KB-2021-000741 - [2025] EWHC 2096 (KB)

There was a large bundle at trial of franchise agreements between the various Claimants and JBL. In respect of many of the franchisees, there was a number of successive franchise agreements. The franchise agreements evolved with time as new provisions were inserted. An example of this is that whilst there has never been an express term of good faith, since, and as a result of, the dispute in the instant case, there has been an express exclusion of any term of good faith. The agreements in question in this action do not contain an exclusion of terms of good faith.

Before considering the terms themselves, there are certain features about how the individual franchise agreements were made. There was no negotiation of terms in the sense of give and take about contractual terms. The strong impression that one has is that most of the terms were on a take it or leave it basis.

The franchisee did not have the opportunity to take home the draft agreement and to consider it with family and friends, or indeed to read it at leisure. Several franchisees gave evidence that on the first occasion that the agreement was presented to them by Mr Beck of JBL, he said words to them to the effect that it was a great opportunity for them. However, he said that they could not take the agreement away, but that they should read it at the premises of JBL. He said words to the effect that the terms may not be the same if they did not sign it there and then. This is referred to in greater detail when considering below the evidence of individual franchisees.

Mr Benson was asked about the reading of the franchise agreements by prospective franchisees before signing them. He said that they all read the agreements “to a certain extent.” He said that they needed to read clauses 1 and 7. (Clause 1, which is referred to in the next section about the duration of the agreements, is difficult to understand. Clause 7 is about franchise fees including annual increases). He said that a lot of people did not read the agreements, but they were told to read them. These answers show an appreciation that the agreements were not read properly. There must have been an appreciation that even if they were read, they must not have been understood fully.

There is at the top of the agreements in red and in block capitals the following wording, namely :“if you are in any doubt as to the meaning of this agreement you should consult a solicitor. A copy of this agreement can be sent to your solicitor upon request and before signing. Do not feel that you must sign today.” The evidence is that this happened, but only very occasionally, less than a dozen times. In the context of many hundreds of agreements, it appears that the standard form was formulaic: if it had any impact, that was negatived by such pressure as there may have been to sign the agreement there and then. The wording was not that franchisees should take legal advice, only “if you are in any doubt as to the meaning”, and there was no assistance as to how to find a suitable solicitor.

The franchisor could have taken the view that the agreement was vitally important to a new franchisee, that they were entering into the acquisition of a business interest, the nuances of which they were unlikely to understand without assistance. The view of the franchisor could have been that bearing in mind the inequality of bargaining power that would ensue from entering into such an agreement without independent legal advice that it was desirable, indeed essential, for the franchisee to be so advised. This did not occur. Likewise, despite the prevalent custom of not permitting guarantors to sign without independent legal advice, among other things for fear of the guarantees being set aside for undue influence, there was no such advice in respect of the guarantors in the instant case.

There is a specimen agreement in Annex 2 to the Particulars of Claim (“POC”). The agreements contained an explanatory provision that the franchise agreement was for a minimum term and could not be terminated by the franchisee prior to the expiry of such minimum term. There was then an often complicated provision about the duration of the franchise agreement. It was not easy to understand these provisions even for someone used to construing documents: it must have been very difficult for a prospective franchisee without independent legal advice. The minimum term was three years or longer periods which would be triggered often from the time of passing the three parts of the training to become a driving instructor (Clause 1).

There were no early termination provisions for franchisees. The agreements contained a warning also in red bold that it cannot be terminated prior to the expiry of a minimum term. There was no provision for the sale of a business to another franchisee. The effect is that if a franchisee wanted to have an early termination and to have another franchisee introduced by them to take over, JBL could refuse this. Mr Benson said that save for allowing a husband to take over from a wife as franchisee, he has never been asked by a franchisee to permit the sale of a business. If he did, he says that he would have been open to negotiations. However, there is nothing which would compel JBL to agree to this, and there was no mechanism for it under the agreements. Since this did not occur, it is theoretical.

There were instances of driving instructors finding themselves unable to honour the payments and Mr Benson agreeing, instead of terminating the relationship and suing for damages, to a new longer agreement. This then led in turn to agreements with a minimum term of up to 120 months, even in one case 132 months, instead of 36 months, this usually being in addition to the training periods.

