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

In respect of the first of the preliminary issue, the question arises whether on the facts of the instant case the alleged implied terms of good faith and fair dealing are to be implied.

The first of the preliminary issues which now arises for consideration is as follows: were the contracts entered into between the Claimants and the Defendant’s contracts under which the parties owed a duty to conduct themselves in good faith and to deal fairly with one another?

The starting point is the pleaded case in the Particulars of Claim. It was stated as follows:

“3.

The claimants each committed to long term commercial relationships that require them to cooperate and collaborate with JBL.

4.

The commercial relationship bore many of the hallmarks of an employment relationship

….

5.

In the premises each of the contracts listed... involved long term commercial relationships requiring a high degree of communication, cooperation and predictable performance with expectations of loyalty. They were relational contracts under which the parties owed a duty to conduct themselves in good faith and to deal fairly with one another.

6.

As incidents of that duty JBL was obliged:

a.

Not to do anything to substantially deprive the claimants from obtaining the benefits it had granted to them;

b.

Not in [any] other way to undermine the terms of the bargain that it is entered into with the claimants;

c.

Not to exercise any discretion arbitrarily or capriciously;

d.

To refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people, and/or

e.

Not to conduct itself, without reasonable or proper calls, in a manner likely to cause serious damage to the relationship of mutual trust and confidence.

7.

Further or alternatively, each of the above duties comprised intrinsic terms of the claimants respective contracts, the implication of which is necessary to give business efficiency to the franchise agreement or because those duties are “so obvious is to go without saying”.

The Court has been taken to Australian cases and legislation which have held that an obligation of good faith and fair dealing is implied into every franchise agreement. On that basis, the allegation is that terms are to be implied as a matter of law into such contracts. In the alternative, it is has been submitted that the terms are implied as a matter of fact, based on the context of the specific franchise agreements between the respective parties to this action.

There has been a traditional assumption in cases in English law that a franchise agreement is akin to a vendor/purchaser agreement rather than an employment agreement. This has been seen in the context of the analysis of post-termination restraints: : see Prontaprint v London Litho Limited [1987] FSR 315 (Whitford J); Kall-Kwik (UK) Ltd v Rush [1996] FSR 114 (HH Judge Cooke sitting as a Deputy Judge of the High Court) and Dyno Rod v Reeve [1998] FSR 148 at 153 (Mr Justice Neuberger, as he then was). Such restraints are prima facie in restraint of trade in both contexts such that the party seeking to enforce the restraint must show that it is no wider than reasonably necessary to protect their legitimate interest. Nevertheless, the court is more tender to protect an employee against an ex-employer than a vendor against a purchaser. In the instant case, the post-termination covenants have not arisen for consideration as to their reasonableness. Nevertheless, the discussion in these cases as to whether a franchise agreement is closer to a business sale agreement or an employment contract is instructive in considering the argument that the instant contract had hallmarks of the latter.

Reference is made to the case of Bedfordshire CC v Fitzpatrick Contractors Ltd (1998) WL 1043273 in which Mr Justice Dyson (as he then was) was asked by the Claimant to import the implied term of trust and confidence into a commercial setting of a highway maintenance contract between a contractor and a local authority. Whilst not a franchising case, it is useful because it contains dicta about how inapposite it was considered to be to import implied terms from employment law into a commercial agreement. In refusing to imply a term, Dyson J made the following points:

Reference was also made to Morrow v Safeway Stores Plc EAT 21 September 2021. It contains quotations from Western Excavating v Sharp 1978 IRLR 27 to the effect that the conduct had to be sufficiently repudiatory to justify a conclusion of constructive dismissal whether that was based upon fundamental breach of contract or a breach of a fundamental term of the contract. Any conduct which was likely to destroy or seriously damage that relationship must be something which goes to the root of the contract in that it is fundamental in its effect on the contract.

In Jani-King (GB) Ltd v Pula Enterprises Ltd [2007] EWHC 2433 (QBD), a franchising case, the Court (HH Judge Coulson QC as he then was) followed the reasoning of Bedfordshire CC v Fitzpatrick Contracts Ltd in refusing to imply the term of trust and confidence into a commercial agreement. On a preliminary issue, the Judge decided that the relationship in Jani-King was much closer to an ordinary commercial relationship than to a contract of employment. The contract was entered into with a company and contained very detailed express terms. The Judge noted the express provision that the relationship was one of independent contractor and not of agency or employment, and the authorities as they existed at the time were quoted e.g. Kall Kwik Printing (UK) Ltd v Rush and Dyno-Rod v Reeve.

Despite this line of authorities, the Court of Appeal has in more recent times expressed the matter differently. Whilst every case will depend on its own facts, there are cases where a franchise agreement may be closer to an employment contract than to a sale of a business. In Dwyer (UK Franchising) Ltd v Fredbar Ltd and another [2022] EWCA Civ 889, the Court of Appeal affirmed the approach in an earlier case of the Court of Appeal in Quantum Actuarial LLP v Quantum Advisory Ltd [2021] EWCA Civ 227. In Quantum, Carr LJ (as she then was) gave the judgment with which the other two Lord Justices agreed. At para.60, Carr LJ set out the relevant legal principles concerning restraint of trade and factors to be considered when assessing reasonableness between the parties. In Quantum, the Court held that in relation to the interests of the contracting parties courts should be slow to substitute their own objective view over the contracting party’s subjective view, provided the parties were negotiating on equal terms, but in the judgment of Carr LJ, “that consideration will carry less or no weight if the parties were negotiating on other than equal terms. The absence of independent legal advice for the weaker party may also be relevant.”

At [65], Carr LJ stated among other things:

“vi)What is reasonable may alter with the changing nature of commerce and society (see in particular Nordenfelt (at 547 per Lord Herschell);

vii)Factors to be considered when assessing reasonableness between the parties include the character of the business (see in particular Nordenfelt (at 550 per Lord Herschell)) and also:

a)The relevance of the consideration for the restraint;

b)Inequality of bargaining power;

c)Standard forms of contract;

d)Whether the restraints operate during or post-contract;

e)The surrounding circumstances, including the factual and contractual background; (see in particular Panayiotou (at 329-336 per Jonathan Parker J));

viii)The duration of an agreement in restraint of trade is a factor of great importance in determining whether the restrictions in an agreement can be justified (see in particular Schroeder (at 1312F-G per Lord Reid));

ix)The level of compensation may be relevant to the question of reasonableness (see Esso (at 300B-C per Lord Reid) and Panayiotou (at 329-330 per Jonathan Parker J))”.

In the Dwyer case Sir Julian Flaux gave the leading judgment. The Court emphasised that a factual assessment was required in order to ascertain the reasonableness of the restrictive covenant. He referred to unusual features which led to Mr Bartlett setting up his franchisee company, Fredbar Ltd, to enter into the franchise agreement. Mr Bartlett had no previous experience of the Drain Doctor business, had limited assets and the franchisor had doubts about Mr Bartlett’s ability to succeed. Further, in seeking to persuade Mr Bartlett to enter into the franchise agreement, the franchisor had produced more attractive forecast figures than those originally provided. Further, it was likely that if the franchise business failed, Mr Bartlett and his family would lose their house.

