When is a contract more than just a set of rights and obligations? It could be said that it is when one party holds the pen and the other takes the risk. But is that really so in the case of a franchise where there is – or should be – a significant interdependence between franchisor and franchisees?
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 is a duty of good faith to be implied into a franchise agreement and how far does the so-called Braganza duty limit a company’s ability to exercise discretion in commercial relationships.
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.
What’s the case about?
In essence the franchisee claimants allege that Vodafone acted unfairly, irrationally, and without due regard to their commercial interests. The claimants are all—or were—Vodafone franchisees under which they operated Vodafone-branded retail stores across the UK. These were no casual reseller arrangements – under the terms of the franchise agreement Vodafone dictated store layout, sales techniques, staff uniforms, and customer service standards. The franchisees bore the cost of local operations and staffing, while being subject to Vodafone’s commission structure and policies.
The claimants say that Vodafone abused its position by:
- slashing commission levels without consultation;
- clawing back government-issued COVID rate relief;
- imposing arbitrary fines; and
- terminating contracts with little warning and while legal proceedings were ongoing.
Together, the claimants seek over £100 million in damages.
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:
Since the 2013 case of Yam Seng PTE Ltd v International Trade Corporation Ltd, the courts have cautiously accepted that some commercial contracts—particularly long-term, high-trust relationships—can attract an implied duty of good faith. That duty, broadly speaking, means that a party must not act in bad faith, capriciously, or in a way that defeats the legitimate expectations of the other.
APK’s franchisees argue that their franchise agreements are precisely the kind of “relational contracts” that justify this implication. Their case is that Vodafone’s conduct—cutting payments and introducing new sanctions without warning—fell foul of that duty.
The Braganza principle:
Even where contracts are clearly worded and give one party discretion—say, to change commission terms or to terminate on notice – the UK Supreme Court decided in Braganza case that this discretion must be exercised rationally and in good faith.
In Braganza, the Supreme Court ruled that an employer deciding whether to pay death-in-service benefits couldn’t simply decide on a whim. The decision had to be based on evidence, reached honestly, and made without taking irrelevant factors into account. In APK, franchisees argue that Vodafone’s decisions—whether on financial penalties, rate reductions or terminations—were so one-sided and poorly justified that they breach this principle.
Why franchisors should be paying close attention
If the court agrees with the claimants on either point, franchisors will need to reassess how it deals with their franchised networks. This is because franchise agreements, by their nature, are long-term, involve mutual dependency, and often require a high level of day-to-day cooperation. That fits squarely within the characteristics the courts have looked at when implying a good faith duty in relational contracts
The APK franchisees’ case is that Vodafone had all the power—and exercised it in a way that ignored their legitimate commercial expectations. If the court decides that such a relationship requires good faith dealing, it is likely that we will see a default expectation of fairness and transparency implied into UK franchise law.
Further even where a franchise agreement provides that the franchisor can vary commissions or penalise breaches, the Braganza duty limits how that discretion is exercised. If, for example, a franchisor introduces a new fine structure overnight, or alters commercial terms to squeeze franchisees for better margins without consultation, the court may scrutinise not just what was done – but how it was done.
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?
But this is not just about franchising
Although APK 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.
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