Out-Law News 1 min. read
Franchisors must note implied duty of ‘good faith’ following High Court decision
15 Aug 2025, 1:57 pm
Franchisors across the UK have been issued a ‘wake up call’ as a recent decision shows how the courts are increasingly willing to scrutinise franchise agreements through the lens of fairness and relational dynamics, an expert has said.
Scott Oxley, brand licensing and franchising expert at Pinsent Masons, was commenting following the High Court’s decision in the ‘Ellis’ case where the court implied a duty of good faith into franchise agreements.
Oxley said: “The ruling demonstrates the courts’ willingness to scrutinise franchise agreements in regard to fairness and relational dynamics. For individuals and businesses operating franchise networks, this means reviewing not just the legal terms, but also the practical realities of how control is exercised. Agreements that are overly rigid, lack transparency, or fail to support franchisees – especially those with limited experience – may now carry greater litigation risk.”
The case involved a group of franchisees who alleged that the franchisor, John Benson Ltd, had acted in a manner that breached the spirit and substance of their agreements. The central legal question was whether the franchise agreements contained implied obligations of good faith, and if so, whether the franchisor’s conduct amounted to a repudiatory breach justifying termination.
A repudiatory breach is a breach of contract considered so significant that it provides the other party to that contract with a right to terminate the agreement.
The High Court held that while there is no general rule that commercial contracts must include a duty of good faith, such a term could be implied in fact depending on the nature of the relationship. In this case, the franchise agreements bore characteristics similar to employment contracts, including a high degree of dependency and trust. The court found that the agreements justified the implication of a duty not to act in a way that would seriously damage the relationship of trust and confidence.
The franchisor’s conduct was considered to have breached this implied duty, entitling the franchisee to treat the contract as discharged.
Oxley said: “The implication of good faith in this decision reflects a growing judicial awareness of the realities of franchising and a willingness to intervene where fairness demands it. The judgment may not herald a wholesale shift in English contract law, but it confirms that franchise agreements, particularly those involving vulnerable or inexperienced franchisees, are fertile ground for the implication of good faith obligations. This case may not open the floodgates, as the High Court cautioned, but it certainly opens the door.”
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