The Court of Appeal accepted that the personal circumstances of the franchisee could affect the reasonableness of a restraint and were relevant to the question of what protection the franchisor required. Likewise, inequality of bargaining power was relevant – the franchise agreement was a standard form contract where there was no ability to negotiate, following the approach in Quantum. At para. 80, Sir Julian Flaux stated:

"80.Dwyer knew that Fredbar and Mr Bartlett were starting up this business for which he was the only employee and it also knew that he had no previous plumbing experience. He attended an induction day after which Dwyer through Mr Jeannes clearly formed the view he was not suitable as a franchisee and, as the judge found, failure of his franchise was foreseeable. As the judge also found at [305(d)] there was no evidence of any discussion or negotiation of the restraint of trade provisions to take account of those matters and there was total inequality of arms. The standard form agreement had to be accepted or rejected. Given the inequality of bargaining power which undoubtedly existed, I agree with Mr Grant QC [Counsel for the franchisee] that, on the facts of this case, the franchise agreement is more akin to an employment contract that to the sale of a business."

In a judgment agreeing that the appeal should be dismissed, Arnold LJ stated at [90] as follows:

“It is inescapable, however, that not all potential franchisees are equal. Some potential franchisees have more bargaining power, are less likely to fail as franchisees and more likely to be able to survive the consequences of failure than others. Mr Bartlett had little bargaining power, was more likely to fail than to succeed, particularly in the short term, and was at risk of financial disaster if he failed. Accordingly, in this case, the relationship with Dwyer was close to an employment contract than to a sale of a business”.

It is not pleaded that the contracts are contracts of employment, rather that the contracts have many of the hallmarks of an employment relationship. This is an important point in the analysis for the following reasons. First, whilst the letters leading to termination in late 2020 analysed the matter on the basis of an employment contract or in the alternative on the basis of a long-term relationship based on cooperation or collaboration and having hallmarks of an employment relationship, the instant claim is not as employee but on the basis of a close personal relationship. As noted, Mr Dean was called as a witness who has made a claim in the Employment Tribunal on the basis that he was an employee of JBL, but the Claimants have not made such a claim and so the issue in Mr Dean’s case does not arise for consideration in this case.

In its closing written submissions under the heading “is the Agreement akin to an Employment Relationship?”, JBL has addressed the question as to whether the agreements were employment contracts. Showing that the relationships were not employment relationships does not show that the agreements were not more “akin” to employment agreements than to commercial agreements. In this regard, JBL sought to distinguish the instant case from Autoclenz v Belcher [2011] UKSC 41 in which especially at paras. 36-38, the Supreme Court had found that despite various labels, the agreements were contracts of employment.

That is to set up a distinction which goes beyond the Claimants’ case. The Claimants do not say that they were employees, but looking to the substance of the case, they say that their case is far closer to an employment contract than to a commercial agreement, pointing to the terms of the contract, the level of control and the inequality of the relationship.

JBL sought to distinguish the instant case from Uber BV v Aslam [2021] UKSC 5, especially at paras. 94-100, where the level of control of Uber was so complete over the driver that the latter was considered a “worker” under employment legislation. Here too, this is to set up a false question. If the level of control in this case is less than in the Uber case or if the franchisees in this case might not be considered “workers” within the statutory meaning, that is not the issue.

JBL’s starting point is to refer to the terms of the agreements, which include provisions designed to show that they are not employment contracts, namely:

The Claimants draw attention to the following points, namely:

JBL submits that an implied term of trust and confidence cannot be implied into a franchise agreement for various reasons. They include that franchise agreements are generically closer to leases of goodwill or standard commercial agreements. JBL submits that it is unprecedented to have the implied term as to trust and confidence being extended to a franchise agreement. JBL emphasises the Jani-King case referred to above. It also submits that whilst the subsequent cases led to restraint of trade clauses being treated in a more tender manner than a commercial relationship, that did not open the door to implied terms of trust and confidence outside the employment relationship.

The Claimants’ answer to this is to refer to Quantum and Dwyer above. The features which made the Dwyer case closer to an employment agreement included the following points, namely (i) the inequality of bargaining power, (ii) the absence of relevant previous experience of the franchisee, (iii) the standard terms and conditions, and (iv) the foreseeability of failure.

There are many features in this case which establish inequality of bargaining power between franchisor and franchisee including the following:

There are other features in respect of inequality of bargaining of power applying to each of the franchise agreements, namely the absence of independent legal advice to the franchisees before entering into the agreements. It was written on each agreement the following, 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.” JBL places heavy reliance upon the fact that this appeared in block capitals and in red in each of the franchise agreements. The suggestion is that in deciding not to take independent legal advice, the franchisee proceeded in this way despite the encouragement of the franchisor.

I do not treat the matter in this way. Whilst the words used are not insignificant, experience showed that a typical franchisee would still proceed without legal advice. There were less than a dozen instances when independent legal advice had been sought. Most people without business experience would not have a solicitor of their own, and if they did, it would be likely to be somebody without a background in franchising. They may not appreciate without business experience how important such advice was before entering into a long-term agreement.

The inequality of bargaining power could have been reduced in the event that there had been an insistence on the franchisee taking independent legal advice, perhaps coupled with a list of possible solicitors with experience in franchising. In any event, the fact is that these long-term agreements were entered into by persons of the kind referred to above. They were not allowed to take the draft agreements home at least to consider at leisure or with family and friends. By contrast, JBL was advised by solicitors Holmes & Hills who represented him in his many disputes with franchisees and in creating or updating agreements and Mr Benson himself had decades of experience in the industry.

This position became starker when considering a pattern of evidence provided by a number of witnesses about the modus operandi of JBL in respect of signing the agreements. That comprised that the prospective franchisee was not allowed to take home a copy of the agreement to consider for fear of engaging provisions about the agreement being cancellable for not having been entered into at the premises of JBL. The prospective franchisee was allowed time at the premises to consider the terms of it. That is not the same as having the opportunity to take it home and to consider it with family and friends in their own time. It was accompanied with some amount of pressure in that in particular Mr Beck said to some franchisees, which I accept, that this was a good opportunity that would not be kept open for them if they did not sign that day. Even if that had not been said, it would not change the overall analysis.

The effect is that potentially onerous terms were not considered carefully and were unbalanced and particularly disadvantageous to the franchisees. By way of examples only, the following appear potentially onerous, namely:

As is apparent from the nature of the counterclaims in the instant case, the method of operation was to invoke the clauses in the agreements enabling JBL to terminate for breach and claim the entirety of the fixed fees which would have accrued over the years which followed. This has given rise in the instant claim to counterclaims based on unlawful termination for sums over £100,000 in respect of the Second, the Fourth, the Fifth, the Tenth, the Eleventh, the Fifteenth and the Sixteenth Claimants. In the case of the Eleventh Claimant the sum is more or less than £300,000 depending on whether the claim is for liquidated damages or damages, and the consequence of a minimum term of 11 or 13 years. The other claims are usually for several tens of thousands of pounds. It is not likely at the time of the agreement, which is the operative time for the purpose of considering an implied term, that this would have been appreciated by new franchisees looking over the agreement in the offices of the franchisor without independent legal advice and without the opportunity even for mature reflection at home or with a friend.

JBL has submitted at para. 37 of the final submissions that the contract is “in fact a very fair contract” because of not paying franchise fees during the training period. It says that a favourable comparison is with the Bill Plant franchise agreement where fees appears to kick in from the start. In that agreement, the franchise fees are much less (the one in the bundle is in September 2024 and the weekly fees are far less than the sums in the JBL agreement). There is no annual increase, although it may be that fees are payable during the period before becoming an Approved Driving Instructor. It would be necessary to have more information to understand how that worked.

In fact, in a crucial respect, the JBL agreements do not bear a favourable comparison with the Bill Plant agreements, relied upon from evidence adduced by JBL. Despite a ten year term, the Bill Plant franchise may be terminated on 6 months’ notice after the first year (or possibly on 12 months’ notice from the completion of a CPD course: see para. 11(B). If JBL had such provisions, the Counterclaim in this case would have been for a fraction of the sums now claimed, and it is to be inferred, the amounts at stake in the many cases brought by or settled by JBL would have involved far lower sums.

