Christmas Greetings

December 20th, 2012

As we prepare for Christmas, we wish all our clients and friends a very Happy Christmas, and a joyful and prosperous New Year.

We know that business continues throughout the year, and so we will be able to advise and assist our clients with the full range of our services between the Christmas and New Year bank holidays. We will be open for business on Thursday and Friday, 27 and 28 December, and after the New Year will open our doors again on Wednesday, 3 January 2013.

Nevertheless, as well as coming into the office next week, I hope to be able to enjoy our beautiful Hampshire countryside, and to take some more photographs, such as the one above, taken in Upper Swanmore in February 2009.

photo by Gabor Kovacs

We were talking in our weekly team meeting about the fact that our corporation tax payment will be due in January and that, like so many other businesses, we pay corporation tax. “Unlike Starbucks”, someone said.

Graeme then said that at the weekend he had bought a coffee in a Starbucks outlet in a motorway service station. He had been talking to the person behind the counter, who turned out to be the owner of the franchise. This franchisee complained to Graeme that his franchise is a separate business which pays corporation tax like the rest of us. However, he is experiencing a significant downturn in business as consumers boycott Starbucks.

The reasons for consumers avoiding Starbucks are nothing to do with the owners of the individual businesses that make up the chain of Starbucks franchises.  The reasons are everything to do with the main Starbucks business itself, the company that owns the brand and controls the franchise network, receiving substantial franchise payments from the many small businesses that make up the network.  It is well-known that Starbucks has been in the news for paying minimal corporation tax on profits earned in the UK, through arrangements under which it pays licence fees to a non-UK company for the right to use the Starbucks name.  It is fair to note that Starbucks has recently announced that it will voluntarily pay “a significant amount of tax during 2013 and 2014, regardless of whether the company is profitable”.

Although the consumer rebellion may be affecting the main Starbucks company, it seems clear from Graeme’s conversation that the franchisees are sharing the pain, through no fault of their own. Responsibility appears to lie with the franchisor.

This has led us to consider the imbalance to be found in many franchise agreements, which are heavily loaded in favour of the franchisor.  These contain lists of franchisee’s obligations which are invariably much longer than the rather brief lists of  franchisor’s obligations.  I have just looked at a number of franchise agreements, which typically contain an obligation on the franchisee in terms such as:

“not do anything that could or might in the sole opinion of the Franchisor bring the Business into disrepute or damage the reputation of the Business.”

None of the franchise agreements that I have just reviewed contain an obligation on the franchisor “not to bring the Business into disrepute or damage the reputation of the Business.”

Surely it is the strength of the brand that underpins the success of individual franchise businesses, whether these be selling coffee or burgers or high-end Scandinavian hi-fi.  If the brand is tarnished, then the sales performance of the individual franchises will suffer. It is not just the owner of the brand that is affected, but also the numerous franchisees who have invested a great deal of money in the strong performance of the brand.

So why does the owner of the brand not make a promise to its franchisees not to bring the brand into disrepute or do anything to damage its reputation?  Why does it not even promise that in the event of damage to the reputation of the brand it will immediately use best endeavours to minimise the damage?

We have been discussing amongst ourselves whether an obligation on the franchisor not to bring the brand into disrepute can be implied into franchise agreements (and here starts some legal discussion).  The circumstances in which a Court will imply a term into a commercial contract have been developed in a number of cases over very many years.  The most recent major decision was in 2009, in a Privy Council case Attorney General of Belize and others v Belize Telecom Ltd [2009] UKPC 10.

In that case, Lord Hoffmann said that the question of implication arises when a contract does not expressly provide for what is to happen when some event occurs. The usual inference is that nothing is to happen: if the parties had intended something to happen, the contract would have said so. Accordingly, the express provisions of the contract should continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.

In some cases, however, Lord Hoffmann continued, a reasonable person would understand the contract to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The contract may not have expressly said so, but this is what it must mean. In such a case, the court will imply a term as to what will happen if the event in question occurs.

Lord Hoffmann concluded that It followed that in every case in which it is said that some provision ought to be implied in a contract, the question for the court is whether such a provision would spell out in express words what the contract, read against the relevant background, would reasonably be understood to mean. The courts have formulated this question in various ways (for example that the implied term must “go without saying”, or that it must be “necessary to give business efficacy to the contract”), but these formulations should not be treated as different or additional tests.

So the main principles are that a court may imply a term into a specific contract to fill a gap in the contract’s drafting. The purpose would be to reflect the parties’ intentions when the contract was entered into.   Applying an objective test, the court will consider what a reasonable person would have understood the parties’ intentions to be, given the background knowledge reasonably available to the parties at the time they entered the contract. The courts will not imply a term into a contract simply because they think it would have been reasonable for the parties to have included such a term in the contract.

You and I may think it necessary, indeed essential, that a franchise agreement should include an obligation on the part of the franchisor not to bring the brand into distribute or do anything to damage the reputation of the brand.   We may think that this goes without saying, and that such an obligation should be implied into franchise agreements.  However, any franchisee or group of franchisees that tries to claim damages in court proceedings will be embarking on major and strongly contested litigation as it tries to persuade a Court of the need to imply such a term into their franchise agreement.  And, who has the bigger financial muscle for such a fight, the owners of the small businesses or the multi-national brand owner?

And with those thoughts, it’s time for a Fair Trade flat white …

Daniel’s in the team!

December 11th, 2012

Recipients of our monthly e-mail newsletter last week will have read that we were keeping fingers crossed for Daniel Faulkner, younger son of our administrator Jane Faulkner.  Daniel, aged 18, had been selected to try out for the under-21 hockey squad to represent Great Britain at the sixth Australian Youth Olympic Festival, to be held in Sydney in January 2013.

Well, the squad has been announced.

And it’s fantastic news.  Daniel is in! He’s off to Australia!

The match schedule is as follows:

  • 16th Jan v Malaysia
  • 17th Jan v Australia
  • 19th Jan v TBC
  • 20th Jan – gold/silver/bronze matches

We all wish Daniel well, and hope he comes back with a gold medal round his neck.  We hope to bring you news as the tournament progresses.


Below: Daniel is on the right, bringing the ball out of defence.

Getting ready for Christmas

December 5th, 2012

The festive season is approaching.  Here at Graeme Quar & Co, we are getting into the spirit.  Our Christmas tree went up on Monday, and through December we are offering clients a mince pie, as well as a cup of our excellent coffee.

At the same time, we are determined to maintain our standards of excellent client service, and we will continue to work with enthusiasm and vigour up to 5.00 pm on Friday, 21 December.

We know that business continues throughout the year, and so we will be able to advise and assist our clients with the full range of our services between the Christmas and New Year bank holidays.  We will be open for business on Thursday and Friday, 27 and 28 December, and after the New Year will open our doors again on Wednesday, 3 January 2013.