Pizza Wars – Franchisees Turn on Franchisor

80 Pizza Hut Franchisees have failed to obtain an interlocutory injunction against their franchisor (YUM!)

The franchisees wanted to restrain YUM! from introducing a “Reduced Price Strategy” of:

1. Reducing the number of products the franchisees could sell; and
2. Setting a maximum price for the products.

The franchisees claimed the Reduced Price Strategy would have a detrimental effect on their businesses and YUM! was acting unconscionably and was in breach of the implied duties in the franchise agreements to:

1. cooperate to achieve the objects of the franchise agreement;
2. act reasonably or honestly; and
3. act in good faith.

YUM! introduced the Reduced Price Strategy in an effort to regain market share and compete with competitors.   YUM! gave evidence it had undertaken significant research and testing before introducing the strategy.

In deciding not to grant the injunction Jagot J took into account (amongst other things):

1. There was no evidence to suggest YUM! was acting solely in its own financial interest and without reasonable regard for the franchisees;
2. The duty of cooperation concerns the advancement of both interests of the business and does not give the franchisees a right of veto over marketing strategies;
3. Even if YUM!’s modelling was wrong that did not mean it had breached any of its duties or failed to act in good faith;
4. There was evidence that there had been a deterioration in the performance of the franchise and it was rational that something be done;
5. YUM! gave evidence that if the strategy didn’t work it would take action to respond to that;
6. The chance of significant impact on other franchisees who had not participated in the action.