The Claimants pleaded (POC para. 3) that “the Claimants each committed to long term commercial relationships that required them to cooperate and collaborate with JBL.” This was admitted by JBL. There was no evidence to explain why the relationship had to be of such a long-term nature, and as to why it could not have been such that it could have been terminated within a much shorter period. That might have been with an option to enter into a longer period in the event that the franchisee was not materially in breach of terms of the agreement. Evidently, the business model was that in the early part of the relationship, the franchise fees would be relatively low, such that the profit for the franchisor would come in the latter stage of the relationship. That could have been factored in by keeping separate a training agreement or a franchise agreement. Or it might explain a longer period up to say a full year of larger payments or arguably up to two years, but after that there is no explanation as to why the much longer periods were required, even 36 months going up to 132 months.

A particular problem for the franchisee was that at the inception of the relationship, it would be unknown how long it would take the franchisee to qualify. Further, it would be unknown whether a franchisee would have the qualities required to succeed in the business. Even if they could start by succeeding, it would be unknown whether the franchisee would have changes in their life that would impede continued success such as health issues or caring issues as regards relatives such as children, parents or partners. That made it particularly onerous to enter into a long-term franchise agreement at an early stage in the training. In addition to this, the uncertainties about how long it would take to become fully qualified made the provisions about the term of the agreement difficult to construe and understand. In addition to that, there is the issue of why the first franchise agreement was entered into only before training was complete or at least the part of the training period which did not involve instruction of pupils.

The first franchise agreement between JBL and a franchisee typically contained provisions about training to become a driving instructor during which there would either be no franchise fee or a modest fee. Although there are three stages referred to therein, the first period does not begin until the franchisee starts to give paid lessons or 12 months after signing the agreement, whichever is the earlier. During that period, the franchisee must pay for training at a cost of £30 per hour, but is not obliged to pay franchise fees. There are three tests, known as Part One (a multiple-choice theory test), Part Two (an approved driving ability test) and Part Three (an instructional ability test). When a potential driving instructor has passed Part One and Part Two and has taken a minimum of 40 hours training, they can apply for a training licence. At that stage and whilst preparing for the Part Three test, the trainee can provide paid tuition to the members of the public. The trainee must take on at least another 20 hours of training before they may apply for Part Three. The trainee must qualify within 2 years of passing the Part One, failing which they must start again. There are further rules about re-takes following failing any test.

At the conclusion of training or 12 months, whichever is the earlier, the first franchise period is a start-up period of small franchise fees increasing over the course of a year. The second franchise period begins when the franchisee becomes an Approved Driving Instructor. Its duration is equivalent to the sum of (i) the length of any start up; (ii) any period of suspension; and (iii) a further defined period of time, at least 36 months. If the start-up is a year, and there is no period of suspension, the second franchise will last for four years.

Following nil or small franchise fees, by the time that the franchisee is expected to be fully qualified, there would be fixed weekly fees not by reference to turnover. That was advantageous to a successful franchisee, but would cause hardship to an unsuccessful franchisee. All of this made it very difficult to work out both prospectively and retrospectively, that is before, during and after training periods, the term of the particular franchise agreement and its end date.

In the meantime, if a franchisee was in breach of the terms, there were termination provisions on the part of JBL (Clause 9 of the specimen agreement). The effect of the drafting was in favour of JBL to elevate an ordinary breach of contract into something that could be relied upon for an early and repudiatory breach of contract. The contractual consequence in such an event was to make the franchisee liable for “the sum which would have been payable by way of franchise fees and other charges had the agreement not been terminated as a consequence of your breach.” It is this which explains the very large sums counterclaimed against the franchisees in many cases several tens of thousands of pounds, in some cases over £100,000 and in one case, on one measure, over £300,000. It is also a part of JBL’s case that there is little or no scope for mitigation of loss because a loss of franchisee cannot be replaced by another franchisee in that the new franchisee could always be taken on in addition to the old franchisee.

It was not a part of the case of the Claimants that the relationship was that of employer and employee, but it was said that the commercial relationship had hallmarks of an employment relationship. This was relevant to the submission of the Claimants that these were relational contracts under which the parties owed a duty to conduct themselves in good faith and to deal fairly with one another. This is the first of the preliminary issues which will be specifically addressed later in this judgment.

It is to be noted that the typical franchise agreement contained provisions to the effect that the franchisee was an independent business. This included the following:

Despite these provisions which may have signalled that it would not have been possible to prove the existence of an employment relationship, the following features of the instant franchise agreements, when looked at cumulatively, have hallmarks of such a relationship. They are as follows:

Franchisees could either be provided with a car from JBL or they could provide their own. If it was the latter, they had to agree the make and model. Mr Benson stated that the reason for this was to keep the brand distinctive from competitors.

