Franchise agreements to provide legal services - franchisees entitled to terminate franchise agreements at will - franchisees remaining liable to franchisor for costs of providing service to clients

Compensation Specialists Ltd and others v Compensation Claim Services Ltd: CA (Lords Justice Brooke and Jonathan Parker and Mr Justice Holman): 24 July 2003

The defendant granted a franchise to the second to fourth claimants to engage clients, living in areas designated to each of the franchisees, who wished to seek compensation for personal injuries.

It was a term of the franchise agreements that the defendant would pay 65% of the charge for the service for the clients engaged by the franchisees on any and all interim payments and settlements or awards received by those clients.

The franchisees subsequently informed the defendant that they would no longer operate the business as the defendant's franchisees and started a similar business of their own in the name of the first claimant, which had been incorporated for that purpose.

On an action by the claimants, the judge held that the franchisees had been entitled to terminate the franchise agreements at will and dismissed the defendant's counterclaim for client care costs incurred by the defendant in continuing to provide a service to clients engaged by the franchisees prior to the termination of the agreements.

The defendant appealed against the dismissal of its counterclaim.

Douglas J Campbell (instructed by Leathes Prior, Norwich) for the claimants; John Martin QC and Cabriel Fadipe (instructed by Ellis Jones, Bournemouth) for the defendant.

Held, allowing the appeal, that since the franchisees had engaged the clients on behalf of the defendant as their franchisor, the obligation of the defendant for client care remained during the life of the clients' claims despite the termination of the franchise agreements; and that a franchisee's fee was a single fee for the provision of the service to the client as a whole and if the franchisee provided only part of the service he should account to the franchisor for the costs of providing that service in substitution.