Chipsaway International Ltd v Kerr

Chipsaway International Ltd v Kerr

Clause 23.1(a) of the franchise agreement restrains the defendant from engaging in any competing business within the territory for twelve months after termination, regardless of whether a new franchisee is appointed during that period. The judge’s interpretation failed to give effect to the commercial purpose of the clause and created practical difficulties. The correct interpretation protects the franchisor’s goodwill and ability to recruit a replacement franchisee by prohibiting competition from the former franchisee for the specified period.

Parties
Claimant: ChipsAway International Ltd; Defendant: Kerr
Jurisdiction
England and Wales
Judgment Date
11 March 2009
Procedural Posture
Civil Appeal / Court of Appeal Judgment
Outcome
Appeal allowed
Legal Topics
Franchise Agreements, Restrictive Covenants, Restraint of Trade, Interpretation of Contracts
Contract Law Commercial Law Franchise Agreements Restrictive Covenants Restraint of Trade Interpretation of Contracts

Case Brief

Summary, issues, holding and outcome

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Parties

ChipsAway International Ltd

Claimant

Kerr

Defendant

Procedural Posture

Civil Appeal / Court of Appeal Judgment

Legal Issues

  1. 1 Proper interpretation of post-termination restrictive covenant in franchise agreement
  2. 2 Whether defendant breached the restrictive covenant by continuing business after franchise termination
  3. 3 Whether the restrictive covenant is enforceable as reasonable restraint of trade

Ratio Decidendi

Clause 23.1(a) of the franchise agreement restrains the defendant from engaging in any competing business within the territory for twelve months after termination, regardless of whether a new franchisee is appointed during that period. The judge’s interpretation failed to give effect to the commercial purpose of the clause and created practical difficulties. The correct interpretation protects the franchisor’s goodwill and ability to recruit a replacement franchisee by prohibiting competition from the former franchisee for the specified period.

Court Disposition

Appeal allowed

Orders

  • Matter remitted for argument as to the relief that should follow