Companies.

[2023]JRC169

Royal Court

(Samedi)

21 September 2023

Before     :		M. J. Thompson, Esq., Commissioner and Jurats Averty and Le Heuzé
Between	(1) Hard Rock Limited
And	(2) Hard Rock Café International (STP) Inc		Plaintiffs
	HRCKY Limited (a company incorporated in The British Virgin Islands		Defendant

Advocate M. L. A. Pallot for the Plaintiffs

Mr Kevin Doyle, Director, for the Defendant.

judgment

INDEX

Heading	Paragraph No.
Introduction	1-5
Parties and witnesses	6-22
Legal structure	23-26
The Franchise Agreement	27-47
Pleadings	48-63
Legal issues	64
Misrepresentation	65-69
Erreur	70-84
Dol / dol par reticence	85-119
An implied term of good faith	120
Does an implied term of good faith apply to all contracts governed by Jersey Law?	120-151
An implied term of good faith for 'relational' contracts	152-169
The entire agreement clause	170-178
Determination of issues	179
Issue 1: The written projections	181-221
-       Were the written projections representations?	222-225
-       Did HRCKY rely on the written projections	226-232
-       One business or two	233-241
-       The accuracy of the written projections	242-250
-       The terms of the Franchise Agreement in relation to Issue 1	251-252
Issue 2: The oral representations	253-268
Issue 3: The profitability of the food and beverage of Hard Rock Cafés owned and run by the Hard Rock Group	269-276
-       The profitability of the corporate cafes	277-303
-       Effect of the food and beverage side of corporate cafés being loss-making in 1999	304-312
-       Was the non-disclosure of the food and beverage side of corporate cafés being loss-making in 1999 deliberate or intentional?	313-332
A breach of the implied term	333-339
Causation	340-346
Loss	347-354
Prescription and affirmation	355-365
Losses suffered by Island Taste	366-367
-       The assignment issue	368-372
-       An estoppel?	387
-       Conclusion	387

the commissioner:

Introduction

1.        This judgment contains the Court's decision in respect of a long-standing dispute about a franchise agreement granted by the First Plaintiff ("Hard Rock") to the Defendant ("HRCKY") ("the Franchise Agreement").  Hard Rock is a company incorporated under the laws of Jersey and is part of the Hard Rock Group which runs the well-known Hard Rock Café brand.  HRCKY is a British Virgin Islands company.  The Franchise Agreement, in summary, permitted HRCKY to run a franchise in the Cayman Islands under the description Hard Rock Café.  As is set out in more detail below, this involved running a restaurant and selling Hard Rock merchandise.  The Franchise Agreement was signed on 11 June 1999. 

2.        The Franchise Agreement was terminated by Hard Rock on 17 June 2013.  In a judgment dated 19 December 2013, the then Master of the Royal Court ruled that the termination notice was lawful.  The judgment also concluded that HRCKY had an arguable counterclaim which should proceed to trial.  At this stage of the proceedings, the counterclaim was limited to allegations of breach of an implied term of good faith.  The matters complained of at paragraphs 19 to 21 of HRCKY's original counterclaim concerned:

(a)           requests to reduce portion sizes and a number of items on the menu (paragraph 19);

(b)           requests to reduce opening hours (paragraph 20); and

(c)           requiring HRCKY to employ managers who were found to be dishonest or incompetent (paragraph 21).

3.        On 1 May 2015, HRCKY expanded the allegations to assert that it had entered into the Franchise Agreement on the basis of misrepresentations including misrepresentations amounting to dol or erreur.  The Court of Appeal in its judgment dated 2 July 2019, reported at [2019] JCA 123, summarised the allegations as follows:

"21. Stripped of the inessentials, the Appellant's case now really amounts to this:

(i)            The Respondents fraudulently misrepresented the anticipated profits of the restaurant business. Had the Appellant been aware of the true likely position, or indeed even of the risks having regard to the worldwide experience of Hard Rock Café franchises, it would never have entered the Franchise agreement in the first place. As a result, the loss which it has sustained extends to the investment made in a business it would never have entered.

(ii)           The unreasonable way in which the First Respondent responded to the requests made by the Appellant for changes in the standard operating business model which the First Respondent insisted upon was a breach of the implied duty of good faith under the contract itself. This caused or contributed to the losses sustained by the Appellant in the operation of its business.

(iii)          The termination of the business agreements by the Respondents was unlawful.

(iv)          There were various overpayments in any event made by the Appellant to the Second Respondent in respect of which damages are due."

4.        In relation to sub-paragraphs (iii) and (iv) of the Court of Appeal's judgment, HRCKY no longer pursues these allegations, but only seek damages for entering into the Franchise Agreement on the basis of dol, erreur or misrepresentation.  The dispute that remains is therefore between HRCKY and Hard Rock.  The detail of the misrepresentations relied upon in relation to this dispute and why they are said to amount to dol or erreur are set out later in this judgment.   

5.        The matters for the Court to determine are therefore those set out in sub-paragraphs (i) and (ii).  This includes consideration of the scope of the doctrine of dol, including whether one party in the possession of significant information is under a duty to inform the other party of that information before they enter into a commercial arrangement.  This judgment also considers whether an implied term of good faith forms part of the law of Jersey, whether such a term formed part of the Franchise Agreement and, if so, whether it was breached.  Finally, we have considered what losses were caused by or flow from any findings of dol, erreur, misrepresentation or breach of an implied term.

