Who's to blame if a franchise goes wrong?. Lessons from Papa-John's v Doyley. You sell someone a franchise business. You give them turnover projections based on industry figures. You give them material stating: Figures given are projections, not guarantees
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Lessons from Papa-John's v Doyley
You give them turnover projections based on industry figures
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 unfairHow a franchisee might see it
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
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
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)
Lessons for franchisees