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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Pirtek (UK) Ltd v Joinplace Ltd (t/a Pirtek Darlington) & Ors [2010] EWHC 1641 (Ch) (07 July 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/1641.html Cite as: [2010] UKCLR 1297, [2010] EWHC 1641 (Ch) |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
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PIRTEK (UK) LIMITED |
Claimant |
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- and - |
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JOINPLACE LIMITED (T/A PIRTEK DARLINGTON) IAN VICKERS LYNN GARRATT VETECH LIMITED |
Defendants |
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Ms Lynn Garratt appeared in person and, with leave of the Judge,
for Vetech as a Director
The 1st and 2nd Defendants were not represented
Hearing dates: 21st – 24th June 2010
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Crown Copyright ©
Mr Justice Briggs :
INTRODUCTION – THE ISSUES
"… directly or indirectly be engaged or concerned or interested in any capacity whatsoever in any business which carries on a business similar to or which competes with the PIRTEK BUSINESS;"
subject to the usual exception for a not more than 5% holding in the shares of a listed company. I shall refer to it as "the RC". On 27th March 2009 Pirtek (UK) obtained a without notice injunction restraining Mr Vickers and Vetech from breach of that (and other) covenants, in the Manchester District Registry of the Chancery Division. It was continued inter partes on 3rd April 2009 and by a Consent Order dated 17th April 2009 continued until trial, in each case on Pirtek (UK)'s cross-undertaking as to damages in the usual form. It was at that stage assumed that the trial would occur before the expiry of the one year duration of the RC. In the event that ambition was not achieved, in part because the defendants raised issues under the Competition Act 1998 which required the claim to be transferred to London. The injunction ought on any view to have expired on 19th March 2010 but, in the event, no application was made by either side to have it discharged, until it was discharged by consent on the last day of the trial.
i) the RC was void by reason of contravention of the Chapter I prohibition in section 2(1) of the Competition Act 1998, or alternatively at common law;
ii) the activities carried out or intended to be carried out by the three remaining defendants gave rise to no breach of the RC, actual or threatened, the main point being that Vetech's proposed business was neither the same as, similar to or in competition with Pirtek (UK)'s business;
iii) in any event Vetech was an independent company established and owned by Ms Garratt rather than Mr Vickers, all allegations that it was his vehicle, or that there had been any conspiracy, being vigorously denied.
In addition, those defendants counterclaimed first, under Pirtek (UK)'s cross-undertaking in damages, for losses caused to each of them by the injunction and secondly, for damages for conspiracy to destroy reputation and livelihood through malicious prosecution.
i) the validity of the RC;
ii) actual or threatened breach of the RC by Mr Vickers;
iii) liability of Vetech as an alleged vehicle for or conspirator with Mr Vickers sufficient to justify the injunction against it;
iv) loss attributable to the injunction, recoverable under the cross-undertaking;
v) malicious prosecution.
THE EVIDENCE
Pirtek (UK)'s Witnesses
The Defendants' Witnesses
"Vetech is not a Phoenix company of Pirtek Darlington as the trading styles are clearly different, and it has been set up to trade in a clearly differently defined market (Defence Exhibit AG Strategy Works Report) offering 'some' products that are similar to products that Pirtek offer. However the intention is to expand this product range into products other than that of Pirtek UK's core product range, to capitalise on the personal knowledge and skills I have gained throughout my working life and provide services as such, which we believe would be profitable and are required by the local business community.
This would not, as exhaustibly (sic) stated and proven, include On-Site Mobile Hose Services, which has been proven is not a profitable venture in the Pirtek Darlington territory."
THE FACTS
"They were no longer intending to provide services they had as a Pirtek outlet, the new company Vetech would be supplying hose and fittings but solely through a counter trade only, and that they would no longer be providing an On Site Mobile Hose Replacement Service."
To substantially the same effect was the evidence of Graham Vickers, in relation to a visit that he made to the Darlington Depot on 19th March.
THE VALIDITY OF THE RESTRICTIVE COVENANT
Validity under the Competition Act
"(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which-
(a) may affect trade within the United Kingdom, and
(b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom,
are prohibited unless they are exempt in accordance with the provisions of this Part.
(4) Any agreement or decision which is prohibited by subsection (1) is void.
(7) In this section "the United Kingdom" means in relation to an agreement which operates or is intended to operate only in a part of the United Kingdom, that part."
Pronuptia
"14. It should next be observed that the compatibility of distribution franchise agreements with Article 85(1) cannot be assessed in the abstract but depends on the clauses contained in such contracts. In order to give a fully useful response to the national court this Court will consider those contracts which have a content similar to that described above.
15. In a distribution franchise system such as this, an enterprise which has established itself as a distributor in a market and which has thus been able to perfect a range of commercial methods gives independent businessmen the chance, at a price, of establishing themselves in other markets by using its mark and the commercial methods that created the franchisor's success. More than just a method of distribution, this is a manner of exploiting financially a body of knowledge, without investing the franchisor's own capital. At the same time this system gives businessmen who lack the necessary experience access to methods which they could otherwise only acquire after prolonged effort and research and allows them also to profit from the reputation of the mark. Distribution franchise agreements are thus different from either dealership agreements or those binding approved resellers appointed under a system of selective distribution which involve neither use of a single mark nor application of uniform commercial methods nor payment of royalties in consideration of the advantages thus conferred. Such a system, which permits the franchisor to take advantage of his success, is not by itself restrictive of competition. For it to function two conditions must be satisfied.