Parties and witnesses

6.        The principal operating company of the Hard Rock Group is Hard Rock International.  There are various Hard Rock companies incorporated in different states in the United States of America and elsewhere.  Hard Rock had responsibility for franchise operations and was the franchisor for the majority of the Hard Rock Café franchise locations.  The management and administration of franchise support services was delegated by Hard Rock to Hard Rock International.

7.        The key individuals with whom HRCKY dealt with at the time the Franchise Agreement was granted were Sam Marable, Horace Dawson and Jay Wolszczak.  They are referred to in this judgment as Mr Marable, Mr Dawson and Mr Wolszczak.

8.        Mr Marable was Senior Director of International Development.  It is alleged by HRCKY that he made certain written and oral projections to HRCKY as is set out in more detail below.  Mr Marable sadly passed away in June 2015, shortly after allegations of fraud and misrepresentation / dol were raised for the first time by HRCKY based on Mr Marable's conduct.  Accordingly, neither party was able to obtain any evidence or statement from him in relation to the allegations now made by HRCKY.

9.        Mr Dawson was Vice President, Business Affairs and General Counsel for the Hard Rock Group.  No-one called Mr Dawson to give evidence although Mr Doyle stated he approached Mr Dawson to do so .

10.      Mr Dawson was succeeded by Mr Wolszczak as General Counsel in 2001.  When the Franchise Agreement was entered into by the parties, Mr Wolszczak was employed by the Hard Rock Group as Assistant General Counsel reporting to Mr Dawson.  In 2005, Mr Wolszczak became a Senior Vice President.  He appeared as a witness for Hard Rock.  He explained that Mr Dawson and he as General Counsel were the most senior lawyers within the Hard Rock Group.  

11.      The other witnesses called by Hard Rock who gave live evidence were Hamish Dodds, Oliver Munday and Mr Perez, whom we refer to as Mr Dodds, Mr Munday and Mr Perez in this judgment. 

12.      Mr Dodds was CEO of the Hard Rock Group from 2004 until his retirement in 2017. 

13.      Mr Munday worked for Hard Rock from 1997 till 2011.  When the Franchise Agreement was granted his role was to assess the suitability of sites for Hard Rock Cafes to be owned by the Hard Rock Group within the United States and he did not deal with HRCKY at that time.  From 2004 until he left the Hard Rock Group he was Vice President of Franchise Operations and, in that position, held overall responsibility for the relationship between the Hard Rock Group and franchisees including dealing with HRCKY. 

14.      Mr Perez worked for Hard Rock in the 1990s and from April 2005 when he re-joined Hard Rock.  In the 1990s, he was Senior Director of Operations in Europe.  He was not therefore involved in the granting of any franchise to HRCKY.  From April 2005, he worked for Hard Rock International as Franchise Development Officer for the Americas.  He was later promoted to Senior Franchise Development Officer and then Area Vice President.  His involvement with HRCKY began shortly after he re-joined the Hard Rock Group in April 2005. 

15.      The key individuals involved for HRCKY were Mr Kevin Doyle and his sons, Mr Colin Doyle and Mr Keith Doyle and a Mr Bob Frankel.  In this judgment, they are referred to as Mr Doyle, Colin, Keith and Mr Frankel.  We have referred to Colin and Keith by their first names for ease of reference without intending any disrespect to Mr Doyle's two sons. 

16.      We set out in more detail Mr Doyle's experience later in this judgment, but in summary between 1970 and 1998 he undertook a career in banking.  From 1993, he worked in Cayman as Managing Director of AAL Trust and Banking Corporation. When the Franchise Agreement was granted, Mr Doyle held 49% of the shares in HRCKY. 

17.      Keith is the eldest son of Mr Doyle.  He obtained a law degree from Cardiff University, graduating in 1995.  Prior to the granting of the franchise, he was manager of a retail souvenir business in the Cayman Islands.  He worked for HRCKY and a sister operation in the Bahamas from 1999 until 2013 occupying various roles, but principally heading up the retail business.

18.       Colin is the younger son of Mr Doyle.  Following graduation from university in 1999, he initially worked as Operations Manager in HRCKY for three years, then moved to the franchise in the Bahamas between June 2003 and June 2005, and then returning to HRCKY to act as General Manager until the Franchise Agreement was terminated in 2013.

19.      Mr Frankel was a 51% shareholder in HRCKY until Mr Doyle acquired his interest in 2008.  He is a businessman residing in Maryland.  When the Franchise Agreement was agreed, he held a number of franchises from well-known car manufacturers. 

20.      The other witnesses called by HRCKY who gave evidence were:

(a)           Allyson Clinch, who was Financial Controller for HRCKY from 2001 until 2009 and from 2010 until 2014.  She was also financial controller for the operation in the Bahamas.

(b)           Gregory Leonard, who was Chief Financial Officer of the Hard Rock Group from September 1994 to August 1998. 

(c)           Peter Beaudrault, who was Senior Vice President Operations from September 1995 to October 1997, Chief Operating Officer from October 1997 until 1999, and President and CEO of the Hard Rock Group from October 1999 to February 2003. 

(d)           John Crippen, who was Senior Director of International Franchise until leaving Hard Rock in August 1997. 

(e)           John Cavalaris, who worked for the Hard Rock Group from February 1997 to November 1999 as Director of Franchise Operations, then Senior Director of International Franchise Operations.  He re-joined the Hard Rock Group as Director of International Franchise Operations from September 2004 until June 2010. 