Until January 2020, JBL set a price for the lessons. A complaint in the action was that the prices were set too low and that other franchisees charged much higher sums. This was said to have the immediate effect of not only restricting their profits, but making it difficult to earn enough to pay the franchise fees. Further, it did not allow for an increase in the fee where a franchisee had to go out of their area to teach a pupil and thereby incurred travelling expenses which they could not recoup.

It was suggested in cross-examination that a corresponding benefit of a lower charge was that the prices would be competitive and would bring in business. Witnesses were not receptive to this suggestion usually because of a belief that it made it more difficult for them to pay their franchise fees and other expenses and then come away with an ability to meet their living expenses. The set fees did not increase from June 2018 to January 2020 when an email was written purporting to scrap set fees. Even thereafter, as a recommended price, the same prices remained the same until September 2020. The fixed prices were not adjusted for inflation or petrol costs and did not take into account the distance which franchisees would need to travel to collect a particular student or the time it would take them to do so. The franchise fees payable to the franchisor increased every year (£18 per week or £9 per week, depending on what was agreed), but the fixed prices for lessons did not increase during that 18-month period, thereby potentially affecting the profitability of the Claimants’ businesses.

By a letter dated 28 January 2020, an offer was made by JBL to amend this provision by its deletion which would take effect within 14 days if there was no response. This provision was then to be removed with effect from 11 February 2020. When subsequently a franchisee ended up losing business, Mr Benson believed that this was a consequence of no longer following a price set by JBL. In a Just Benson post, dated 19 March 2020, he publicly criticised an instructor for doing so, saying:

“I did warn some of you…listen to this. We had a call yesterday from a pupil of ours.

His instructor (one of us) just increased his lesson free to £26.50…the pupil asked for another instructor which we supplied.

The first instructor has lost what £750 minimum? How stupid.”

On 29 September 2020, after the first wave of COVID-19, Mr Benson sent a letter to all instructors saying that the tuition rates for manual cars and for automatic cars respectively had been increased by £1.

Mr Benson prohibited franchisees from publicising how much they charged from lessons. On 30 September 2019 Mr. Benson told the network:

“DO NOT MENTION PRICES! …

LISTEN TO ME … do not mention what we charge; last time I tell you!”

Mr. Benson threatened to impose restrictions on their ability to advertise their services. He told the network that he would remove instructors from the Just Benson Facebook group if they advertised their prices, and on 4 October 2019 confirmed that he had done so:

“There’s the first Benson instructor removed and blocked from the Benson Facebook groups for posting our prices.”

It is not an answer to the findings that the agreements were akin to employment relationships to say that the franchisees could do as little as they liked or that they could do no work (as per para. 15 of Mr Benson’s witness statement). The reality was that a franchisee had to work in order to afford the weekly franchise fees payable for every week of the year save for two franchise free weeks. This was at a significant level not by reference to the turnover of the franchisee (such as a royalty fee), but as fixed fees. The consequence of the fixed fees is that franchisees had to work, most of them full time, in order to pay or to strive to pay the franchise fees.

In the absence of an express provision about delegation, it is futile to discuss the possibility of delegation. There was considerable control over the franchisees rather than a degree of control. The various aspects of the agreement amounting to control are identified in this judgment. The way in which the office was operated was not a service to franchisees but was the hub of the franchisor’s operation. It provided a framework whereby the franchisees were obliged to phone in at least twice a week (Clause 5(u)). There was a structure so that new franchisees had to be referred to head office in that franchisees were not even allowed to quote prices to a prospective pupil. When a franchisee did that, he was removed from Facebook and publicly humiliated.

For most of the life of the agreements, there was an insistence that the franchisees only charged the prices fixed by JBL (Clause 5(g)). It is one thing to provide the facilities of an office: it is quite another to require that new bookings come through the head office. To like effect, in respect of all of the franchisees, the vehicle’s sign writing should be to the Franchisor’s specification (Clause 5(s)). JBL almost always insisted that the number of head office and not the private number of the franchisee must be displayed on their car, albeit that in the case of Ms Rusted, they allowed her private number to be displayed. This then enabled head office to receive inquiries and to allocate as between franchisees as they decided. This was a form of control, which would have been reduced in the event that the calls came to the private mobile numbers of franchisees. The judgment will turn to this below because it is alleged that there was a breach of contract in capriciously refusing franchisees’ requests to display their mobile number. Whether it be the case that the contract enabled JBL to refuse absolutely any such request or it was at the discretion of JBL to refuse, this was an element of control of the franchisee by the franchisor. There was also evidence of JBL through Mr Benson giving instructions to head office not to provide referrals to franchisees who were in Mr Benson’s bad books. These features support the agreements being akin to an employment contract, that is to say having various hallmarks of an employment relationship, even although they were not contracts of employment.

