Franchise business systems are popular for many reasons. Many retail based franchise systems provide a degree of security, a form of limited "monopoly" or exclusivity, if you like, by granting exclusive territory rights to the franchisee for the duration of the franchise relationship. There are varied forms of such rights, but if that right is breached by the franchisor, what exactly can a franchisee recover from such a breach?
A decision of a single judge of the Federal Court (Haviv Holdings v Howards Storage World) handed down just a few days ago provides some answers.
This court decision also shows that:
In 2004 HCW granted a HCW franchise to someone else to operate a HCW store in the Rhodes shopping centre. The Rhodes store, indeed the whole Rhodes shopping centre, was between 4,837 and 4,843 metres from the HCW Burwood store; in round figures, only about 160 metres inside the exclusive territory granted to Haviv.
HCW admitted it breached the territory provision. Haviv claimed, and could show, to have suffered loss and damage by reason of HSW's breach. Haviv eventually ceased operating the Burwood store. HCW claimed it terminated the franchise agreement due to alleged breaches by Haviv, whereas Haviv denied this and claimed otherwise.
The court found that Haviv was entitled to claim damages. It considered different scenarios, or methodologies, of how those damages are to be calculated.
Importantly for the franchisee, the court found that the damages should take into account Haviv's loss of net profits for the period until the expiry of the last option for renewal period, in the year 2022.
In further assessing the damages, the court found that various discounts were to be applied to allow for various factors were to be taken into account, such as future refurbishment costs during the terms of the leases, rent increases and other "vicissitudes of life" - these are the unknown factors and risks that affect people during their lifetime generally.
This decision applied a principle that where there has been an actual loss, the law does not permit difficulties in calculating the loss to defeat the only remedy it provided for breach of contract, an award of damages.
The court adjourned the matter for the parties' experts to calculate Haviv's loss, or damages, based on the court's findings on how that loss is to be calculated.
A decision of a single judge of the Federal Court (Haviv Holdings v Howards Storage World) handed down just a few days ago provides some answers.
This court decision also shows that:
- The court will grant relief, even where the breach appears to be relatively minor on its face. A breach is a breach!
- If loss is suffered caused by a breach of contract, difficulties calculating that loss will not of itself defeat a claim.
- The court will, when assessing damages that are said to flow from future losses, apply certain discounts to the calculated gross loss.
- Importantly, the court found that in calculating the damages, it would look at losses suffered up to the end of the last option period, even though those options may have not been exercised by the franchisee.
- Breach by franchisors of exclusive contract territory rights granted to franchisees is something that is take lightly - check the wording of the exclusive territory provisions in your franchise agreement!
In 2004 HCW granted a HCW franchise to someone else to operate a HCW store in the Rhodes shopping centre. The Rhodes store, indeed the whole Rhodes shopping centre, was between 4,837 and 4,843 metres from the HCW Burwood store; in round figures, only about 160 metres inside the exclusive territory granted to Haviv.
HCW admitted it breached the territory provision. Haviv claimed, and could show, to have suffered loss and damage by reason of HSW's breach. Haviv eventually ceased operating the Burwood store. HCW claimed it terminated the franchise agreement due to alleged breaches by Haviv, whereas Haviv denied this and claimed otherwise.
The court found that Haviv was entitled to claim damages. It considered different scenarios, or methodologies, of how those damages are to be calculated.
Importantly for the franchisee, the court found that the damages should take into account Haviv's loss of net profits for the period until the expiry of the last option for renewal period, in the year 2022.
In further assessing the damages, the court found that various discounts were to be applied to allow for various factors were to be taken into account, such as future refurbishment costs during the terms of the leases, rent increases and other "vicissitudes of life" - these are the unknown factors and risks that affect people during their lifetime generally.
This decision applied a principle that where there has been an actual loss, the law does not permit difficulties in calculating the loss to defeat the only remedy it provided for breach of contract, an award of damages.
The court adjourned the matter for the parties' experts to calculate Haviv's loss, or damages, based on the court's findings on how that loss is to be calculated.
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