16. First, the franchisor must be able to communicate his know-how to the franchisees and provide them with the necessary assistance in putting his methods into effect, without running the risk that this know-how and assistance will aid his competitors, even indirectly. It thus follows that those clauses which are essential to prevent this risk do not constitute restrictions of competition in the sense of Article 85(1). These include the prohibition on the franchisee opening, for the duration of the franchise or for a reasonable period after its termination, a shop with an identical or similar purpose in an area where he could be in competition with one of the members of the network. The same applies to the obligation on the franchisee not to sell his shop without the prior approval of the franchisor: this clause serves to ensure that the benefit of the know-how and assistance provided does not go indirectly to a competitor."
"(27) The clauses that are essential to prevent the know-how made available from benefiting competitors are the following:
- the clause providing for non-competition during the term of the agreement prohibits the franchisee from operating any other franchised shop within the allocated territory, unless such other shop sells products that are unrelated to the products of the Charles Jourdan Group. This clause is justified for the franchisee by the fact that the know-how provided could easily be used for the benefit of other products and other trade marks under another franchise system. The franchisee is not bound by any non-competition clause once the agreement has expired. Such a non-competition clause would not be justified first as the know-how provided includes a large element of general commercial techniques, and second, as this type of franchise is primarily granted to retailers who are already experienced in selling shoes."
It is notable from the last part of the quoted extract that the Commission took seriously the need to distinguish between know-how of a general type provided to experienced retailers, and know-how specific to the franchisor's way of business, together with training provided to those without prior experience. In both cases it may be supposed that a similar legitimate need might exist to protect the franchisor's goodwill, but that formed no part of the Commission's analysis.
"The Principal hereby warrants that save pursuant to an agreement entered into with the Franchisor prior to the execution of this Agreement or as disclosed by the Principal in writing and annexed to this Agreement and signed by the parties hereto he had no direct knowledge of …
22.6.1 the PIRTEK BUSINESS; or
22.6.2 how to operate a business similar to the PIRTEK BUSINESS; or
22.6.3 how to conduct the PIRTEK BUSINESS; or
22.6.4 the System
The Principal accordingly agrees that consequent upon the Franchisor relying on the warranty and statements referred to above the Principal would not without the benefit of the System be able to run or participate in any business similar to or which competes with the PIRTEK BUSINESS."
Appreciable Effect on Trade
Exemption
"(a) Contributes to-
(i) improving production or distribution, or
(ii) promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit; and
(b) Does not-
(i) impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or
(ii) afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question."
Section 9(2) places the burden of proof of a section 9 exemption upon the party relying upon it.
Validity at Common Law
"The Plaintiff is anxious to protect its business within the area. In that connection, now that the [franchise agreement] is determined, the Plaintiff wishes it to enter into a new arrangement with a fresh franchisee. The Plaintiff's primary concern in seeking the present injunction is to protect its goodwill in the area and to protect its ability to enter into a fresh arrangement for such incoming franchisee and indeed to find such an incoming franchisee.
As Mr Tritton says, it is not from other drain-cleaning businesses that an incoming franchisee needs protection or, I add, could conceivably be entitled to protection. It is from the Plaintiff's own ex-franchisees an incoming franchisee is entitled to protection, provided that that protection is reasonable. In this case the protection sought and contractually agreed to is for one year and is only within the area.
It is obvious that the Plaintiff will be likely, and one would have to judge this at the date of the agreement, to have far greater difficulty in attracting a new franchisee if the ex-franchisee is known as a Dyno Rod franchisee with all the Dyno Rod experience and contacts and is operating in the territory. An ex-franchisee has the benefit of considerable investment by the Plaintiff which puts the ex-franchisee in a better position than others. Provided that it is reasonable in terms of the public interest and not unfair to the ex-franchisee in terms of time or area, the Plaintiff is entitled in my judgment to ensure that his investments are protected by ensuring that unfair advantage is not taken by an ex-franchisee by for example for instance prematurely determining the franchisee agreement and setting out on his own."
At paragraph 24 of ChipsAway, Dyson LJ continued as follows:
"The purpose of clause 23.1(a) therefore, was to allow the Claimant a breathing space of twelve months in which to establish a replacement franchisee and to protect its goodwill, free from competition, from a franchisee who had previously operated within the franchise territory. The fact that, in the event, the Claimant did not seek to find a replacement franchisee in the months following the termination has no relevance. The meaning of the clause cannot depend on what happened after the contract was made."
ACTUAL OR THREATENED BREACH OF THE RC BY MR VICKERS
LIABILITY OF VETECH
LOSS ATTRIBUTABLE TO THE INJUNCTION, RECOVERABLE UNDER THE CROSS-UNDERTAKING
MALICIOUS PROSECUTION
CONCLUSION