Insofar as a number of franchisees gave evidence that Mr Beck put pressure on prospective franchisees to sign, saying that there were special terms which would only be available that day, that was not specifically pleaded as giving rise to a cause of action. It was therefore submitted on behalf of JBL that there was no need to adduce evidence from Mr Beck in this regard. Leaving aside the evidence that Mr Beck was said to be unwell and in sheltered accommodation, I shall exercise my discretion against drawing an inference from the fact that he had not been called, in part because of his being said to be unwell and in part because whilst he is mentioned in pleadings, he does not loom as large there as in the subsequent witness statements. That is not to say that the Court should disregard the references to him in the Claimant’s witness statements.

JBL has expressed concern that an unpleaded allegation of duress or misrepresentation would infect the way in which the Court examined the case as a whole. This judgment does not base anything on duress or misrepresentation.

It is right to take into account an inequality of bargaining power (not to invalidate the agreements or to give rise to a right to damages) in evaluating whether or not it contained an implied term of good faith. It has been a part of the background to the making of the agreements, in the pleaded case about the agreements having many of the hallmarks of an employment relationship and being long-term relationships requiring a high degree of communication, cooperation and predictable performance with expectations of loyalty. It has been foreshadowed in the witness statements of the Claimants. Further, albeit to a more limited extent, Mr Beck was mentioned in the pleadings. No inference will be drawn about the absence of Mr Beck at trial.

I heard the evidence as a whole and prefer the evidence that there was some amount of hard sell to get the agreements signed on the day that they were presented, despite the evidence of Charalambous, Stubbs and Garrard as well as Andy Court and Mr Benson. I do not regard the presence of the words in red at the top as giving the lie to hard sell, contrary to that which is submitted on behalf of JBL.

The proof of the pudding was in the eating in that very few franchisees consulted with a solicitor, which was an unsatisfactory state of affairs for such an agreement and containing the onerous terms which it did. The subsequent experience of so many franchisees was that they would have been better finding out how onerous the agreement was at the start rather than facing the consequences when they were unable to continue or wished to exit early. It would have been different if the franchisees had been advised in strong terms to get independent advice with information as to how to find a legal adviser.

The effect might have been that the franchisees would have been less likely to sign there and then, though that would not have suited the business interests of the franchise, which was to sign up as many franchisees as possible (incentivising those franchises who introduced new franchisees). On the other hand, if the franchisees had received such firm advice together with a list of possible solicitors, then the point about inequality of bargaining power would be reduced in force. In that event, either the franchisee would have been represented or they would have elected to enter into the agreement without a lawyer despite firm advice that they should receive such advice. In the way in which it occurred, there was no election in the instant cases. It was also a part of the business model to obtain guarantors where a franchisee did not own a property, and remarkably in this context, there was no advice on the document or at all for the guarantor to obtain independent legal advice. Mr Benson equated his position to the Halifax who would obtain a charge in order to secure lending: he did not see any distinction between securing moneys lent and in the instant case securing the damages of years of loss of profits consequent upon an early termination.

In Dwyer, there was an additional feature, namely that the franchisee was bound to fail, and this was foreseeable. The Court does not have to go so far as to find that the franchisees were bound to fail. However, the large number of franchisees who did fail and the criticisms in this judgment about the business method make it the case that there was a serious risk that these Claimants would fail and that it was foreseeable at the outset that this would occur. The agreements and the insistence on guarantors where the franchisee did not own a property had that in mind.

I conclude that whilst in case law, generally franchise agreements have been treated generically as closer to leases of goodwill or standard commercial agreements, the instant case has much more in common with the above quotations in Quantum and in Dwyer. This case does not change the more usual characteristics of a franchise agreement. It is simply that each case must be looked at on its facts. In short, it is closer to an employment relationship than a commercial contract such as a sale of a business or a commercial licence. Whilst JBL relies on the reasoning in the case of Jani-King referred to above, that agreement was not akin to an employment contract but was characterised as a very detailed commercial agreement. Further, that case preceded the learning about implied terms of good faith over the last 18 years since Jani-King to which reference will be made in the next section.

Insofar as it is said that Quantum and Dwyer were about restraint of trade clauses and not about implied terms of good faith, that is to misunderstand the reasons for the protections of the courts. In a restraint of trade clause, by finding the underlying agreement closer to an employment agreement than an agreement for the sale of a business or a licensing agreement, the Court is being benevolent to protect the party with a weakness of bargaining power. In my judgment, just as such a benevolent approach exists in the context of restraint of trade, so too it features in respect of implied terms of good faith at least to the extent that a term of a trust and confidence is implied in an employment agreement.

It is worth drawing attention to a difference in the way in which employment contracts are treated from commercial contracts, particularly where there is an inequality of bargaining power. This contrast by way of example appears in the following dicta from cases, namely:

It therefore should be the case if a contract is closer to an employment agreement than to a commercial agreement, then by analogy, there is scope for implication of a term of good faith, just as the Court is prepared to adopt a benevolent approach to clauses in restraint of trade.

The analysis of JBL was to say that whatever features there may be of some amount of control and inequality of bargaining power, in the end, this was a commercial agreement. It is accepted that the franchisees were self-employed. It was not right to say that it was akin to an employment relationship. Many of the franchisees who gave evidence had put to them eight features which were said to be benefits conferred by JBL. They were as follows:

I do not accept that these factors taken together or singly tilt the balance away from the relationship being more akin to a contract of employment than to a commercial contract. Some franchisees did not readily accept in cross-examination that the brand was regarded as reputable. Even assuming it to be the case, the extent of the benefit of goodwill is not a given. The franchisees got nothing out of the goodwill in the sense of having something of value such that they could sell or assign the franchise to a buyer or an assignee. The agreements contained no provision entitling the franchisee to sell or assign the franchise and on termination, there were restrictive covenants so as to protect the goodwill which at all times belonged solely to JBL, even if a franchisee had built up a good following (Clause 10). The outgoing franchisee had to return his phone number and procure the transfer of pupils to JBL There were a number of detailed provisions in Clause 10 to this end including a restrictive covenant.

Put this way, the franchisees’ position was not very different from the position if they had been employees, operating with the benefit of the goodwill generated by the employer, having training or guidance from the employer, having the brand being advertised and receiving work to do from the employer and with the assistance of colleagues. Many of these matters would be incidents of an employment relationship, and to that extent were neutral or not particularly probative.

It all has to be seen as part of a wider picture which none of those indicia recognise. This includes the following features, namely:

The next section of this judgment will engage with the circumstances in which under English law, there is a duty or an implied term requiring parties to conduct themselves in good faith and to deal fairly with one another. This is not limited to contracts of employment, but extends to what have been called relational contracts, particularly in long-term contracts which involved cooperation and collaboration. This engages with an area of developing jurisprudence, which owes much to the decision of Leggatt J in Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB). The starting point is that unless there is an established relationship giving rise to such an implied term such as an employment contract or a fiduciary relationship giving rise to such duties such as between partners, a director and company or between a trustee and beneficiary or some agents and principals, there is no scope for implying such a term or imposing such a duty.

In Yam Seng, there was a duty of good faith implied into an exclusive long-term distributorship agreement a duty of good faith. Leggatt J (as he then was) remarked on the greater traction to implying terms of good faith in other common law jurisdictions and especially in Australia. In those courts, the relationship of the parties may give rise to the implication of such a term in law. Although there was much greater reluctance in the English court, Leggatt J said the following at para. 131:

“Under English law, a duty of good faith is implied by law as an incident of certain categories of contract, for example, contracts of employment and contracts between partners or others whose relationship is characterized as a fiduciary one. I doubt that English law has reached the stage, however, where it is ready to recognize a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties.”

