In last month?s ruling in PSG Franchising Ltd v Lydia Darby Ltd and others [2012] EWHC 3707 (QB), the High Court held that a restrictive covenant contained in a franchise agreement between two parties was reasonable and enforceable, as there was a legitimate business interest to protect and the covenant constituted no more than was reasonably necessary to achieve that objective.
PSG Franchising sought a High Court Injunction to enforce a post termination restrictive covenant to prevent its former franchisee, Lydia Darby Ltd, from operating a competing residential property search business in and around Milton Keynes for one year following the termination of their franchise relationship. PSG Franchising had believed that the owners of Lydia Darby Ltd were retiring from the property search sector and, therefore, an agreement was reached to terminate the franchise. However, unknown to PSG Franchising, the owners had already set up, or were in the advanced process of setting up, a rival business in the area, which allegedly breached the in-term obligations under the franchise agreement.
The High Court held that the owners of Lydia Darby Ltd were still bound by restrictions in their franchise agreement that prevented them from trading and soliciting business in their former ?territory? (i.e. addresses within the specified Milton Keynes postcodes).
This ruling highlights the fact that the courts will enforce restrictive covenants in expired franchise agreements and will grant injunctions to restrain franchisees from carrying out unlawful actions that undermine a franchisor?s legitimate business interests.
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