Implied terms of good faith in franchise agreements

The High Court’s decision in Ellis v John Benson Ltd [2025] EWHC 2096 (KB) represents a significant development in the law governing franchise agreements, particularly regarding the implication of good-faith obligations. The case required the Court to determine whether their franchise agreements contained implied duties of good faith, and whether breaches of those duties entitled them to treat the agreements as terminated.

The judgment is noteworthy because, although English law traditionally approaches good faith with caution, the Court recognised that the particular features of these agreements justified the implication of such duties in fact, placing good faith firmly within the framework of franchise disputes where similar relational characteristics arise.

Franchise relationships and inequality of bargaining power

The Court examined the nature of the franchise arrangements and observed that, although franchising is generally treated as a commercial activity, the agreements in this case possessed features akin to employment contracts. Key factors included:

• The franchisees’ inability to delegate or subcontract performance
• The requirement for instructors to devote substantially their full working time to the franchise
• JBL’s significant control over the pricing that franchisees could charge (at least until early 2020)
• The franchisees’ dependency on JBL for referrals and ongoing work.

Inequality of bargaining power played a particularly important role. The Court found that franchisees were not encouraged, nor required, to seek independent legal advice, and were not permitted to take copies of the agreements home. This “take it or leave it” approach strengthened the case for implying terms necessary to ensure the agreements functioned fairly and effectively.

Implied terms: Good faith and trust and confidence

The principal question was whether a term of good faith should be implied. The Court confirmed that the franchise agreements did not fall within any established category of contract into which good faith is implied as a matter of law. Accordingly, implication in law was rejected.

However, due to the employment-like characteristics and the dependency inherent in the relationship, the Court held that it was necessary to imply a term of good faith in fact to give the agreements business efficacy. This included the duty not to conduct oneself in a manner likely to destroy or seriously damage the relationship of trust and confidence.

The Judge emphasised that this decision was fact-specific and not a general finding that all franchise agreements attract an implied duty of good faith. Moreover, had the agreements expressly excluded any implied obligations of good faith, the Court would not have imposed them.

Breach and repudiation

Several breaches of the implied duties were established, including behaviours and restrictions that undermined fair dealing and trust. The conduct (ranging from unreasonable restrictions on advertising to unilateral extension of agreement terms) was found to have seriously damaged the relationship of trust and confidence between the parties.

These breaches were repudiatory, entitling the franchisees to terminate their agreements despite the absence of any express right to do so before expiry of the minimum term. This provided the only viable legal route for the franchisees to exit what were otherwise long-term, restrictive arrangements.

Implications for drafting and enforcement

The judgment carries significant implications for franchisors, who typically exert substantial control and often issue non-negotiable agreements. It highlights that:

• Courts may imply good-faith obligations where the agreement resembles an employment relationship or reflects material inequality of bargaining power
• Franchisors can take steps to minimise this risk, such as requiring franchisees to obtain independent legal advice, avoiding excessive control, limiting long-term commitments, and ensuring avenues for reasonable exit
• For franchisees, the decision provides reassurance that franchisors may be held to standards of honesty, fairness, and reasonable conduct—particularly in long-term, dependency-based relationships.

Conclusion

Ellis v John Benson Ltd underscores that implied duties of good faith can arise in franchise arrangements where the structure and dynamics warrant it, particularly where the relationship mirrors features of employment. While the Court did not endorse a general implied duty of good faith in franchise agreements as a matter of law, it confirmed that such duties may be implied in fact and that their breach can justify termination.

As debate continues over whether franchising in the UK requires greater statutory regulation, this judgment illustrates how implied contractual terms can serve to protect franchisees in the absence of legislative safeguards.

If you have any queries in relation to your franchise agreements, please contact our Commercial and Corporate team.