Leggatt J (as he then was) at [142] said:

““English law has traditionally drawn a sharp distinction between certain relationships – such as partnership, trusteeship and other fiduciary relationships – on the one hand, in which the parties owe onerous obligations of disclosure to each other, and other contractual relationships in which no duty of disclosure is supposed to operate. Arguably at least, that dichotomy is too simplistic. While it seems unlikely that any duty to disclose information in performance of the contract would be implied where the contract involves a simple exchange, many contracts do not fit this model and involve a longer-term relationship between the parties in which they make a substantial commitment. Such "relational" contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long-term distributorship agreements.” (emphasis added).

There was significant qualification of the above by the Court of Appeal in Globe Motors v TRW Lucas Varity Electric Steering [2016] EWCA Civ 396. The qualifications were to the effect that:

Beatson LJ stated at [67] to [68] as follows:

"67.

One manifestation of the flexible approach referred to by McKendrick and Lord Steyn is that, in certain categories of long-term contract, the court may be more willing to imply a duty to co-operate or, in the language used by Leggatt J in Yam Seng PTE v International Trade Corp Ltd [2013] EWHC 111 (QB) at [131], [142] and [145], a duty of good faith. Leggatt J had in mind contracts between those whose relationship is characterised as a fiduciary one and those involving a longer-term relationship between parties who make a substantial commitment. The contracts in question involved a high degree of communication, co-operation and predictable performance based on mutual trust and confidence and expectations of loyalty "which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements". He gave as examples franchise agreements and long-term distribution agreements. Even in the case of such agreements, however, the position will depend on the terms of the particular contract. Two examples of long-term contracts which did not qualify are the long-term franchising contracts considered by Henderson J in Carewatch Care Services Ltd v Focus Caring Services Ltd and Grace [2014] EWHC 2313 (Ch) and the agreement between distributors of financial products and independent financial advisers considered by Elisabeth Laing J in Acer Investment Management Ltd and another v The Mansion Group Ltd [2014] EWHC 3011 (QB) at [109].

68.

This is not the occasion to consider the potential for implied duties of good faith in English law because the question in this case is one of interpretation or construction, and not one of implication. It suffices to make two observations. The first is to reiterate Lord Neuberger's statement in Marks and Spencer PLC v BNP Paribas Security Services Trust Co (Jersey) Ltd (see [58] above) that, whatever the broad similarities between them, the two are "different processes governed by different rules". This is, see the statement of Lord Bingham in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 , at 481 cited by Lord Neuberger, because "the implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision". The second is that, as seen from the Carewatch Care Services case, an implication of a duty of good faith will only be possible where the language of the contract, viewed against its context, permits it. It is thus not a reflection of a special rule of interpretation for this category of contract."

The case of Carewatch can be distinguished on the facts of the case and on the basis in that case that there were express terms which contradicted the alleged implied terms of good faith. Some of the terms were interpreted as being inconsistent with the particular terms sought to be implied: see para. 110 of the judgment Further, there were numerous specific implied terms contended for going beyond the more basic implied terms of good faith and fair dealing and creating a different series of obligations from those contained in the detailed contractual provisions: see para. 101 of the judgment quoting the alleged implied terms. These included terms excluding a partnership, joint venture, agency or employment relationship as well as guarantees or warranties about profitability.

In Sheikh Al Nehayan v Kent [2018] EWHC 333 (Comm) Leggatt LJ himself stated at [175], that the obligation of good faith was not limited to not being dishonest. He said:

"…..In Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 , para 288, in the Federal Court of Australia, Allsop CJ summarised the usual content of the obligation of good faith as an obligation to act honestly and with fidelity to the bargain ; an obligation not to act dishonestly and not to act to undermine the bargain entered or the substance of the contractual benefit bargained for; and an obligation to act reasonably and with fair dealing having regard to the interests of the parties (which will, inevitably, at times conflict) and to the provisions, aims and purposes of the contract, objectively ascertained. In my view, this summary is also consistent with the English case law as it has so far developed, with the caveat that the obligation of fair dealing is not a demanding one and does no more than require a party to refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people" (emphasis added)

To like effect are the dicta of Dove J in D & G Cars Ltd v Essex Police Authority [2015] EWHC 226 (QB) who said at [175]: "By the use of the term 'integrity', rather as Leggatt J uses the term 'good faith', the intention is to capture the requirements of fair dealing and transparency which are no doubt required….. There may well be acts which breach the requirement of undertaking the contract with integrity which it would be difficult to characterise definitively as dishonest . Such acts would compromise the mutual trust and confidence between the parties in this long-term relationship without necessarily amounting to the telling of lies, stealing or other definitive examples of dishonest behaviour." It is clear that in that case there was considered to be more to such an obligation than acting honestly (or not acting dishonestly). (emphasis added)

In Bates v Post Office [2019] EWHC 606 QB at [725-726], Fraser J identified nine specific characteristics expected of a relational contract. He said the following:

“725.

What then, are the specific characteristics that are expected to be present in order to determine whether a contract between commercial parties ought to be considered a relational contract? I consider the following characteristics are relevant as to whether a contract is a relational one or not:

1.

There must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract.

2.

The contract will be a long-term one, with the mutual intention of the parties being that there will be a long-term relationship.

3.

The parties must intend that their respective roles be performed with integrity, and with fidelity to their bargain.

4.

The parties will be committed to collaborating with one another in the performance of the contract.

5.

The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract.

6.

They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships.

7.

The contract in question will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty.

8.

There may be a degree of significant investment by one party (or both) in the venture. This significant investment may be, in some cases, more accurately described as substantial financial commitment.

9.

Exclusivity of the relationship may also be present.

726.

I hesitate to describe this as an exhaustive list. No single one of the above list is determinative, with the exception of the first one. This is because if the express terms prevent the implication of a duty of good faith, then that will be the end of the matter. However, many of these characteristics will be found to be present where a contract is a relational one. In other cases on entirely different facts, it may be that there are other features which I have not identified above which are relevant to those cases.”

The emphasis on a relational contract has been the subject of judicial criticism, particularly in recent times. In UTB LLC v Sheffield United Ltd [2019] EWHC 2322 (Ch) Fancourt J observed at [202]:

“… there is a danger in using the term ‘relational contract’ that one is not clear about what exactly is meant by it. There is a great range of different types of contract that involve the parties in long-term relationships of varying types, with different terms and varying degrees of detail and use of language, and to characterise them all as ‘relational contracts’ may be in one sense accurate and yet in other ways liable to mislead. It is self-evidently not all long-term contracts that involve an enduring but undefined, cooperative relationship between the parties that will, as a matter of law, involve an obligation of good faith.”

In Russell v Cartwright [2020] EWHC 41 (Ch), Falk J (as she then was) held as follows:

“87….I agree with Fancourt J in UTB LLC v Sheffield United Ltd [2019] EWHC 2322 (Ch) at [196] to [205] that, rather than trying to identify first whether a contract is a "relational contract" and for that reason includes an obligation of good faith, the better starting point for the reasons he gives is the application of the conventional tests for the implication of contractual terms, as authoritatively restated by Lord Neuberger in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and another [2016] AC 742 (" Marks and Spencer ") at [16] to [31], that is whether a reasonable reader would consider that an obligation of good faith was obviously meant, or the obligation was essential to the proper working of the contract since it would otherwise lack commercial or practical coherence (the business efficacy test). This was the approach adopted by Leggatt LJ in Al Nehayan when he went on to find in that case, where the parties had not tried to specify the details of their collaboration in a written contract and that collaboration "involved much greater mutual trust than is inherent in an ordinary contractual bargain between shareholders", that the implication of a duty of good faith was essential to give effect to the parties' reasonable expectations, and satisfied the business necessity test (see in particular at [173] and [174]). Leggatt J had also adopted that approach in the earlier case of Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB) .