There has been a lot of evidence in this case of franchisees falling into difficulties. There was evidence of a large number of franchisees who fell behind in their payments of monthly franchise fees. There was a variety of reasons given for this including the following:

Subject to unusual exceptions, the franchisees were unable to advertise by driving in vehicles which displayed their own telephone numbers. They were also unable to publish their own prices. This was said by JBL to be best form of advertising because the vehicle would be going round the areas where the instructors taught, and it was through that number that they could most easily attract business for themselves.

The evidence particularly of Ms Summers was striking about numerous franchisees who fell into arrears and terminated early. Many of them settled on early termination provisions. Ms Summers’ witness statement at para.25 comprised information of 70 franchisees who either ended up in court or bought themselves out or gave notice at the right time. Most had left early and had entered into a settlement agreement. Some had been sued to judgment in court. This was information which could have been provided when sought from JBL by instructing Holmes & Hill their solicitors to provide analysis about what happened instructor by instructor in advance of the trial. In the absence of this, there was a long time spent at trial in getting some information in respect of the first 23 of the 70 franchisees named by Ms Summers. It took so long to elicit it in cross-examination from Mr Benson, and the information was understandably far from precise, that the process had to be aborted because it would take far too long. The obvious point is that if there was a healthy operation where the vast majority of franchisees operated in a profitable way, there would not have been so much litigation and so many franchisees paying money to buy themselves out. Ms Summers said Mr Benson said repeatedly that “one court case a year is what keeps the business afloat”.

Without having to find at this stage that the foregoing arose out of a breach of contract, it provides a backdrop to the phenomenon of the numerous extensions of the agreements. JBL’s case was that this was out of sympathy to franchisees suffering difficulties in keeping up with payments due under the agreements, Mr Benson on behalf of JBL would offer revised agreements for longer periods of time with smaller weekly franchise payments. The result was that instead of having a minimum period of 3 years plus the training period, franchisees would commit themselves to much longer periods including periods as long as 10 years or even longer.

A simple secondary way of summarising the extensions of the franchise agreements is to consider the Counterclaims. That evidences how complicated it was to calculate the original training periods. It also shows the periods during which no franchise fee was payable due to COVID closure being added to the counterclaim on the basis of a contention that the agreements were extended by these periods. Just concentrating on the minimum periods exceeding 36 months which were agreed by new franchise agreements, the Counterclaim points to the following periods of longer than normal periods from the outset (many of which will be substituted periods replacing shorter periods), namely:

The effect of these extensions is not only that franchisees became locked into the agreements for longer periods, and in four instances for over 100 months, the effect was that in the event of breach or a desire for early termination, the exit sums would generally be significantly higher (although at least in the case of Ms Summers, this was shown not to be the case). Whilst there were reductions in the weekly fees, it was not transparent what the difference was between the total payable under the old agreements and the amounts payable under the new agreements. The very large amounts claimed under the Counterclaim including many of them being £90,000 and over and one more or less than £300,000.

There was a modus operandi to the new extended agreements. Although there was a clause about legal advice in both the existing and extended franchise agreements (“if you are in doubt as to the meaning of the agreement”) these franchisees did not obtain legal advice. They took the view that they were already locked in as a result of their earlier agreements and that if they did not enter into these agreements, they would be unable to perform the earlier agreements and would be accountable for their breaches for sums which they could not afford. In so doing, they did not consider the extent of the obligations which they were taking on and the consequences of breach of the new agreements.

Ms Rusted, the Sixth Claimant, made a claim of breach of contract by being required to extend her franchise agreement from 5 years to 10 years when she said that she could not afford the franchise fee: see G(iv). Ms Summers said that she extended from a minimum of three years to five years and then to ten years. She said that she was unable to survive financially due to having to pay the franchise fees which were increasing whilst the prices of lessons were not increasing correspondingly. Ms Newell, the Eleventh Claimant, made a claim of breach of contract that she was pressurised to extend her franchise agreement for a ten year agreement after failing to pass her standards check and being unable to pay franchise fees. There is no indication that these franchisees had any understanding of how the reduced payments were calculated or an explanation of how the total amounts compared with the existing agreement.