(f)            Nigel Turnbull, who was Finance Director of the Rank Group from July 1987 until December 1999 when he retired.  The Rank Group Plc was the ultimate parent of the Hard Rock Group when the Franchise Agreement was granted to HRCKY in June 1999. 

(g)           Mr Stephen Goodwin, who worked for the Rank Group from 1993 to 1998 when he transferred to work for the Hard Rock Group as Managing Director of Hard Rock Hotels and Casinos and Vice President of Strategic Development.  His responsibilities at Hard Rock included the development of all of franchise territory sales and he was a member of the Executive Committee of the Hard Rock Group. 

21.      Both parties were permitted to call expert evidence from accountants.  HRCKY called evidence from Mr Cosimo Borelli.  Hard Rock relied on reports from Mr James Gilbey and Mr Stephen Lewis who took over from Mr Gilbey. 

22.      The parties were also permitted to adduce evidence from experts in US franchise law.  Oral evidence was heard from Mr Howard E Bundy on behalf of HRCKY, and Mr Lee Plath on behalf of Hard Rock. 

Legal structure

23.      As set out above, the Franchise Agreement was entered into between Hard Rock and HRCKY Limited.  Also as noted, HRCKY, when the Franchise Agreement was entered into, was owned as to 49% by Mr Doyle and 51% by Mr Frankel. In 2008, Mr Doyle bought out Mr Frankel's interest. 

24.      However, how the franchise was operated in Cayman is a little more complicated.  This complexity was due to legal restrictions on non-Caymanians carrying on business within Cayman which required any company carrying on business in Cayman to be Cayman controlled, i.e. the majority shareholding had to be owned by individuals who were Caymanians or persons who had been granted Caymanian status. 

25.      The manner in which HRCKY complied with these regulations was that it took a lease of the premises in Cayman where the Hard Rock Café was to operate.  Its position was that as part of taking a lease, it granted a sub-franchise to a Caymanian company, Island Taste Limited, ("Island Taste") with Island Taste issuing Class A and Class B shares.  Mr Ken Thompson, a Caymanian, held 60% of the Class A shares and was the sole director, with Mr Frankel and Mr Doyle retaining 20% of each of the Class A shares.  Mr Thompson as 60% shareholder received a fixed annual payment of 50,000 Caymanian dollars. Class B shares were classed as 'management shares' and were owned 100% by Mr Frankel and Mr Doyle.  This entitled them to the remainder of any profits made by Island Taste after payment of the fixed annual fee to Mr Thompson.  The lease entered into by HRCKY was granted by Island Taste Holdings Limited which was owned by Mr Thompson's family. Island Taste Holdings Limited is a different company from Island Taste Limited.  

26.      In relation to this structure, while Hard Rock did not challenge HRCKY's evidence through Mr Doyle in relation to the shareholdings of HRCKY and Island Taste Limited, Hard Rock's position was that it never consented to the granting of any sub-franchise to Island Taste.  We address this question later in our judgment.  Otherwise, however, we accept the evidence of Mr Doyle in relation to the structure set up for HRCKY to operate a franchise in Cayman.

The Franchise Agreement

27.      We next turn to set out the terms of the Franchise Agreement.

28.      The following are the relevant terms of the Franchise Agreement for the purposes of this dispute.

29.      The Recitals contained the following definitions:

"I.        Franchisor (Hard Rock) has developed the System (as hereinafter defined), for operating theme establishments that provide to the public Food and Beverage (as hereinafter defined) and Merchandise (as hereinafter defined) of a distinctive character and quality under the name "Hard Rock Cafe," and has publicized such name and related trademarks, tradenames, service marks, logos, and commercial symbols of Franchisor in connection with the operation of the System at establishments throughout the world.

II.        Franchisor licenses the use of the name "Hard Rock Cafe" and certain other trademarks, tradenames, service marks, logos, and commercial symbols (hereinafter defined more fully as the "Licensed Rights") in connection with the restaurant/merchandise establishments operated in conformity with the System to selected Persons who will comply with the Franchisor's uniformity requirements and quality standards.

...

IV.      Franchisor is willing, upon and subject to the terms and conditions specified in this Agreement, to grant to Franchisee (HRCKY) the right to utilize the Licensed Rights and the System in connection with the operation of a Hard Rock Cafe establishment within a specified area, and, in connection therewith, to provide Franchisee with certain marketing, advertising, technology, operational, and other business information, experience, and know how that has been developed by Franchisor at a significant cost to Franchisor.

V.       Franchisee acknowledges that it would take substantial capital and human resources to develop a business similar to the Hard Rock Cafe business, and, as a consequence, Franchisee desires to acquire the right to use the Licensed Rights and the System, and to operate a Hard Rock Cafe establishment subject to and under the terms and conditions set forth in this Agreement."

30.      The definitions in Section 1 contains the following:

""Food and Beverage" means those, and only those, items of food and beverage included within Franchisor's approved menu, as the same may be amended, supplemented, or otherwise modified by Franchisor from time to time in its sole discretion, and Franchisee, by entering into this Agreement, agrees to be bound by all such amendments, supplements, and modifications. The term "Food and Beverage" shall also include food and beverage items specifically approved by Franchisor in writing, in Franchisor's sole discretion, following a written request therefor by Franchisee.

...