Attention was drawn by JBL to a dictum in the Supreme Court in Times Travel Ltd v Pakistan International Airlines [2021] 3 WLR 727 in which Lord Burrows at [95] eschewed a general principle of good faith dealing based on a standard of what is commercially unacceptable or unreasonable behaviour. This would be too radical and the uncertainty caused by it was a price not worth paying. This does not prevent the implication of a term of good faith because it provides guidance about a general principle. This case does not concern a general principle, but about whether on the peculiar facts of this case, a term of good faith is to be applied.

Further, in the same case at 26-30, Lord Hodge said there was no doctrine whereby inequality of bargaining power in the negotiation of a commercial contract will allow the weaker party to escape from the contract because of socially objectionable conduct. This was in the context of considering duress. English law does not recognise a general principle of good faith in contracting. This also does not prevent taking into account inequality of bargaining power in deciding whether a clause is in restraint of trade. Nor is it authority which prevents consideration of an implied term as to good faith in the operation of the contract.

Attention was also drawn to the case of Uber BV v Aslam [2021] UKSC 5 at para. 69 that “…inequality of bargaining power is not generally treated as a reason for disapplying or disregarding ordinary principles of contract law, except in so far as Parliament has made the relative bargaining power of the parties a relevant factor under legislation such as the Unfair Contract Terms Act 1977.” A different approach was adopted because in Uber, it was about statutory construction. That said, just as in Dwyer inequality of bargaining power was relevant to the question of restraint of trade, so there is reason to take it into account in considering whether there is an implied term. This does not involve ignoring the terms of the agreement or disregarding contractual principles, but considering what a reasonable reader would consider was so obvious as to go without saying or to be necessary for business efficacy.

This desire to impose a discipline in each case was evident in the judgment of the Court of Appeal in Candey Ltd v Bosheh [2022] EWCA Civ 1103. Having referred to an avalanche of such claims at [31], Coulson LJ stated at [32]:

“Of course, the mere fact that some relationships are long-term does not make the underlying contract a relational contract: see Fancourt J in UTB LLC V Sheffield United Limited [2019] EWHC 2322 (Ch) 1 . Moreover, as a general rule, it is important not to veer from the test as to implied terms noted above. As Beatson LJ observed in Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd [2016] EWCA Civ 396 at [68] :

"…An implication of a duty of good faith will only be possible where the language of the contract viewed against its context permits it. It is thus not a reflection of a special rule of interpretation for this category of contract."

Putting that another way, it might be said that the elusive concept of good faith should not be used to avoid orthodox and clear principles of English contract law.”

The nine criteria in Bates have been criticised on behalf of JBL as being capable of featuring in many contracts which could not properly be described as “relational” or involving close collaboration and cooperation. Like criticisms were made in the article of Professor Davies and Lord Sales in the extra-judicial article in 104 LQR 106 (January 2024) “Controlling contract discretions: Wednesbury reasonableness, good faith and proper purposes.”

The Claimants have relied upon a lecture of Lord Leggatt to the Commercial Bar Association of 2016, which has been often cited. He said:

“It may be said that employment contracts are a special case. I do not see why that should be so when we are looking, not at legislation in the employment field, but at a development of the common law. The common law strives for coherence at the level of principle and, if relevant characteristics of employment relationships are also found in other contractual relationships, they should be treated similarly.”

In submitting that an implied term of good faith exists, the Claimants have sought to rely upon the Code of Ethics for Franchising of the British Franchise Association (“the BFA”). Its origin was from the European Code of Franchising over a period of 40 years. It provided that “the overarching principles of ethics that underline this set of provisions are good faith and fair dealings call my which translators franchisor -franchisee relations based on fairness, transparency and loyalty each which contribute to founding confidence in the relationship.” It stated that “the principles of the code are applicable at all stages of the franchise relationship: pre contractual, contractual and post contractual stages.”

A part of the commitments of the franchisor was to recognise that their franchisees as independent entrepreneurs are not directly or indirectly to subordinate them as employees. A part of the commitments of each franchisee was of (a) collaborating loyally with the franchisor and ensuring the success of the network, (b) devoting best endeavours to the growth of the franchise business and the maintenance the common identity and reputation of the franchise network and (c) loyally acting with regard to each of the other franchisees as well as the network itself. In adopting this, the BFA emphasised that the franchise relationship was governed by the franchise agreement and franchisees were independent contractors and so the franchise also must treat franchisees as independent business operators running their business at their own discretion in their own risk. Whereas the relationship between the employer and employee or worker is governed by employment law, the franchise relationship was not.

The problem about this analysis is that JBL is not a member of the BFA. Although there are many franchisors who are members of the BFA, it was not suggested that these terms had become customs of the industry. And there was no evidence that most of the driving instructing schools were members of the BFA. In these circumstances, there is no reason to imply compliance with the Code of Ethics for Franchising of the BFA into the franchise agreements.

The next stage of the analysis of the Claimants was to refer to Canadian and Australian statutory and common law material as regards duties imposed on franchisors. Reference was made to the Competition and Consumer (Industry Codes-Franchising) Regulations 2024 in Australia. In section 15, reference is made to a franchising code of conduct whose purpose is to regulate the conduct participants in franchising towards other participants in franchising, and especially to address the imbalance of power between franchisors and franchisees and prospective franchisees. It is to improve standards of conduct and practice in the industry particularly for better disclosure of information, to inform decision making and to set out requirements for franchise agreements.

At section 18, there is set out an obligation of each party to a franchise agreement to act towards another party with good faith in respect of any matter arising under or in relation to the franchise agreement and this code. Regard may be had as to whether the person acted honestly and not arbitrarily, and whether the party cooperated to achieve the purposes of the agreement. There must be no clause limiting or excluding the obligation to act in good faith. None of this prevents a party from acting in their own legitimate commercial interests.

The Court was also shown statutory provisions in Saskatchewan in Canada comprising the Franchise Disclosure Act 2024. This included a provision of fair dealing that every franchise agreement imposes on each party of duty of fair dealing in the performance and enforcement of the franchise agreement, including in the exercise of a right under the franchise agreement: see section 4(1). Similar provisions about fair dealing appear in the Arthur Wishart Act (Franchise Disclosure) Act 2000 in Ontario: see section 3.

Whilst these are enactments applying only in Australia and parts of Canada, Mr Stephens emphasised that they had their origins at common law. In Far Horizons Pty limited V McDonald's Australia Limited [2002] VSC 310, the Supreme Court of Victoria followed the decision of the New South Wales Court of Appeal in Renard Construction (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234. This was to the effect that (at para. 120) “there is to be implied in a franchise agreement a term of good faith and fair dealing which obliges each party to exercise the powers conferred upon it by the agreement in good faith and reasonably, and not capriciously or for some extraneous purpose. Such a term is a legal incident of such a contract.”

Reference was made to a Privy Council case of Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others [2002] UKPC 50 at paras. 55-57. This was an appeal from the Court of Appeal of New Zealand which decided that a difficult question of NSW law should not have been decided by the first instance judge without expert evidence. The question was whether there was an obligation of good faith in a franchising agreement.

