In the absence of an agreement between the parties, English judges will soon rule—in 2026—on the existence of a duty of good faith in franchise agreements in relation to a dispute brought in 2024 by around 60 Vodafone franchisees (current and former), claiming a total of more than £120 million.
The franchisees are challenging, in particular, the discretionary contractual prerogatives and bad faith of the franchisor, which allow it, among other things, to:
– terminate contracts without notice,
– modify commercial terms, thereby reducing franchisees’ margins;
– impose disproportionate penalties in an arbitrary manner.
Although common law attaches paramount importance to freedom of contract, this principle must not prevent the need to ensure that contractual prerogatives are exercised in a reasonable and rational manner.
UK courts will soon be called upon to rule on the application of this principle to franchise agreements.
Vodafone franchisees argue that franchise agreements are subject to this requirement and that Vodafone has therefore failed to act in good faith in exercising its contractual prerogatives.
The judges will therefore examine the conditions under which franchisors exercise their discretionary powers. If they rule in favor of the franchisees, an obligation of good faith and transparency may be incorporated into UK franchise law.
An analogy can be drawn with the prohibition of significant imbalance between the rights and obligations of the parties in French law, which regularly gives rise to disputes in franchisor-franchisee relationships, as evidenced in particular by the case law handed down in this regard concerning PIZZA SPRINT contracts
In practice, this would mean that franchisors would have to keep written records of their decisions in order to demonstrate that they are reasonable, rational, and are not inconsistent with the legitimate expectations of franchisees.
Please do not hesitate to contact us for assistance in drafting your franchise agreements and/or to train your teams to avoid disputes.
To be continued…