At present, there isn’t a general implied duty of good faith in franchise agreements in the UK unless specifically stated. However, the concept of good faith, which involves acting honestly and fairly, is relevant and can be incorporated through express clauses or inferred from the nature of the franchise relationship. While the courts are reluctant to imply a general duty, they may consider it in the context of relational contracts like franchises, especially if the agreement requires ongoing communication and cooperation.
We could now have a turning point with implying good faith with franchise contracts, particularly emphasizing the need for ongoing support and renewal. .
In the upcoming APK Communications Ltd & Others v Vodafone Ltd, a case brought by more than 60 former and current Vodafone franchisees, the court will be asked to consider when a duty of good faith is to be implied into a franchise agreement, what the potential legal consequences of such a decision may be, and how far does the so-called Braganza duty limit a company’s ability to exercise discretion in commercial relationships. It is a landmark case as the claims filed requests £120 million in damages and some damaging claims exist including:
Commission Cuts without Consultation
Franchisees further allege that Vodafone collected confidential information on the financial relief they received from the UK government during the COVID-19 pandemic, and used it to the franchisees’ disadvantage. According to the claims, the data was used to adjust commission payments, effectively cancelling out the intended benefits of the government support and shifting the financial advantage to Vodafone.
Disproportionate Fines for Minor Errors
The claim states Vodafone imposed excessive financial penalties for minor administrative mistakes. Once franchisee cited a £21,000 fine issued over a £7 customer mischarge, calling the penalty “grossly disproportionate and punitive”.
Use of Government Relief Data
Franchisees further allege that Vodafone collected confidential information on the financial relief they received from the UK government during the COVID-19 pandemic. According to the claims, the data was used to adjust commission payments, effectively cancelling out the intended benefits of the government support and shifting the financial advantage to Vodafone.
The claim was filed on 10 December 2024 and in the absence of a settlement the case is likely to go to trial in 2026 and the judgment could redefine how courts treat franchise agreements and, in turn, influence the law for distribution arrangements too.
The Conduct in the Case
The franchisee claimants allege that Vodafone acted unfairly, irrationally, and with little regard for their commercial interests. All claimants are- or were-Vodafone franchisees operating branded retail stores across the UK. These are not informal reseller arrangements; under the franchise agreements, Vodafone exercised significant control over key aspects of the business, including store layout, sales methods, staff uniforms and customer service standards. As such, the franchisees were deeply integrated into Vodafone Ltd’s operations and business practices.
The claimants say that Vodafone abused its position by:
- slashing commission levels without consultation;
- clawing back government-issued COVID rate relief; restraining the ability to strengthen their balance sheet and creating an imbalance in commercial advantage to Vodafone rather than the franchisee
- imposing arbitrary fines; and
- terminating contracts with little warning and while legal proceedings were ongoing.
Why the law cares: Good faith and Braganza
The two legal principles at the centre of this dispute are both rooted in modern attempts to bring fairness into English contract law—without undermining its traditional emphasis on certainty and freedom of contract.
Good faith in commercial relationships:
Since the landmark 2013 case of Yam Seng PTE Ltd v International Trade Corporation Ltd,(the Manchester United fragrance branding case), UK courts have cautiously acknowledged that certain commercial contracts, particularly those governed by specific franchising laws, that contain long-term, high-trust arrangements within and in principal, may carry an implied duty of good faith. This duty broadly requires parties to act honestly, fairly, and in a manner that respects the legitimate expectations of the other side.
Franchisees of APK argue that their agreements with Vodafone fall squarely within this category of “relational contracts”. They claim Vodafone breached this duty by unilaterally cutting payments and introducing new penalties without prior notice or consultation.
The Braganza Principle: Limits on Discretion
Even where contracts grant one party broad discretion- such as the ability to change commission structures or terminate agreements- the UK Supreme Court’s decision in Braganza (Appellant) v BP Shipping Limited and another (Respondents) established that such discretion must be exercised rationally and in good faith.
In Braganza, the Court ruled that an employer deciding whether to pay death-in-service benefits could not act arbitrarily; decisions had to be evidence-based, honest, and free from irrelevant considerations. APK franchisees argue that Vodafone’s actions – ranging from financial penalties to rate changes and terminations – were so one-sided and poorly justified that they violate this principle.
Implications for the Franchise Sector
If the court finds in favour of the claimants on either ground, the ruling could have far-reaching consequences for franchisors across the UK. Franchise agreements are, by nature, long-term and interdependent, often requiring close daily co-operation between both the franchisor and the franchisee within the franchise network. These are precisely the characteristics courts have considered when implying a duty of good faith.
The franchisees contend that Vodafone wielded its power unilaterally, disregarding their legitimate commercial expectations. A ruling in their favour could establish a default expectation of fairness and transparency in UK franchise law.
Moreover, even where a franchise agreement explicitly allows the franchisor to vary commissions or impose penalties, the Braganza duty limits how that discretion is exercised. Courts may begin to scrutinise not just what franchisors do – but how they do it. Courts may begin to scrutinise not just what franchisors do – but how they do it.
This means that the franchisor will need to evidence the decision-making process in terms of:
- Who considered the change?
- What alternatives were weighed?
- Was the franchisee view heard?
The wider view – let’s not just see this about franchising
Although APK v Vodafone is a franchise dispute, the underlying issues apply to distributorships – particularly selective distribution systems – agency models (recognising that good faith is a fundamental part of both agency law generally (insofar as agents are concerned) and the Commercial Agents Regulations so far as both principals and agents are concerned), and even some licensing arrangements.
Many suppliers tightly control how their brand is used, who can sell their product or service, and under what conditions. That might be a traditional distributor agreement, or a tech-platform reseller deal. Either way, where there is control and dependency, the same arguments may apply.
If the court in APK should decide that the franchisee claimants were owed a duty of good faith and that Vodafone’s discretion was subject to the Braganza rationality standard, it can be expected that similar claims will emerge from distributors or commercial agents – as well as franchisees – whose financial terms were changed unilaterally.
What should franchisors and suppliers be doing now?
Until the judgment arrives, don’t panic! However, there are some steps to consider taking:
Review your decision-making processes – especially where you have a discretion over pay, penalties, or performance thresholds. Could you defend them as rational and reasonable?
Ensure consultation and communication are real, not tokenistic – keep written records of meetings and evidence that you considered the input of your franchisee, distributor, or agent.
Train your teams – those managing franchise or distribution networks need to understand that fairness is not just commercial courtesy; it may soon be a legal obligation.
Why this case will matter – irrespective of outcome
Whether or not the High Court decides in favour of the claimant franchisees, APK v Vodafone will set a precedent. If the claim succeeds, it is likely to expand the reach of good faith and Braganza in UK commercial contracts. If it fails, it can be expected to clarify where the line is drawn—and provide a benchmark for drafting and behaviour. This could have the impact on requiring franchisee operations to have more strategic training and understanding on their distinct operations in comparison to their franchisor brand e.g. how commission levels and how they are set may not be independent of the franchisors. Also, the need for structured and proper training in franchise operations.
Do get in touch with our Geoffrey Karikari of RFB’s corporate commercial team (0203 955 7799) to discuss any franchisee plans and partnering, or whether you wish to review any franchise documents and contracts you have to see if they match up the current thinking and operating of good faith and being aligned with your business objectives.
Geoffrey Karikari
Avocat senior associé