The New Zealand Court of Appeal had suggested that there was no room for super-imposing a general duty of good faith and to do so conflicted with requirements of certainty in commercial contracts, and that franchising agreements are not analogous to employment contracts. The Privy Council said about this that they proposed to “express no concluded view on these comments and wish to reserve their opinion on the suggestion that the implication of an obligation of good faith in the relationship between franchisor and franchisee would be an undesirable development” (at para. 55).

As to the content of the duty of good faith, this was set out in the case of Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50 where Allsop CJ said:

The case of Esso Australia Resources Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 contains pertinent dicta about an implied term of good faith being an implication as a matter of fact rather than creating a legal incident of contracts of a certain type. In the judgment of Warren CJ, “… the interests of certainty in contractual activity should be interfered with only when the relationship between the parties is unbalanced and one party is at a substantial disadvantage, or is particularly vulnerable in the prevailing context. Where commercial leviathans are contractually engaged, it is difficult to see that a duty of good faith will arise, leaving aside duties that might arise in a fiduciary relationship.”

In the same case in the judgment of Buchanan J at para. 25 said that whilst there might not be an implied term of good faith in commercial contracts, “it may… be appropriate in a particular case to import such an obligation to protect a vulnerable party from exploitive conduct which subverts the original purpose for which the contract was made. Implication in this fashion is perhaps ad hoc implication meeting the tests laid down in BP Refinery (Westernport) Pty Limited v Shire of Hastings (1977) 180 CLB 266, rather than implication as a matter of law creating a legal incident of contracts of a certain type.”

The cases from the case ofYam Seng Pte, where an implied term of good faith, have more commonly implied the term in fact rather than in law. In those cases, the exact factual relationship and the agreement are analysed carefully to determine whether an implied duty of good faith might arise. There is no reason easily to borrow from foreign systems of law which appear to have gone down a route of extending good faith to certain types of contract which traditionally have not been the subject of good faith duties. The Court should not cherry pick quotations about good faith from foreign systems of law, even based on the common law, where they appear to have taken a different turn from the courts of this jurisdiction.

The implied term in fact has been referred to in the Yam Seng Pte and subsequent jurisprudence, some of which has been referred to above including:

The development of the law by reference to an implied term in fact has not ignored the restrictive nature of the test for an implied term being one of necessity. That is apparent from the Marks and Spencer case. A particular feature identified by JBL is that whether a term is to be implied is to be judged at the date when the contract is made: see Lord Neuberger at para. 23. The matters on which reliance has been placed are the terms of the agreement and the contractual matrix at the time when the agreement was entered into. Further, the test for an implied term of fact is if a ‘reasonable reader’ reading the contract at the time it was made ‘would consider the term to be so obvious as to go without saying or to be necessary for business efficacy.’. The tests of ‘business necessity’ and ‘obviousness’ are not cumulative but ‘alternatives in the sense that only one of them needs to be satisfied’.

In considering the tests of necessity and the officious bystander test, a particularly important part of the judgment of Lord Neuberger in the Marks and Spencer case is his para. 21 as follows:

“In my judgment, the judicial observations so far considered represent a clear, consistent and principled approach. It could be dangerous to reformulate the principles, but I would add six comments on the summary given by Lord Simon in BP Refinery as extended by Sir Thomas Bingham in Philips and exemplified in The APJ Priti. First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was "not critically dependent on proof of an actual intention of the parties" when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon's first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, para 27, although Lord Simon's requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is "vital to formulate the question to be posed by [him] with the utmost care", to quote from Lewison, The Interpretation of Contracts 5th ed (2011), para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of "absolute necessity", not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon's second requirement is, as suggested by Lord Sumption in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.” (emphasis added)

In a case of inequality of bargaining power and even sharp practice, it would be unlikely that the more powerful person would say, if asked, that an implied term as to good faith is required. The importance of the test “being what notional reasonable people in the position of the parties at the time at which they were contracting” informs as to the answer. The notional reasonable person would be asked if the implied terms as to good faith and fair dealing would be implied into the agreement. It is a value judgment, as Lord Neuberger said, but a notional reasonable person would say that it was necessary and obvious to imply such terms in the context of these franchise agreements in order for them to have commercial or practical coherence.

The importance of trust and confidence on the facts of this particular relationship was so stark that it was confirmed by Mr Benson in evidence. JBL is not bound by any of the above answers. The question of implication of a term does not depend on what the owner of the franchisor concedes many years after the franchise agreements. Despite this, the evidence of Mr Benson was an inevitable reflection of the nature of these franchise agreements. It was not about franchise agreements generally, but about these specific agreements.

Mr Benson said in cross-examination that most of the franchisees had not been in business before. He accepted that there was a significant financial outlay to get into the business. It might cost about £3,500 in training fees. There might be a period of a year or more or spent attempting to qualify as a driving instructor. Success was not guaranteed. Not everybody succeeded. Mr Benson accepted that the franchisee was taking a risk. Mr Benson recognised that new franchisees make a long-term commitment. After a period to enable the franchisee to qualify, there would be a minimum term, usually three years without the opportunity for early termination.

All contracts were personal to the individual franchisee. The terms are standard terms, and generally there is no scope for negotiation. It is possible to have a longer term on the basis that a longer term will involve lower fees. However, this then led to minimum terms of up to 10 years.

Mr Benson accepted that there was trust between him and the franchisees. He said that they trusted him and he trusted them. This was so obvious that it did not to be said in the contract. His success was their success and their success was his success. Not everything was written in the agreement. There was trust, respect and fair dealing between the parties. The franchisees were entitled to expect that he would conduct the business lawfully, and he was entitled to expect that the franchisees would behave with integrity. Without total trust, the relationship would not be as strong. There was no need to say that racism would not be tolerated. That was obvious, and in fact it was stated in the Handbook on the subject of Facebook “DO NOT use any offensive language OR post any radical/racial or similar postings.”

If it had been the case that the subsequent implementation of the agreement was relied upon, that would not pose a problem for at least ten of the seventeen Claimants represented before the Court and for twelve of the twenty Claimants. The operative agreement was subsequent to an earlier agreement and so the operation of the earlier agreement would be a part of the relevant factual matrix. In the event, I am satisfied that the implied terms are established by reference to the facts in existence at the time of each agreement whether the agreement was the first or a subsequent agreement of the franchisee with JBL.

A concern may be expressed that if a franchise agreement is to have imported the implied terms contended for, the certainty of commercial relationships and freedom of contract are compromised. It may be said that in a business context, absent statutory protection, there ought to be no reason to protect a business person from their own folly or improvident bargain. It may also be said that the reasoning in this case opens the gates to an avalanche of other such claims which are undesirable in a business relationship.

The answers to this are, in my judgment, clear. They are as follows:

Whilst the court cannot be prescriptive of how such agreements may be less amenable to such implied terms, it is possible to imagine ways that would make the agreements very different from the instant agreements, namely:

In the light of the totality of these points, which are not aspects of franchise agreements generally, I have come to the conclusions that:

There is a distinction between terms implied in law and terms implied in fact. As to a term implied in law, it would be that a particular kind of relationship will give rise to an implied term in law. An example is an employment relationship in which there will be an implied term in law as to trust and confidence: see BCCI v Malik and Mahmud [1998] AC 20, especially in the speech of Lord Steyn who said:

“ The employees do not rely on a term implied in fact. They do not therefore rely on an individualised term to be implied from the particular provisions of their employment contracts considered against their specific contextual setting. Instead they rely on a standardised term implied by law, that is, on a term which is said to be an incident of all contracts of employment: Scally v. Southern Health and Social Services Board [1992] 1 A.C. 294, 307B. Such implied terms operate as default rules. The parties are free to exclude or modify them.”

