Dwyer (UK Franchising) Limited v Fredbar Limited & Anor.

This dispute came out of a franchise relationship that broke down quickly. Dwyer ran the Drain Doctor network. Fredbar Limited, controlled by Mr Bartlett, took a ten year franchise in parts of Cardiff. The agreement included post-termination restrictions intended to stop the franchisee competing for one year after the contract ended.

Mr Bartlett was not an established operator buying into a mature business he already understood. He was new to plumbing and drainage, new to running a company, and was moving from paid employment into a business that was expected to become his only source of income. He also had limited savings and a mortgage on the family home.

Dwyer was a substantial franchisor with a national network. It gave Mr Bartlett projections based on franchise averages, but there was no research specific to Cardiff and no existing Cardiff franchise. The nearest existing franchise was at Avonmouth. That mattered later because the court looked closely at how much goodwill really existed in the territory at the start.

The franchise agreement was Dwyer’s standard form and ran to about 100 pages. The judge found Mr Bartlett could have studied it and taken legal advice, but did not. The judge also rejected any suggestion of improper pressure or coercion when the agreement was signed, although he found there had been no real negotiation of the restraint terms.

The business started trading in January 2019. It did not perform as projected. By March 2020 Mr Bartlett was looking to sell. In July 2020 he purported to terminate the agreement, alleging wrongdoing by Dwyer, and at around the same time began a competing drainage business called Daily Drains in the same area.

Dwyer said his termination was ineffective, treated his conduct as repudiatory breach, accepted termination on that basis, and sued. It also sought an interim injunction to stop the competing business. That injunction was refused, an expedited trial followed, and the appeal eventually reached the Court of Appeal on the narrow issue of whether the post-termination restrictive covenants were enforceable.

The key clause was a one year post-termination restraint. It stopped the franchisee from being engaged, concerned or interested in a business similar to or competitive with the Drain Doctor business within the exclusive marketing territory. It also extended to a five mile radius outside that territory.

That kind of clause is common in franchise agreements. A franchisor may want to stop a former franchisee using the know-how, customer connections and goodwill built during the franchise to compete immediately after exit. The law can protect that interest, but only to the extent the restriction is reasonable.

The court approached the issue in the usual restraint of trade way. The party seeking to enforce the clause had to show that it protected a legitimate interest and went no further than reasonably necessary. Dwyer said the clause protected goodwill and helped it recruit a replacement franchisee who could trade without immediate competition from the former franchisee.

Fredbar and Mr Bartlett said the clause was too wide. They argued that it applied in the same way whether the franchise failed early or succeeded for years, and that it could stop Mr Bartlett from ordinary work in plumbing or drainage even where that would not damage Dwyer’s goodwill.

The appeal was not about every issue in the wider dispute. The Court of Appeal was focused on whether the trial judge had been right to declare the restrictive covenants unenforceable, and whether any unreasonable wording could be severed so that part of the clause could still survive.

Dwyer argued that the judge had relied on irrelevant or impermissible factors. It said the clause should be viewed in line with other franchise cases where 12 month restrictions had been upheld. It also argued that, if any part of the wording was too broad, the court should cut that part out and enforce what remained.

Fredbar and Mr Bartlett argued that the judge had been entitled to look at the real bargaining position, the foreseeable risk of failure, the limited goodwill in the territory, and the practical effect of the clause on Mr Bartlett’s ability to work. They also said severance could not rescue a restriction that was unreasonable at its core.

The Court of Appeal accepted that franchise cases are not decided by labels alone. It said the proper approach is to identify the legitimate interest being protected and then ask whether the restraint is more than adequate for that purpose. In doing that, the court can take account of what the parties objectively intended or contemplated at the time the contract was made.

The Court of Appeal dismissed Dwyer’s appeal. It upheld the trial judge’s conclusion that the restrictive covenants were unenforceable on the facts of this case.

The court accepted that Dwyer had a legitimate interest in protecting goodwill. It did not accept the broader argument that there was no goodwill at all in the territory. The Drain Doctor name carried a national system and business model. But the court said the impact of that goodwill in Cardiff was limited. There had been no prior franchisee in the territory, the nearest franchise was at Avonmouth, and national accounts in the area needed to be built up.

