instance, both franchisors and
franchisees should be clear what happens were the right to use a
name to come to an end.
Although it does not set any precedents for
future cases, franchisors can perhaps take some small relief from
the judge's reluctance to grant the declaration in case it
encouraged other franchisees not party to the proceedings to use
the declaration to their advantage. They will take less comfort
from the order on costs which the court made, awarding the claimant
approximately 67% of its costs on summary assessment which amounted
to £65,000 including VAT. The Court ruled that its discretion as to
costs was wide and it should make an order which reflected the
overall justice of the case. The claimant had secured what it
wanted as a result of the defendant's change of position. The Court
also considered it unlikely that without these proceedings, the
defendant would have reached the same point. This meant the
claimant was entitled to its costs. Any litigant should be aware
that they are unlikely to recover all their costs. In fact as a
rough guide the successful party will recover 60% – 70% of their
costs though the costs award in each case is dependant on a number
of factors.