Malik was the first acceptance of the implied term in law in the House of Lords.  

The Claimants submitted that the time had been reached to have an implied term in law of trust and confidence in a franchise agreement. The preponderance of their submissions in that regard was by reference to Australian and Canadian law as referred to in the preceding section. The foundation of the duties was cooperation and collaboration at the heart of the relationship and to address a significant imbalance of power between the parties. This was supplemented by statutory duties in some States to reflect or buttress the spirit of the development of the law at common law. These were duties in every franchise agreement rather than a more traditional analysis case by case to find an implied term or duty in fact. Whilst the Privy Council had not expressed a view about this in Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others [2002] UKPC 50, the weight of the Commonwealth authorities and the cases about the implied term of good faith in English law in recent years allowed for the Court to recognise the implied term in law in a franchise agreement.

In Chitty on Contracts 35^th Ed. at para.2-099 under the heading “term implied in fact or term implied in law”, the following appears:

“It is submitted that there remains a degree of ambiguity in the approach of the courts in their application of the line of authority following Yam Seng Pte Ltd as to whether a term requiring good faith is implied in law or in fact. Sometimes it is said to be implied in fact (as was apparently the case in Yam Seng Pte Ltd itself), but sometimes it appears to be implied in law, that is, implied as an incident consequential on a finding that the contract before the court is a “relational contract”.

I therefore consider in the alternative an implied term in law. The question arises whether there is an implied term of good faith in every contract between a franchisor and a franchisee. The Claimants invite the Court to say that the time has come to follow the Commonwealth authorities referred to above, and to conclude that necessary incidents of the franchise relationship are good faith and fair dealing. I do not exclude the possibility of another decision along the lines of the Australian cases implying such a term in law. There are signals to this effect in the Yam Seng case, and it is stated expressly in some of the Commonwealth cases based on their law.

There are problems with this analysis. There is no concluded decision in these courts to the effect that terms of good faith and fair dealing should be implied as matter of law as an incident of all franchise agreements. It is significant that even almost a quarter of century ago the New Zealand courts had said that there was no basis for such terms to implied as a matter of law into franchise agreements (despite Australian cases saying that such terms were implied in Australia or in states of Australia). Further, the Privy Council in Dymocks declined to express a view about whether this was the case or not.

I am not satisfied on the basis of the law as it stands that it has reached a stage where such an implied term as a matter of law can be implied into every franchise agreement. I prefer to rest my decision on a term implied on the facts peculiar to this case. I am prepared to assume that most, or at least a substantial proportion of, franchise agreements would be commercial agreements not akin to an employment relationship, and where there would be less control than in the instant case. This case is different because of its peculiar facts.

There may be a possibility of implying a term in law on the basis of categorising this into a sub-set of franchise agreements, that is to say one which is akin to an employment agreement without actually being an employment contract. The argument would then go that there would be implied terms of good faith and especially of trust and confidence, arising from the fact that the franchise agreement departs from the norm in that it is so close to an employment relationship. The argument is that as a matter of law, it should bear the same implied terms. The problem here is that in order to identify on this limited basis the existence of an implied term in law, there has to be first a detailed investigation of fact. There is a problem of definition, and there is a high degree of overlap with implied terms as to fact. The current direction of the law as discerned from Yam-Seng, Globe Motors,Al Nehayan, UTB LLC v Sheffield United Ltd and Russell v Cartwright all referred to above is in favour of an implied term in fact rather than in law. Whilst Chitty is correct in discerning an “a degree of ambiguity in the approach of the courts in their application of the line of authority following Yam Seng Pte Ltd as to whether a term requiring good faith is implied in law or in fact”, the general drift is in favour of an implied term in fact.

In this case, the Court prefers to rest its decision on implied terms as to fact and not to make a finding one way or the other about an implied term in law either as regards franchise agreements generally or about a sub-set of franchise agreements which are akin to employment agreements or are called relational contracts because of a combination of the following points or any of them, namely (a) the length of the contract, (b) the need for constant cooperation and collaboration, (c) the features which make it akin to an employment contract, (d) the degree of control, (e) the inequality of bargaining power and the lack of balance.

The openings in this case were principally directed as to whether or not as a matter of law, the alleged implied terms formed a part of the franchise agreements. A submission referred to above on the part of JBL was that in the event that the court decided that there were no such implied terms, it should so hold and then the case would fall away. The court refused to do this in part because it wished to understand more about the franchise agreement and their context and the nature of the relationship between the parties. It is apparent from the above analysis that this has been necessary, particularly because the court in the end has decided the first issue by reference to an implied term in fact rather than in law. For the reasons above, I have come to the conclusion that the instant franchise agreements were subject to implied terms of good faith.

The next question is what is required to be implied to give effect to the implied term of good faith, what should be the implied term? Para. 6 of the POC has been set out above containing five implied terms. The origin of para. 6 can be seen from the judgment of Leggatt LJ (as he then was) in Sheikh Al Nehayan v Kent at para. 175 above, particularly relying on the implied terms at paras. 6d and 6e.

On the peculiar facts of the instant case, I find that there was an implied term of good faith just as an implied term of trust and confidence is implied by operation of law in an employment agreement, so here the consequence of the particular relationship between these franchisees and this franchisor is that it ought to have the term implied in fact of trust and confidence.

As regards the other terms, it is accepted that any discretion should not be exercised arbitrarily or capriciously. The first two implied terms are capable of being implied as being about not derogating from the bargain and/or not undermining the bargain. The real battleground in this case is the fourth and fifth implied terms, being aspects of the obligation of good faith as referred to by Leggatt J in Sheikh Al Nehayan v Kent [2018] EWHC 333 (Comm) Al Sheikh at [175] as set out above. Having found that there was an implied term of good faith, I am satisfied that these two terms give effect to the implied term of good faith.

JBL has sought to say that the nine features in Bates do not advance the reasoning, because those features might be satisfied even in a case where there is no question of an obligation of good faith. It is noted that this comment comes from the above mentioned article of Professor Davies and Lord Sales in the Law Quarterly Review. It is accepted that the indicia identified in Bates may not advance the reasoning further because of the criticisms of their application outside the case of Bates where Fraser J used it as a method to come to the resolution in favour of the postal workers in a very unusual case.

I have considered whether there is anything in the application of those criteria which negatives the proposed implied terms. In particular, the first of the nine, namely no express terms preventing the duty from arising, in my judgment, there is nothing in the express terms which prevents implying a term of good faith. Nothing has been identified among the terms of the agreement which does negative good faith. The rudimentary entire agreement clause does not prevent the implication of the terms contended for: see Chitty on Contracts 35^th Ed. at para. 17-020 which states that an entire agreement clause does not generally affect or prevent the implication of a term as a matter of fact on the basis of necessity (or obviousness) in that the implicaton is simply giving effect to the true intention of the parties. Further, none of the other terms of the franchise agreements expressly exclude or are inconsistent with the implied terms. The agreement is very different from long complex commercial agreements, and the implied terms do not cut across the terms of the contract as was the case in Carewatch: see para. 254 above. As regards the second characteristic in Bates, whilst there are many longer term agreements, the length of the instant agreements against what would be necessary to amortise any investment makes it long-term for these purposes.

As regards the other items in Bates, the Claimants emphasise that they have a resonance in the Handbook about being straight with each other, about pulling together and about help and support. It is not necessary to look to the Handbook for this. These are obvious features of this long-term relationship. There is no profit in going through the parties’ submissions as to the application or non-application of the nine criteria of Fraser J in Bates as if this was a statutory interpretation. It suffices to say that none of the features are contra-indications of the existence of an implied term.

