Dwyer (UK Franchising) v Fredbar Court of Appeal Decision – The “End of Franchising” in the UK?

When the UK Court of Appeal handed down its judgment in the case of Dwyer (UK Franchising) Limited v Fredbar Limited and Shaun Rowland Bartlett[1], the British Franchise Association sent out an update to its members titled “The end of franchising?”. Whilst that title was maybe designed to catch attention rather than the BFA’s reasoned position on the case, it is fair to say that the decision has caused surprise and concern in the franchising industry in the UK. But how important is the decision and what does it mean in practice for franchisors who operate in the UK?

The reason why the case has caused such concern is that post-termination restrictive covenant which was successfully challenged by the franchisee was in pretty standard form, in that it restricted the franchisee from being involved in a similar business in the franchisee's former territory for one year following termination. Clauses of that type are very common in territory based franchise agreements and have been held to be enforceable by the courts in a number of previous cases including by the Court of Appeal in the case of ChipsAway v Kerr[2]. However, the Dwyer case is a reminder that restrictive covenants do need careful thought and there is no ‘one size fits all’.

The franchisee in the Dwyer case challenged the restrictive covenant on the basis that it went further than was reasonably necessary to protect the franchisor’s goodwill in the territory. The Court of Appeal held that the franchisee was correct and the restrictive covenant was unreasonably wide and therefore unenforceable. On the face of it, this is a very…