1. TLT LLP Who's to blame if a franchise goes wrong? Lessons from Papa-John's v Doyley

2. TLT LLP How a franchisor might see it You give them turnover projections based on industry figures You give them material stating: Figures given are projections, not guarantees They should get professional advice They sign an agreement which includes: Nothing about projected or guaranteed turnover A clear provision that they cannot rely on any statement that is not in the contract You sell someone a franchise business

3. TLT LLP How a franchisee might see it You buy a franchise You are told franchises operate under a "tried and tested formula" You are told franchises should typically generate a good revenue and profit Your franchise is not as successful as the projections indicated, and your business folds The agreement you signed says that the franchisor is not liable if you rely on the projections, and you think this is unfair

4. TLT LLP What actually happened Papa John's sold Ms Doyley a franchise (operating through a company) D had some, but not extensive, business experience PJ gave D projections based on well-performing pizza stores (not just PJ stores) D did not take independent financial advice or ask PJ whether the projections were based on actual PJ stores D never reached the projected turnover or made any profit. The company became insolvent. PJ sued D for lost profits

5. TLT LLP How the judge actually saw it D bought the franchise because PJ had misrepresented the turnover of its franchise stores: D could set aside the agreement D entitled to compensation from PJ Limitations of PJ's liability in the franchise agreement were not effective PJ had a "duty of care" to D – D would reasonably be expected to rely on PJ's turnover figures without seeking independent advice

6. TLT LLP PJ's projections were misrepresentations D bought the franchise because PJ misrepresented its turnover PJ never stated the figures were based on actual sales for existing franchises BUT PJ's operating projections based on average net sales of £8k to £14k, but actual sales were £4k D did rely on these projections, and judge thought it was reasonable for her to do so

7. TLT LLP PJ still liable under agreement The no reliance clause did not relate to D: The judge found it related to D's company, not to D as individual The no reliance clause was unfair, and could be struck out: PJ presented agreement as non-negotiable PJ in a dominant bargaining position

8. TLT LLP PJ had duty of care to D PJ offered D guidance and advice PJ introduced D to the bank PJ knew D did not have experience of pizza business So, PJ should have assumed D would have relied on PJ's statements (including turnover) without seeking independent advice

9. What are the lessons?

10. TLT LLP Lessons for franchisors Make sure any turnover or profit projections have an objective basis Control what information you disclose to prospective franchisees Do not assume franchisees will take independent advice Do not expect your agreement will remove any liability for any statements you make selling a franchise Check your agreement gives you the protection you can reasonably expect (especially for corporate franchisees)

11. TLT LLP Lessons for franchisees You may still be able to get out of your franchise, even if: The agreement says you can't rely on statements not in the agreement You didn't take third-party advice Don't rely on all judgements being so favourable to franchisees PJ's sales team made statements that had little basis in sales figures In this case PJ was suing D for lost profits