Without adjudicating upon these allegations of breach of contract at this stage, the history of these extensions provides a context for other alleged breaches of contract in this case. First, the finding that the standard agreement of 36 months (discussed at paragraphs 74 to 79 of this judgment) plus was a long-term commercial agreement between the parties applies a fortiori in respect of the longer agreements. This is relevant to the finding about the existence of implied terms. It is suggested by JBL that this was not necessarily a long-term agreement because there are agreements which are for much longer periods. Everything is in context, but in the context of a driving instructor, a contract for the training period and a minimum term of 36 months is a long term contract. It is difficult to understand why it was not subject to any shorter notice period for the franchisee or for a shorter minimum term other than to tie the franchisee into it for a long period and to form the basis of a large claim in the event that the franchisee did not succeed or wished to leave. Although there was limited evidence about the typical length of franchise agreements of other driving schools, reference will be made below to the Bill Plant driving school. That was introduced by JBL for a different purpose. It contained a short termination provision at the behest of the franchisee of six months’ notice after the first year.

Second, the extensions involved desperation, that is to say, facing failure there and then with a possible termination and large damages or being subjected to a longer term with the disadvantages of being locked in for a very long period. Further, without dealing with breach of contract, the situation may have had as its origin the fact that the business model of JBL did not work for a substantial number of franchisees. This applied particularly in the context of COVID which would have provided difficulties to most successful franchisees. When faced with franchisees struggling because the model was not working for them, the Claimants’ case is that there was a particular need for implied terms of good faith. This will be considered as the first of the three preliminary issues.

Third, even on the premise that this did not give rise to privileges about not enforcing contractual rights, it did mean that it was more important than ever not to behave in an intimidatory and aggressive way to franchisees who were faced with financial existential issues. Likewise, it meant that it was important not unilaterally to claim rights which did not exist e.g. seeking to extend the agreements on top of the already very long agreements already negotiated.

The pleaded case is that the franchising agreements gave rise to “long term commercial relationships requiring a high degree of communication, cooperation and predictable performance with expectations of loyalty”. I find that the evidence shows that the commercial relationships had the following features.

First, whilst the concept of long-term commercial relationships is imprecise, and it is far less long than some relationships which go on for decades, I am satisfied that the minimum term provisions did give rise to long-term relationships. Even those which contained a period of three years in addition to the training period were long periods, given the inability to terminate at any earlier stage. A fortiori, this was the case in respect of the many agreements which were for longer periods. Once franchisees were unhappy, they would come to recognise the fetter of not being able to terminate for years.

Second, there were expectations of loyalty in contractual terms. This included the inability to act as a driving instructor other than as franchisee, and indeed a promise not to have any other business without the consent of the franchisor. There were also clauses requiring the franchisee to act in the best interests of the franchisor, which was a clause similar to a fiduciary who has to relegate their own interests to those of the counterparty. Likewise, there was an obligation to use best endeavours to improve the franchisor’s business.

Third, the franchisees had no right to delegate the services provided by the franchisee to any third party. Likewise, they had no ability to acquire a goodwill of a business which they could sell to a third party. There was no provision for being able to assign the franchise agreements. This has to be seen in the context of having a long-term arrangement without a provision for early termination. It is to be contrasted with the extensive rights of termination in favour of the Franchisor in which non-repudiatory conduct can become elevated into a ground for termination or a deemed repudiatory breach.

Fourth, the expectation of JBL was that the franchisees could not themselves advertise the business in their own names by having their telephone number on their vehicles. With very few exceptions, the cars had to bear the central office number only and not their number. The consequence was that bookings of new clients would be through central office and not by themselves. When they acquired new clients, they were dependent on referrals from central office. This required very frequent communication between the driving instructor and head office. Separately, there is a pleaded allegation of breach of contract about the refusal to permit franchisees to have their telephone numbers on their vehicles.

Fifth, the driving school imposed rules of conduct, and a sanction for breach was the withholding of pupils. Examples of rules requiring close collaboration that were provided were as follows. There was an expectation that the franchisee would be in regular touch with central office “on a regular basis and at least twice per week in order to receive new client details and other necessary information concerning the running of your franchises” . Failure to do so might lead to the franchisee being contacted at a cost to the franchisee and with the assumption that the franchisee does not require any further work and that other franchisees may be preferred (Clause 5(t)). Since central office was so busy (and possibly under-resourced), there was a three rings policy such that an instructor would be required to put down the phone if not answered within three rings.

Sixth, there was an expectation that the franchisor would provide guidance to the franchisee to assist (Clause 4(a)) and would refer prospective pupils when reasonably possible. That involved acquiring an understanding of how the franchisee was performing, where the work was and how much further work was required.