The court also treated inequality of bargaining power as a significant factor. Dwyer was a large franchisor. Mr Bartlett was, in the court’s words, essentially a man with a van, and even that van had to be hired. He had to invest his limited savings, borrow from the bank, pay the franchise fee, and rely on the business as his only income. Dwyer knew he had no previous plumbing experience and knew the degree of risk he was taking.

On those facts, the court agreed that this franchise relationship was closer to an employment-style case than to a sale of business case. That did not change the legal test, but it did justify closer scrutiny because the restraint could seriously affect Mr Bartlett’s ability to earn a living.

The court also agreed that the clause was too broad because it did not distinguish between early termination and termination after years of successful trading. At the time the agreement was made, the parties objectively contemplated both success and the possibility of failure. If the franchise ended early, the goodwill to protect would be much less extensive and less valuable than if it ended after a long successful period.

A fixed 12 month restraint applying in the same way regardless of timing was therefore a problem.

The wording was also too wide in what it stopped Mr Bartlett from doing. The judge had found, and the Court of Appeal agreed, that the clause could prevent him from being engaged or concerned in any plumbing or drainage business within the territory, including subcontracting or employment, even where that would have no effect on Dwyer’s protected goodwill. That practical overreach was important.

The five mile extension outside the territory also failed. The court agreed there would be no goodwill to protect in areas where Fredbar had not provided services, and it was not reasonable to impose that wider restriction regardless of whether any goodwill had been established there.

Dwyer also argued that it needed the restriction to help a replacement franchisee have a clear run. But the trial judge had found there was really no factual evidence linking continued trading by the former franchisee to difficulty recruiting a replacement franchisee in this case. The Court of Appeal said there was no appeal against that finding, so little if any weight could be given to that contention.

Dwyer argued that, even if part of the clause was too wide, the court should remove the offending words and enforce the rest. The Court of Appeal rejected that argument.

It said that even if the five mile extension were cut out, the main 12 month restriction within the territory would still be unreasonable for the reasons already given. The same was true if words such as “similar to” or one of the expressions “engaged”, “concerned” or “interested in” were removed. The problem was not a single stray phrase. The restriction was unreasonable in substance on the facts.

For businesses, that is an important drafting point. Severance is not a safety net for a clause that is too broad at its core. If the remaining restraint would still go further than reasonably necessary, the court will not rescue it with a blue pencil.

This case is not a general strike against franchise restraints. The Court of Appeal expressly said so. A 12 month restriction may still be enforceable where the facts justify it, for example where the franchisee is well-established and successful or where the franchisor can show cogent evidence of the need to protect goodwill.

What this case does show is that courts will test the clause against the real commercial setting. If the franchisee is inexperienced, financially exposed, operating in a territory with limited existing goodwill, and the business may fail early, a broad standard clause is more vulnerable.

For franchisors, the practical risk is relying on template wording without checking whether it matches the territory, the stage of the business, and the activity that genuinely threatens goodwill. For franchisees, the practical risk is signing a clause that could stop ordinary work if the relationship ends before the business has built meaningful value.

The judgment also shows that evidence matters. Dwyer said the clause was needed to help recruit a replacement franchisee, but the trial judge found there was no factual evidence linking that proposition to this case. If you want a court to enforce a restraint, you need more than a general commercial assertion.

If your business uses or signs franchise agreements, this case is a good prompt to review both the paperwork and the commercial process around it. The court looked not only at the wording of the clause, but also at the surrounding facts known when the agreement was made.

That means the enforceability question can be affected by what the franchisor knew about the franchisee’s experience, finances, likely dependence on the business, and the level of goodwill already present in the territory. It can also be affected by whether the clause was simply imposed in standard form without any tailoring to obvious risk factors.

The Court of Appeal gave judgment on 30 June 2022. It dismissed Dwyer’s appeal and upheld the declaration that the restrictive covenants were unenforceable between Dwyer, Fredbar and Mr Bartlett on the facts of this case.

The wider dispute was not fully over at that point. The judgment notes that a trial on the quantum of damages suffered by Dwyer had yet to take place. For the purpose of this page, the key point is the appellate ruling on the enforceability of the post-termination restraints.