"Merchandise" shall mean those, and only those, items of merchandise specified in Exhibit B attached hereto and incorporated herein by this reference bearing the Licensed Rights. Franchisor hereby reserves the right to amend, supplement, or otherwise modify Exhibit B as attached hereto, upon at least ten (10) days' Notice to Franchisee, and Franchisee, by entering into this Agreement, agrees to be bound by all such amendments, supplements, and modifications. The term "Merchandise" shall also include merchandise items specifically approved by Franchisor in writing, in Franchisor's sole discretion, following a written request therefor by Franchisee.

...

"Premises" means the real property upon which the Restaurant (as hereinafter defined) is located, and includes such real property, all structures located thereon, all FF&E, and all appurtenances to any of the foregoing, together with all casements, entrances, exits, rights of ingress and egress thereto, and all improvements thereon or thereto; provided, however, that in the event the Restaurant is located in a shopping mall, shopping center, or similar multi- establishment location, then Premises shall not extend to any space which is not occupied or utilized by the Franchisee for or in connection with the operation of the Restaurant.

...

"Restaurant" shall mean the Hard Rock Cafe restaurant and Merchandise sales establishment operated on the Premises pursuant to this Agreement.

"System" shall mean the method of operation of the Restaurant pursuant to this Agreement and the Manuals and shall include the right to advertise and sell Food and Beverage and Merchandise to the extent specifically authorized herein."

31.      Section 2A granted the franchise and provides as follows:

"(A)     Grant.  Franchisor hereby grants to Franchisee, upon and subject to the terms and conditions contained in this Agreement, and Franchisee hereby accepts, the exclusive right and license to operate at retail one (1) Restaurant; to use the Licensed Rights in the operation thereof; and to sell therefrom Food and Beverage and Merchandise, at a specific location, selected as provided for herein, within the Area as specified in §2(B) hereof.  (Emphasis added)

...

(C)      Scope.  All rights granted herein to Franchisee to utilize the Licensed Rights are limited to the establishment and retail operation of the Restaurant at and from the Premises to the extent specifically provided for in this Agreement....

(D)      Franchise Laws and Regulations.  Franchisee and its Affiliates are sophisticated entities engaged in businesses throughout the Territory and the World in accordance with applicable laws.

(E)      Delegation to a Subfranchisee. The Franchisee may delegate its obligations under this Agreement to an entity Controlled by Equity Owners (or to an entity not Controlled by Equity Owners subject to Franchisor's approval of the entity in its reasonable discretion). subject to the following requirements (a "Subfranchisee"): (i) the Franchisee and such Subfranchisee shall enter into a subfranchise agreement, which shall (A) be consistent with the terms, conditions, principles and objectives of this Agreement and the Area Development Agreement, (B) expressly provide that the Franchisor is a third party beneficiary thereof, with full right and authority to intervene on its own behalf to enforce each term and condition thereof as if it were a direct party thereto and (C) be subject to the prior written approval of the Franchisor in its sole discretion (the "Subfranchise Agreement"); (ii) the Franchisee shall (A) guaranty and remain fully liable for the due observance and performance of each and every obligation, covenant, agreement, representation and warranty (including any and all payment obligations) arising under, relating to or in connection with any Subfranchise Agreement and (B) execute and deliver to the Franchisor a Guaranty in the form attached hereto as Exhibit C; (iii) the Franchisee promptly shall deliver to the Franchisor one (1) fully executed original of each Subfranchisee Agreement; and (iv) the Franchisee, contemporaneously upon execution of any Subfranchise Agreement, shall grant to the Franchisor a security interest in all of its rights under each Subfranchise Agreement, including any and all payments and fees payable by any such Subfranchisee thereunder, and shall cooperate fully with the Franchisor in executing and delivering any documentation or making any filings necessary to perfect the Franchisor's security interest therein."

32.      Section 3 granted the franchise for twenty years, with an automatic right to extend for two successive five-year renewal periods unless HRCKY gave notice otherwise.

33.      Section 4 set out the financial terms payable to Hard Rock.  HRCKY therefore agreed to pay Hard Rock an initial franchise fee of $250,000 on entering into the Franchise Agreement followed by continuing fees of 5% royalties on gross receipts from sales of all food and beverage items and 10% on gross receipts of all sales of merchandise.  The agreement contained a definition of gross receipts at Section 4(D). 

34.      Section 5 of the agreement made it clear that HRCKY was responsible for developing the restaurant.  Sub-section B provided for Hard Rock to approve the location and design of premises selected by HRCKY.

35.      Section 6 gave Hard Rock the right to approve any lease entered into by HRCKY.

36.      Section 7 set out training requirements including an obligation on the part of HRCKY to appoint a general manager, an assistant manager, head chef, a senior floor manager and a chief accountant, with the appointment of each such person being subject to the prior written approval of Hard Rock.  Such personnel also had to go through initial training provided by the Hard Rock Group.  Hard Rock also promised on-site training by reference to sub-section7(F). 

37.      Section 9 required the operation of the restaurant to meet the quality standards set by Hard Rock in the Franchise Agreement and in manuals provided by Hard Rock.  This included the following requirements in Sub-section 9B:-

"(9)      Offer for consumption only Food and Beverage items specified and approved in advance by Franchisor in its sole discretion in accordance with the requirements and specifications of this Agreement and the Manuals.

...

(11)     Comply with Franchisor's instructions with respect to inventory, recipes, portions, appearance, presentation, display, quality, coloring, flavoring, and ingredients of all Food and Beverage and Merchandise offered for consumption or sale at the Restaurant.

