Can you really rely on your No-Reliance Clause?
26 November 2007
Many franchisors are, with good reason, nervous about
misrepresentation claims. If a franchisee's business fails,
the franchisee will undoubtedly attempt to blame the
franchisor. It is also highly likely that at some point an
allegation of misrepresentation will be made.
To succeed in a misrepresentation claim, a
franchisee will have to prove that a false statement of fact
induced him to enter into the agreement and he has suffered loss as
a result. The inducement element is therefore crucial to the
claim. Franchisors often seek to protect themselves from
misrepresentation claims by including a statement in their
agreement that the franchisee has not relied on any pre-contractual
statements when deciding to enter into the
agreement.
The courts have recognised the efficacy of
no reliance clauses in franchise agreements. For example, in
the case of Fleet Mobile Tyres Ltd -v- Stone & Anor
[2006] EWHC 1947 the High Court Judge held that, whilst a no
reliance clause does not guarantee complete protection, the
franchisee's task of proving that he did, in fact, rely on a
pre-contractual statement in the face of a clear statement in the
agreement that he did not, is made very much more
difficult.
The recent case of Quest 4 Finance
Limited -v- John Maxfield and Others [2007] EWHC 2313 tells a
cautionary tale as it shows that a misrepresentation claim will not
always be defeated by a no reliance clause. The Quest case
did not relate to a franchise agreement, but the principles will
apply to any commercial contract. In Quest, the court held
that the Claimant could not rely on a no reliance clause to defend
itself from a misrepresentation claim when the terms of the
contract entered into clearly contradicted information given in the
Claimant's brochure and the Defendant showed that he had relied on
the statements in the brochure.
The Quest case should be a salutary reminder
to franchisors that their no reliance clauses are not
infallible.
Practical Lessons for Franchisors
- Regularly review your franchise agreement to ensure it is
still protecting your business properly.
- Regularly review your marketing and promotional
literature, and your franchisee sales pitch, to ensure that they
are correct and up to date.
- Ensure you have documents to substantiate any statements
and figures quoted.
- Consider investing in a Disclosure Document which is
given to all franchisees during the recruitment process summarising
the franchise offering and key aspects about the
business.
For more information, or advice on how to
minimise your business' exposure to misrepresentation claims,
please contact Mark Abell or Victoria Hobbs.