It will be recalled above how there are clauses in the franchise agreements said to be bearing many of the hallmarks of an employment agreement and showing some degree of control of JBL/Mr Benson over the franchisees. Derived from this, the Claimants plead the following at para. 5 of the Particulars of Claim that the franchise agreements “involved long-term commercial relationships requiring a high degree of communication, co-operation and predictable performance with expectations of loyalty. They were relational contracts under which the parties owed a duty to conduct themselves in good faith and to deal fairly with one another.”

Returning to the case of Dwyer, the fact that a franchise agreement is of a standard form does not make it necessarily more akin to an employment contract. It is readily understandable that a franchisor will want uniformity in the nature of the contractual terms of the franchisees in order to maintain and develop the goodwill of the business of the franchise. It is also in order to be able to promote the business without accusations of favouritism and inequality among the franchisees. Nonetheless, the fact that the agreement is on a take it or leave it basis may be a factor in the context of the relationship as a whole as indicating inequality of bargaining power.

In circumstances where the agreements are very seriously imbalanced, where there is a serious inequality of bargaining power, where the franchisees are disadvantaged and vulnerable, and where there is a long-term agreement requiring collaboration and cooperation, I am satisfied that the franchise agreements satisfy the implied term in fact in the words of Falk J in Russell v Cartwright “whether a reasonable reader would consider that an obligation of good faith was obviously meant, or the obligation was essential to the proper working of the contract since it would otherwise lack commercial or practical coherence (the business efficacy test).” This was the approach adopted by Leggatt LJ in Al Nehayan where the implication of a duty of good faith was essential to give effect to the parties' reasonable expectations, and satisfied the business necessity test.

The Claimants submit that where a franchise agreement on its own facts is more akin to an employment agreement than the usual commercial setting of a franchise agreement or than a vendor purchaser/leasing agreement, then in an appropriate case, the Court will imply a term of good faith. That is not an extension of the law, but if it is new, it is an incremental development. An aspect of that term may replicate the implied term in an employment contract, that it will not without reasonable and probable cause, conduct itself in a manner calculated to destroy or seriously damage the relationship of confidence and trust between franchisor and franchisee. Like Dwyer, it does not change at a stroke the general nature of the relationship of a franchise agreement, but it responds to the facts and matters of the instant case. An alternative is the implied term to refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people.

The submissions on behalf of the Claimants are to the effect that most of these indicia are met because of the terms of expressions in the Handbook such as “be straight with me and I will be straight with you” and “I will always act in your best interests”. As examples of collaboration, collective language was used such as “we all need to succeed and profit” and “will all “pull together” and “we ALL must work together”. The School recognised that both parties would make significant investments: “you investing in Benson school of motoring and us investing in you” and references to “noteworthy investments to ensure this company's continued success".

It is right to be cautious about reference to the Handbook because of the entire agreement clause in the franchise agreements (Clause 12). That is a correct approach, but the Handbook can be treated as a part of the factual matrix of the franchise agreements and is expressly referred to in the agreement at the end of clause 12. It can be taken into account in construing the contract without itself containing separate contractual obligations. It is not necessary to rule on the submission of the Claimants that the words in the Handbook give rise to express obligations in addition to those contained in the franchise agreement, albeit that compliance with it is said in the Handbook to be required.

None of the above stands in the way of the implication of an implied term of trust and confidence in the instant franchise agreements. The reasons are as follows:

Applying this to the instant case, the implied duty of trust and confidence as an implied term is a shorthand. As is clear from Malik and other authorities, the implied term is that the party having that duty is obliged “not to conduct itself, without reasonable or proper cause, in a manner likely to cause serious damage to the relationship of mutual trust and confidence.” The very statement of the term confines it to conduct likely to cause serious damage to the relationship. The implied terms as to good faith arise because the instant contracts are more akin to contracts of employment than to commercial contracts and/or because the instant contracts are relational contracts in which a high degree of cooperation, collaboration and communication are required.

In a supplemental submission dated 17 April 2025, JPL has made detailed submissions under the heading “D’s further reflections on the contractual ramifications of objectionable behaviour.” The word ‘objectionable’ is said to be in distinction to ‘commercially unacceptable’ behaviour of the kind which is sometimes said to characterise the obligation to act in good faith. The suggestion is that the claimants are seeking to use an implied term to go beyond that which has ever been done before. It is referred to as a “radical development”.

First, the submission is predicated upon the conduct in question being characterised as “objectionable”, which is said to be another word for “antisocial” and “unethical”. This is a value judgment about how JBL say that the alleged behaviour should be characterised. It is therefore said to be different from “commercially unacceptable” conduct. The Claimants’ cases invite the Court to characterise the conduct differently. They recognise that the implied terms, particularly conducting themselves (a) in a manner regarded as commercially unacceptable by reasonable and honest people, and/or (b) without reasonable and proper cause, in a manner likely to cause serious danger to the relationship of trust and confidence, set the bar higher than conduct which is merely objectionable or antisocial.

The notion that this is a radical development is without a basis. The term as to trust and confidence has been applied in the workplace in employment cases. Likewise, in certain kinds of relational contacts both kinds of implied term have been applied, and context is everything. This is the answer to the suggestion that distinctions have to be made between different industries, different relationships, different sensibilities and different levels of contact. All of this can be taken into account. The more egregious the alleged behaviour and/or the more protracted and endemic it is, the less these distinctions will matter.

It is said that there are other sources of protection such as under statute (Protection from Harassment Act 1997 and the Equality Act 2010) and at common law (the tort of intimidation) and that they are sufficient to regulate the conduct. There is no reason why there cannot be concurrent wrongs: see Spring v Guardian Assurance [1994] UKHL 7; [1995] 2 AC 296. Further, the contractual term serves a purpose, particularly because it brings with it remedies which might not exist under the statutes and the tort identified above. This includes the ability to terminate for breach where the breach is repudiatory, and, in other cases, the ability to claim loss of profit under the contract.

It is also right to say that the fact that conduct may be discriminatory does not by itself make it repudiatory: see Amnesty International v Ahmed [2009] ICR 1450. This is why the analysis about closely related breaches of a similar character is so telling about the character of the breaches as a whole going to the root of each of the contracts of the Claimants. This will be considered in more detail in respect of the sections below about breaches and repudiatory breach.

There is also concern about an implied term in law, for example, it is said that implied terms of good faith might be inapplicable to many franchise agreements. This issue is left open, but the analysis of an implied term in fact has been considered in detail above. The Court has considered the article of Elisabeth Peden in “Policy concerns behind implications of terms in law” from 2001 LQR Vol 117 pp. 459-476. As noted by JBL, this article was referred to in the case of Crossley v Faithful & Gould Holdings Ltd [2004] EWCA Civ 293 (the correct paragraph is para. 36), raising questions of reasonableness, fairness and the balancing of competing policy considerations.

Among other things, the article raised issues of the relative bargaining position of parties which is “an underlying concern in judgments. The Courts are more likely to impose an obligation on the party in the stronger position, to protect the weaker party. For example, the House of Lords in Irwin stressed the fact that the tenancy agreement was very one-sided, as it only listed the obligations of the tenant.” (Irwin is the case of Liverpool City Council v Irwin [1976] UKHL 1; [1977] AC 239.) These factors only reinforce the matters set out in this judgment. There has to be a note of caution which is that this learning has to be considered subject to the later jurisprudence, notably the case of Marks and Spencer v BNP Paribas above and the cases about the implied term of good faith, which have been considered and applied in this judgment.