...

(13)     Use only those Operating Supplies meeting Franchisor's quality standards as provided for herein or in the Manuals."

38.      Section 10 provided as follows:

"SECTION 10. ADDITIONAL OBLIGATIONS OF FRANCHISEE.

(A) Keep Restaurant Open: Obtain and Maintain Necessary Permits. Franchisee will continuously during the term hereof keep the Restaurant open for serving Food and Beverage and the sale of Merchandise in accordance with the terms of this Agreement and the Manuals. Franchisee will obtain and maintain such liquor and other licenses and other Permits as shall be necessary to operate the Restaurant in accordance with the terms hereof, including, without limitation, all required Permits in respect of music played in the Restaurant. The risk of obtaining and maintaining any Permits required to develop and/or to operate the Restaurant and/or the Premises as contemplated herein shall be upon Franchisee, and Franchisor assumes no responsibility therefor."

39.      HRCKY was under a best efforts obligation in relation to the operation of the restaurant in Sub-section 10F as follows:

"(F) Best Efforts Required. Franchisee will use its best efforts to procure the greatest volume and value of turnover for the Restaurant consistent with good service to the public and compliance with the terms of this Agreement."

40.      Sub-section 12A provided for HRCKY's books and records to be made available to Hard Rock.

41.      Sub-section 12B set out the reporting requirements required form HRCKY as follows:-

"(B) Reporting Requirement. Franchisee shall deliver, or cause to be delivered, to Franchisor, the following statements:

(1) Weekly Gross Receipt Reports.

By Wednesday of each week, and in a form as may be prescribed by Franchisor, a detailed statement of all Gross Receipts of the Restaurant for the previous week, together with reports of inventory on hand, and such other information as may be required by Franchisor.

(2) Monthly Financial Statements.

Within ten (10) days following the end of each calendar mouth, and in a form as may be prescribed by Franchisor, a detailed statement of income, showing the results of operation of the Restaurant for such month and the year to date, and a statement of cash flows for such month and year to date, and having annexed thereto a computation, in such reasonable detail as Franchisor shall require, of the Continuing Fee and all expenditures of Franchisee pursuant to 58(B), 58(C), and 58(E) of this Agreement, for such preceding month and year to date.

(3) Annual Audited Financial Statements.

Within ninety (90) days following the end of each fiscal year of Franchisee, and in form as may be prescribed by Franchisor, a balance sheet, statement of income, and a statement of cash flows, of Franchisee for such fiscal year, together with an opinion thereon rendered by the Accountants, and having annexed thereto a computation, in such reasonable detail as Franchisor shall require, of the Continuing Fee and all expenditures of Franchisee pursuant to 58(B). 58(C), and 58(E) of this Agreement.

(4) Quarterly Business Reports.

Within fifteen (15) days prior to the end of each calendar quarter, a written narrative report describing the current status of the Restaurant, material issues in connection with its business and operations, Franchisee's plans for marketing and promotion to be effected during the ensuing calendar quarter, and Franchisee's projections of Gross Receipts and expenses for the ensuing calendar quarter."

42.      Sub-section 12(C) gave Hard Rock the right to review and audit HRCKY's books and records. 

43.      Sub-section 12(D) required HRCKY to preserve all its records for at least seven years after termination of the Franchise Agreement. 

44.      Section 14 dealt with termination provisions which were considered in the judgment dated 19 December 2013. 

45.      Section 18 contained general provisions including the following:

"(C) Independent Contractor Status.

This Agreement does not create a fiduciary relationship between the parties hereto, and Franchisee is and shall, at all times, remain an independent contractor. Nothing in this Agreement is intended to constitute either party an agent, legal representative, subsidiary, joint venturer, partner, employee, or servant of the other party for any purpose. During the term of this Agreement, Franchisee shall hold itself out to the public only as an independent contractor operating the business pursuant to a license and franchise from Franchisor. Franchisee shall take all such affirmative action as Franchisor shall deem necessary to comply with the foregoing, including, without limitation, providing the notice required by §11(E)(6) of this Agreement, and exhibiting a notice of such fact in a conspicuous place at the Premises, the content of which notice Franchisor reserves the right to specify.

...

(G)      The Franchisee acknowledges that other franchisees of the Franchisor have or will be granted franchises at different times, different locations, under different economic circumstances, and in different situations, and further acknowledges that the economics and terms and conditions of such franchises may vary substantially in form and substance from those contained in this Agreement.

...

(I)        Applicable Law and Jurisdiction.

This Agreement shall be enforced, and performed in accordance with the internal Laws of the Island of Jersey, without reference to the principles of comity or conflicts of law thereof. For all purposes and disputes hereunder, the parties hereto consent and agree that the courts of the Channel Islands shall have nonexclusive jurisdiction over any case, claim or dispute arising out of this Agreement.

(K)      Entire Agreement.

This Agreement, the documents referred to herein, and the attachments hereto, if any, constitute the entire, full, and complete Agreement between Franchisor and Franchisee concerning the subject matter hereof, and supersede all prior agreements, no other representations having induced Franchisee to execute this Agreement. No representations, inducements, promises, or agreements, oral or otherwise, not embodied in this Agreement (as defined in the preceding sentence) or attached hereto (unless of subsequent date) were made by either party, and none shall be of any force or effect with reference to this Agreement or otherwise. Except as otherwise provided in this Agreement, no amendment, change, or variance from this Agreement shall be binding on either party unless mutually agreed to by the parties and executed by their authorized officers or agents in writing."

