Breach of cleaning franchise / court costs / debt relief order

[JohnSwansea]

Hi

 

my cleaners, a husband and wife team from Romania, have asked me for some help with a legal situation they are in, and following on from that a likely debt problem.

 

H&W moved to England permanently in 2012 with their children. When they came they signed up to a 'franchise agreement' with a cleaning company. They later tried to terminate that franchise agreement, and the cleaning company is now suing them for a termination fee and also to enforce a restrictive covenant as well as legal costs.

 

H&W have various complaints about how they were misled about terms of the franchise agreement, how they had no choice but to sign, how the terms are unfair etc etc.

 

Those complaints may or may not be valid, but I expect they would lose in court as it seems from looking at the court papers that the cleaning company knows exactly what it is doing and they have presented their case well. And the reality is that H&W dont have the where-with-all to respond properly as their English is not great and they cannot afford lawyers.

 

Naively H&W ignored the cleaning cos threats when they started, and the cleaning co has now started High Court proceedings. So cleaning co has clearly incurred costs in the thousands (solicitor, barrister, court fee etc). My advice will be to try to settle the case before the court date so as to reduce the costs further.

 

However, and this is where my questions come in, I suspect cleaning co will at a minimum, as well as undertakings re no competition (which H&W can live with), will want their costs covered. I doubt H&W can afford that.

 

So lets say they lose in court, and there is an injunciton about not competing in certain area for certain time, as well as a costs order, made against them.

 

I am thinking they may need bankruptcy or a debt relief order to draw a line under this. They have practically no assets (rented accommodation, beat up car etc), and generally speaking I think would qualify for DRO, which generally looks to be a better solution than bankruptcy.

 

Thoughts welcome generally.

 

I assume that if a DRO was awarded debts under a high court costs order would be subject to the moratorium, and discharged after 12 months? But any injunction would still apply, so they would not be able to work as cleaners in the specified area for the time the injunction applies.

 

I assume that they will qualify for DRO under the residency requirment, as they moved to England permanently in 2012, so are now domicilied here.

 

I assume also that there are no immigration implications of a DRO for EU citizens lawfully resident in England?

 

Does that sound correct?

 

Thanks in advance for any thoughts on this situation.

[steampowered]

On costs, the answer to your question is yes. As this is High Court litigation, if unsuccessful they will be on the hook for the cleaning company's legal costs which will almost certainly be thousands of pounds.

 

Clauses preventing people from carrying out their livelihoods are very sensitive. They are known as a restraint of trade. The basic legal requirements are that the restriction must (1) be designed to protect legitimate business interests; and (2) no wider than reasonably necessary. If the clause breaches those requirements the whole thing is generally unenforceable.

 

Restraint of trade clauses are usually only enforced in a situation where the person has some special skills or confidential information which would damage their counterparty. I am finding it very difficult to imagine a situation in which a clause like this would be enforced to stop someone from competing with a cleaning business. The cleaning co also appears to be incurring thousands of pounds in legal costs which it will never recover. This is extremely unusual.

 

I suspect there is much more to this story than you are aware of. In this kind of case the concern is often about stealing customers rather than a concern about operating a competing business. Non-solicitation clauses are much easier to enforce.

 

The termination fee sounds like it is on legally shaky ground. Very often termination fees are unenforceable as penalty clauses, which should not be enforced.

 

The CAB will not be experienced with High Court litigation/injunctions etc. but it is certainly worth them getting along to one.

 

I don't know a great deal about DROs. But if this couple are operating a business I wonder if they will meet the disposable income requirements. There should be no immigration implications since Romania is in the EU.

[JohnSwansea]

Hi Steampowered - many thanks for your response, very helpful. I will respond in detail on the points you make as soon as I can later today

[JohnSwansea]

You may be right about there being more to the story, I am just picking up the tail end of what has clearly become a disfunctional relationship.

 

I sense that what this is really about is the Cleaning Co sending a message to their other franchisees that disloyalty will be dealt with harshly. That this has ended up in High Court proceedings seems bizarre - in the town they are seeking to enforce the covenant it seems H&W have "stolen" only 3 clients with weekly cleaning bill of only £70 or something! The High Court fee is over £1000 and solicitors and counsel fees on top of that, all of which Cleaning Co must know they may well not recover.

 

I need to check the papers but you are probably right that this is more of a non-solicitation claim, although Cleaning Co is seeking to prevent H&W doing cleaning in a specified town for 12 months generally not just for their old clients.

 

Good point on the termination fee. It is only in the hundreds of pounds so it is not blatently a penalty but clearly worth arguing that it is, although per below, on checking I see the pending litigation is not about money for now.

 

Any idea why this has ended up in High Court - is it because Cleaning Co is seeking an injunction? Is there a way of asking that the case is heard in a district or small claims court instead?

 

If it is not possible to settle and the High Court proceedings go ahead, can H&W expect much leeway from the judge as regards presenting their case? They will be unrepresented, and while I can give them some pointers ahead of time, given their English is middling only it is hard to see how they will be able to articulate legal arguments.

 

On checking the papers it seems the current proceedings seek only an injunction to prevent H&W (1) engaging in a domestic cleaning business in the relevant town and (2) from soliciting former clients. The draft order then goes on to require that they provide a sworn statement re contact they have had with Cleaning Cos clients and any cleaning they have done for them since termination of franchise.

 

Presumably that info will then form the basis of a damages claim later?

[steampowered]

Possibly its about sending a message, but people don't normally spend £000s just to send a message, especially in a low-margin business like cleaning.

 

The claim will be in the High Court (in London) since an injunction is being sought. There isn't much scope to get it pushed down to county court or small claims track level unfortunately.

 

I'd imagine they would get some leeway from the judge for being litigants in person, as long as they make an effort to present themselves clearly, both on the papers and in person. What is absolutely key is to meet all the deadlines associated with the court process.

 

The injunction for part (1) seems like it would be difficult to get under normal circumstances (but perhaps not impossible provided that there is a clear, non-excessive time limit and evidence that H&W have solicited clients away form cleaning co in breach of their agreement). Part (2) is easier to get but again the court would want to see evidence that solicitation has taken place in breach of the agreement and that it has damaged the commercial business of the cleaning co. An important part of the strategy would be how to deal with the allegation of soliciting former clients as these things can be difficult for the other side to prove.

 

There would normally be a damages element awarded as part of the same case. Although this would be a bit theoretical if H&W don't have any money to pay and would end up with a DRO or bankruptcy anyway.

[JohnSwansea]

Thanks again (and thanks to Tim Berners-Lee for inventing the internet so we can communicate like this!)

 

The restrictive covenant is for 1 year, not sure whether that would be considered excessive?

 

On the evidence of solicitation seems the Cleaning Co have followed H&W around and got photos of their car parked outside former clients properties, so I think they have got the evidence.

 

In a case like this, is there any disclosure type requirement where you have to advise the other side ahead of time of the arguments you are going to run, or can you just appear in court and present your case to the judge?

[steampowered]

Timing is a bit of a grey area, I think it largely comes down to the attitude of the judge as to what is reasonable. The normal time range is 6-12 months. 12months would need some justification but isn't shockingly long.

 

Assuming this is all being done on notice I'd assume there would be a disclosure process. In any event the burden of proof is on them to demonstrate why the injunction is required.