The franchising model enables many people to achieve their ambition of setting up in business on their own account. However, as a High Court case showed, it is vital not to let your heart rule your head and such an enterprise should never be ventured without first taking professional advice.
The case concerned a man who lacked business sophistication but was excited at the prospect of working for himself. He set up a corporate vehicle and opened a community-based café after entering into an agreement with a franchisor. The business, however, did not prosper as he had hoped.
After he launched proceedings, a judge noted that his enthusiasm had clouded his analytical ability. He ruled, however, that the franchisor was liable for deceit and ordered it to pay him more than £200,000 in damages and interest. He was also entitled to rescind the franchise agreement.
The judge noted that, before entering into the agreement, he had briefly and cursorily been shown financial information via an online portal. However, he could neither comprehend nor digest it. Crucially, the only meaningful information he was given about the franchise was a business plan containing figures pertaining to the likely profitability of his business, which the franchisor knew to be out of date and inaccurate.
The franchisor did not challenge the judge’s findings on liability but appealed against the award of damages. In dismissing the appeal, however, the Court found that the judge was entitled to rule on the evidence that the franchisor had failed to prove that the man would have proceeded with the franchise agreement even had the figures contained in the business plan been accurate. Other grounds of appeal were also rejected.