46.      Section 19 concerned the franchisor's optional right of purchase.  It contained the following at sub-section H:

"(H) Franchise Laws Not Applicable.

It is the intention of the parties that the negotiation, execution, delivery and performance of this Agreement and the other agreements, instruments and documents to be executed and delivered in connection herewith, and the consummation of the transactions contemplated hereby and thereby not trigger or be subject to the franchise laws and regulations of any jurisdiction."

47.      The agreement was signed by Hard Rock, including being witnessed by Mr Wolszczak for Hard Rock and by Mr Frankel on behalf of HRCKY Limited (then known as Anakin Holdings Limited).  Mr Frankel's signature was witnessed by a Mr Giglioli, the Cayman lawyer advising HRCKY at the time the Franchise Agreement was entered into.

Pleadings

48.      In the Court of Appeal judgment referred to above in relation to pleadings, the Court observed at paragraph 11:

 "The pleadings are not as clear as one would wish.  Given our decision on this appeal there is an urgent need that they be clarified".

49.      Although the answer and counterclaim of HRCKY were amended subsequent to the Court of Appeal decision, the clarity sought by the Court of Appeal by the amendments has not materialised.  We nevertheless set out the current pleaded case brought by HRCKY.  The relevant paragraphs of HRCKY's Re-Re-Amended Answer and Counterclaim are as follows:

"2. THAT the agreement entered into by the Defendant was entitled a "Restaurant Franchise Agreement" ("Franchise Agreement") it was-also of which it was an implied term of the Franchise Agreement that the parties would co-operate with each other in good faith and act rationally in order to promote the values and purposes expressed or implicit in the Franchise Agreement ('the implied duty of good faith"). The matters referred to, inter alia, in paragraph 24F3 below are relevant circumstances for the implication of the said term.

17. THAT the First Plaintiffs' purported termination of the Franchise Agreement by an invalid Notice of Termination was wrongful and a breach of section 3(A) of the Franchise Agreement. The Defendant pleads as follows without prejudice to its contention in paragraph 24F7 below that the Franchise Agreement and the Memorabilia Lease were void by reason of dol or dol par reticence and to its claims in respect thereof. For the avoidance of doubt, the Counterclaim under this head does not affirm or revive (if it is possible to do so) the said agreements.

19. THAT in breach of the implied duty of good faith and co-operation set out in paragraph 2 above, the First Plaintiff required the Defendant to operate the franchise business in accordance with the First Plaintiff's model and has consistently refused to accede to the Defendant's reasonable requests, made repeatedly since 2002, to be permitted to implement changes to the operation of the restaurant business so as to reduce the year by year losses that were being incurred on the restaurant business including, inter alia, requests to reduce the portion sizes of food served to customers (as specified by the First Plaintiff's guidelines for franchisees) and to reduce the prescribed menu by removing poor-selling items, notwithstanding the First Plaintiff's awareness that the restaurant side of its franchisees' business is structurally loss-making and requires cross-subsidy from retail sales (as set out in its "Strategic Plan for 2008" acknowledging that "without merchandise sales, HRC's restaurant sales per unit is much lower than its competitors"). Despite the First Plaintiffs' knowledge of the vulnerability of the restaurant business model, the The Defendant was has thus been prevented by the Plaintiffs from taking reasonable and proportionate steps to reduce or prevent the huge losses which it has continually suffered on the restaurant side of its operation or repay and/or recoup its investment in the Grand Cayman franchise.

20. THAT in further breach of the implied duty of good faith and co-operation, the First Plaintiff has failed to accede to the Defendant's repeated and reasonable requests to be allowed to reduce its opening hours in the evenings, after the departure of the cruise ship passengers who make up the vast majority of the customers of the Grand Cayman franchise. The First Plaintiff has thus forced the Defendant to incur unnecessary costs by applying a rigid corporate policy as to opening hours and failing to have due regard to the particular local characteristics of the Defendant's operation.

23. THAT by reason of the breaches set out in paragraphs 18 to 2020 above, the Defendant has suffered loss and damage under, inter alia, the following heads:

(b) losses incurred year by year on the restaurant business and the value if of its investment date on the restaurant operation and as a result of having-to-open the cafe every night; and/or wasted or increased expenditure."

Misrepresentation and Dol

Misrepresentation

24A     The business of the Plaintiffs, carried out directly and through franchise operations, envisaged and involved two distinct activities which activities the Defendant was required to carry on as part of the agreement. The two activities were, as set out under paragraph 5(b) above (i) the restaurant, involving the sale of food and drink at the Defendant's premises ("the restaurant business") and (ii) the retail sale of articles generally carrying the "Hard Rock" logo at the premises ("the retail business").

24B1   Prior to entering into the Franchise Agreement one Kevin Doyle who for all purposes represented the Defendant (and also Island Taste Ltd referred to below) had discussions with representatives ofn the Plaintiff in particular one Sam Marable.  It was at all times known and fundamental to the Franchise Agreement that the Franchisee would be required to carry on the franchise operation exactly in accordance with the requirements of the Plaintiffs.  Further, the First Plaintiffs and its affiliates had had experience for many years in running directly and through franchisees, the Hard Rock café business consisting of the restaurant and retail activities as set out above.  They, had, and would be expected to have, and they stated that they had knowledge of, the running of the businesses and their profitability.  It was also the case and known to the Plaintiffs that the (or any) franchisee entering into the Franchise Agreement would be bound to expend very significant amounts of money to set up the business, in the case of the Cayman Islands, in excess of CI$4.8m.

