Supermac’s awarded €96,000 over breach of franchise agreement

A former Supermac’s franchisee must pay over €96,000 in damages to the fast food chain over a breach of their franchise agreement, the High Court has ruled.

Supermac’s Ireland Ltd sued Watchford Ltd, claiming the franchisee was in breach of their agreement arising from unpaid fees.

Watchford, an entity controlled by couple John and Mary Lyons, formally operated a Supermac’s franchise at two premises in Limerick – one on the Ennis Road, and the other at Dooradoyle. The former restaurant opened in 1995, while the latter began trading in 2003.

Watchford made a counterclaim in the proceedings for overpaid restaurant equipment fees.

About 60 per cent of Supermac’s restaurants in Ireland are operated by franchisees.

Franchisees pay a fee to Supermac’s to benefit from use of the Supermac’s brand, marketing and operational support. The fee is calculated as a percentage of an individual restaurant’s monthly turnover.

In a judgment published this week, Mr Justice David Keane noted that “perhaps surprisingly” there was no written agreement underpinning the franchise arrangement between Supermac’s and Watchford.

Both restaurants operated successfully regardless, the judge said, and noted that Watchford recorded an aggregate turnover in excess of €47 million at the Ennis Road premises between 1995 and 2018.

The dispute before the court arose from Watchford’s decision, from August 2018, to reduce its monthly payments to Supermac’s from 10 per cent of its turnover to 7 per cent of its turnover at the Ennis Road premises.

This was in circumstances where Watchford previously asserted the 3 per cent difference was an equipment fee and was only owed to Supermac’s when the amount paid to Supermac’s cumulatively equalled the value of the restaurant’s fit-out and refurbishment works, the judge said. In the alternative, the 3 per cent fee was subject to a rebate in the event of payments exceeding the value of the fit-out and refurbishments, Watchford claimed.

Watchford also asserted that agreement to any further fit-out or refurbishment of the Ennis Road store was contingent on a waiver of the 3 per cent fee.

Supermac’s opposed this and maintained that the appropriate payment was an “undifferentiated” 10 per cent franchise fee.

Watchford wrote to Supermac’s in August 2018, stating that on account of Supermac’s failure to refurbish the Ennis Road restaurant, Watchford was ceasing the 3 per cent fee payments.

In July 2019, Supermac’s terminated the Watchford franchises.

Supermac’s sued, claiming Watchford owed €106,505.02 in unpaid franchise fees and other related fees.

Watchford made a counterclaim for €907,000, arising from what it said were overpayments on equipment fees.

The judge found that on the balance of probabilities, the correct fee owed by Watchford to Supermac’s was a “single, undifferentiated franchise fee” of 10 per cent of the monthly turnover.

The judge said he accepted the evidence of Supermac’s boss Pat McDonagh, “across all of the restaurant premises it owns” – which included the Ennis Road store – “Supermac’s charges a franchise fee of 10 per cent of turnover”.

At restaurants where Supermac’s does not own the premises, it charges a 6 or 7 per cent franchise fee, according to McDonagh, the judge noted.

The judge said that while he did not doubt the honesty and sincerity of John Lyons’ belief that the parties agreed to a 7 per cent franchise fee and 3 per cent equipment fee, he said he was “not persuaded that [Lyons] is correct in that regard”.

The judge further found that the oral franchise agreement between the parties provided that the 10 per cent fee be paid without regard to the costs of works carried out at the Ennis Road premises.

By unilaterally reducing its payments from 10 per cent to 7 per cent, Watchford breached the agreement between the parties, the judge found.

The judge also dismissed Watchford’s counterclaim.

The judge said he would grant judgment to Supermac’s for €96,263.84.