The general rule regarding commercial contracts is that an obligation for the parties to act in good faith cannot be implied into an agreement if the parties have not expressly agreed to include it.
However, in a recent decision, the High Court considered the application of this rule in the case of Ellis v John Benson Ltd [2025] EWHC 2096, and decided that a good faith obligation should be implied into the claimants’ franchise agreements.
The case concerned 20 claimants who entered into franchise agreements with John Benson Ltd (‘JBL’) under which they would operate as driving instructors.
In 2020, the claimants terminated their agreements on account of alleged breaches of the implied duty of good faith, but JBL argued that such a term should not be implied because of the general rule which meant that commercial agreements could not be made subject to implied good faith obligations.
The traditional assumption is that franchise agreements are similar to standard commercial agreements as opposed to employment contracts where good faith obligations are more readily implied but, in this case, the claimants persuaded the Court that their agreements were more akin to employment contracts because they contained the following provisions:
- The franchisees could not subcontract
- Until 31 January 2020, the franchisees could not fix their own fees
- JBL allocated new enquiries
- The franchisees were required to pay weekly fees
- The agreements were for a minimum period of 3 years and JBL could refuse early termination
The Court decided that there was an implied term of good faith and that JBL had committed repudiatory breaches which enabled the claimants to lawfully terminate their contracts. In the judge’s view a good faith term could be implied because the agreements were akin to employment contracts and were heavily in the franchisor’s favour.
The Court then found that there had been several breaches of this implied term, including:
- Restrictions on the franchisees’ ability to market themselves
- Dismissing franchisees’ concerns around COVID-19
- Creating an abusive and intimidating work environment
The Judge noted that the decision was based upon the individual drafting of the franchise agreements and was unlikely to set a precedent which would displace the usual rule that a good faith obligation cannot be implied into a commercial contract. Nonetheless, this case does highlight the circumstances in which the court may imply a duty of good faith into franchise agreements.
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