24B2   At all material times, the standard term of a franchise offered by the First Plaintiff was one of 10 years but the Franchise Agreement was in fact for a term of 20 years pursuant to section 3 thereof.

24C     In the circumstances, the matter of the profitability of each of the retail and restaurant sides of the business separately and not simply cumulatively were of the utmost importance to the Defendant and this was at all times realised by the Plaintiffs and their representatives.

24D1   In order to persuade the Defendant to enter into the Franchise Agreement the Plaintiffs made the following representations during discussions with the Defendant as to profitability and so as to convey the robust nature of the Hard Rock business model. which was expressly or impliedly based on their actual experience and knowledge.  The Plaintiffs through the said Sam Marable provided the Defendant with a series of detailed financial projections during March,1999 and:

i.         Expressly represented that if the Defendant entered into the Franchise Agreement, it could expect to make returns of 15 -30% per annum and in revised  figures, as much as 36.2%, and, further, that its outlay/investment could be paid back within 3 years but, at the latest 5 years.

ii.        Impliedly represented the accuracy and honest belief in the aforementioned returns.

iii.       Expressly and/or impliedly represented that such returns and figures were based upon relevant and actual financial figures obtained from Hard Rock corporate owned restaurants, alternatively, impliedly represented that such returns and figures were based upon relevant Hard Rock accounting information within its possession.

iv.       Impliedly represented through such discussions, projections and stated returns that each of the restaurant and retail businesses would be, or was likely to be profitable. Had either business tended to make a loss in practice, or been likely to have done so, such fact would reasonably have been expected to have been made known to the Defendant in the context of such discussions, projections and stated returns;

v.        Impliedly represented that no material fact had been concealed or not disclosed in the creation or presentation of such figures or in the expected returns that the Defendant might reasonably be expected to make from entering into the Franchise Agreement, inter alia, that required the Defendant to comply with the First Plaintiff's business model and over the extended, non-standard term of 20 years.

24D2   Further or alternatively, the service upon the Defendant of a formal pre-contract disclosure document ("Franchise Offering Circular") entitled "Information for Prospective Franchisees required by the Federal Trade Commission" sent to the Defendant franchisee on 9 June 1999 and immediately prior to the signature of the Franchise Agreement on 11 June 1999, are additional circumstances that fortify and/or result in the implication of the  representations set out at 24D(ii), (iii), (iv) and (v) above.

Particulars

(a)       By reason of the US corporate structure to which the First Plaintiff was affiliated in respect of the development and running of Hard Rock franchise business, the First Plaintiff and/or its affiliates were obliged to comply with, alternatively, voluntarily adopted guidance and regulations issued by the United States Federal Trade Commission ("FTC") when serving their Franchise Offering Document upon the Defendant. By serving that document, the Plaintiffs and their affiliates necessarily adopted the standards and requirements imposed upon persons subject to the regulatory requirements issued by the FTC. Further or alternatively, it was a common assumption of and between the parties that this was the case, and the Plaintiffs are estopped by convention from denying the same, since it would be inequitable for them to do so.

(b)       The Franchise Offering Circular was sent to the Defendant under cover of a letter signed by Mr. Horace G. Dawson, III who at all material times was both a director of the First Plaintiff and Vice President of Hard Rock Cafe International (USA), Inc., being affiliated companies that acted together in furtherance of the Hard Rock Café business. The credentials of Mr. Horace G. Dawson, III were further set out under "Business Experience" at "Item 2" of the Franchise Offering Circular.

(c)       The Franchise Offering Document gave on its front page the address of the registered office of the First Plaintiff, but incorrectly referred to it as "Hard Rock Café Limited." The document later went on to state in fact that ""we" or "us" means Hard Rock Limited, the franchisor."

(d)       In order for the Franchise Offering Document to comply with FTC guidance and regulations it had to comply with features that are more particularly set out in the report and declaration of Mr.Craig Tregillus dated 21st November 2018.  In particular, having discussed the financial viability of the proposed franchise, provided projections and stated returns as pleaded in paragraph 24D above, a "reasonable basis" for the statements of Mr Sam Marable must/was required to have existed at the time, and, further, the Defendant should have been provided with an "earnings claim document" inter alia giving disclosure of "all material facts in an accurate and unambiguous manner." FTC guidance specifically stated that:

"If the written disclosures contain an untrue statement of a material fact, or omit to state a. material fact which is necessary to make the statements made (in light of the circumstances under which they were made) not misleading, such failure or omission will violate the rule."

24E     Induced by and acting in reliance upon each of the said representations, and convention, the Defendant entered into the Franchise Agreement on 11th June 1999 and the Memorabilia Lease on 14th April 2000. The Defendant relied upon the representation and on the faith of the same, entered into the Franchise Agreement based on factual statement on a crucial matter made by a party who had, or professed to have, special knowledge and skill with the intention of inducing the other party to enter into the Franchise Agreement and it did induce the Defendant to enter into the Franchise Agreement  The statement made by a party holding itself out as having special expertise in circumstances (namely the Plaintiffs as franchisor were the only parties - with other members of the Hard Rock Group - who would have had knowledge of the true factual position of the profitability of franchised businesses of that Group). 

