Franchisee wins dispute over setting up rival business

An international company has failed to get a court order to prevent one of its franchisees setting up a rival business.

The case involved an Australian gym and fitness firm that opened centres in the UK on a franchise basis. It entered into an agreement with a franchisee on its standard terms and conditions.

The franchisee had a licence to operate in a territory covering a five-mile radius in London. Customer details were stored on the franchise company’s software system and were described in the agreement as “”confidential information””. The agreement also had a clause relating to non-competition.

The franchisee later sent out a document to customers stating that he would be setting up a new gym. The franchisor sought a court injunction to stop him, claiming he had set up his gym on its site using customer information from its system.

The court ruled in favour of the franchisee. It held that there was nothing in the agreement that gave the company the ownership of customers’ names and addresses and nothing to the effect that the data belonged to it exclusively.

If the franchisor’s brand had significant appeal, as it had suggested, it would have little difficulty in establishing another gym to attract customers. It had suggested that irreparable damage would be caused to its business. That argument was rejected as that part of London was already filled with gyms. It did not help its case for it to make exaggerated statements.

Please contact Neil O’Callaghan if you would like more information about the issues raised in this article or any aspect of litigation and protecting your business.