24F1   The discussions, projections, stated returns and Franchise Offering Document were misleading and provided false reassurance to the Defendant. Each of the said representations pleaded in paragraph 24D1 was false as is further particularised below The statement was and were therefore made fraudulently in that they were it was deliberately made by the Plaintiffs with knowledge of their its untruthfulness or recklesslyness  not caring whether they were true or false. as to whether it was or was not truthful, or in bad faith.

24In truth and in fact tParticulars

(a)       The Plaintiffs were aware at the time of making the representations and thereafter that the restaurant business was only profitable in a very few locations and in the majority of locations it was unprofitable and loss making.  The Plaintiffs therefore knew of the vulnerable nature of the business model, particularly where Where the restaurant business had high outgoings - as in the Cayman Islands a matter of which the Plaintiffs were well aware - it would be unprofitable if run in accordance with the Plaintiffs business model which it required as a term of the Franchise Agreement.  Had the Defendant been aware of this fact, it would never have entered into the Franchise Agreement or expended the very substantial sums it has expended which have been lost. Accordingly, the Defendant was always unlikely to reach the projected returns and, particularly the higher brackets stated by Mr.Marable and, in practice, never did so.

(b)       The said figures and returns did not fairly reflect relevant and actual financial figures obtained from Hard Rock corporate owned restaurants, alternatively, relevant Hard Rock accounting information. The Defendant will refer in particular to relevant 1997 gross sales figures provided by Mr Sam Marable to the Defendant in respect of the nearest comparable restaurants to the proposed Cayman Islands franchise, viz, St Thomas and San Juan. The gross sales figures provided were materially overstated. Thus:

St Thomas:

Gross sales as represented to the Defendant:     $4.3 million

Actual gross sales: $3.75 million

San Juan:

Gross sales as represented to the Defendant:     $6.5 million

Actual gross sales: $5.7 million

The effect of the said overstatements of gross sales was to overstate the profitability of those restaurants and thus the anticipated profitability of the restaurant operations of the proposed Cayman Islands franchise. Those overstated figures were relied on by the Defendant in assessing the profitability of the proposed franchise and were repeated in a report prepared by it for the purpose of obtaining bank financing for the acquisition and operation of the proposed franchise.

(c)       The First Plaintiff concealed material facts from the Defendant, namely, the central weakness in the Hard Rock business model for the operation of "a restaurant franchise" that the vast majority of restaurants made a loss and were not profitable. Given that the Plaintiffs, its agents or affiliates hold, or at one time held relevant documentation, the best particulars that the Defendant is currently able to give is as follows:

(i)        As at 1992/3 accounting records show that approximately half of Hard Rock restaurants made a loss.

(ii)       For the financial year ending 1997, 87% of all restaurants under the Hard Rock brand (whether franchised or corporately run) made a loss.

(iii)      At all material times subsequent to 1997, the vast majority of restaurants continued to make a loss.  At a hearing on 3rd November, 2017, the advocate for the Plaintiffs made the following admission pursuant to RCR 6/19 " ..there was evidence that the cafes, the restaurants themselves did not make any, were not inherently profitable."

(iv)      Where profits of the retail business decline, there is a significant risk of collapse of the franchise or as the Plaintiffs have described in an internal presentation, would result in a "death spiral."

(v)       At all material times, a "restaurant franchise" depended upon retail sales so as to remain viable.

(vi)      At all material times, the above features and therefore the weakness in the Hard Rock business model, were discussed by executives involved in the Hard Rock franchising business and would have been known, inter alios, by Mr. Sam Marable and by the First Plaintiff, or reasonably ought to have been known.

Other executives who were aware of such features included Mr. Peter Beaudrault, the Chief Operating Officer and Mr. Greg Leonard, the Chief Financial Officer (until August 1998) and former Vice President Finance and Corporate Controller and Steven Goodwin, Vice President Strategic Development from January 1998. The credentials of Mr. Peter Beaudrault and Mr. Steve Goodwin were further set out under "Business Experience" at "Item 2" of the Franchise Offering Circular.

(d)       Further or alternatively, and by reason of the matters aforesaid, and as particularised in the report and declaration of Mr.Craig Tregillus dated 21st November, 2018, the Franchise Offering Circular itself did not therefore comply with FTC guidance and regulations, was incomplete, misleading and failed to include an earnings claim document and/or disclose all material facts in an accurate and unambiguous manner.

Dol

24F2   In addition to any implied duty of good faith during the operation of the Franchise Agreement, prior to the execution of the Franchise Agreement there was a duty upon the First Plaintiff (i) to disclose to the Defendant before it entered into the Franchise Agreement any knowledge the First Plaintiff had relating to the proposed operation of a "restaurant franchise" that was or was reasonably likely to be material to the Defendant and (ii) to act in good faith.

24F3   Such duties arose and/or were more onerous in the circumstances of the instant case because:

(i)        It involved a prospective franchisee entering into a relational contract with the First and Second Plaintiffs with management and administration of the franchise further delegated to the Plaintiffs' US affiliates;

(ii)       Such circumstances were, further, analogous to a form of contrat de société / contrat d'interêt commun.

(iii)      The period of such contract was unusual for a Hard Rock franchise and was for the extended period of 20 years as opposed to 10 years.

(iv)      The Plaintiffs and their US affiliates possessed specialist knowledge and skill in respect of Hard Rock franchise business of which the Defendant had no independent means of verifying and/or upon which the Defendant relied.

(v)       As was known to the First Plaintiff, and specifically to Mr. Sam Marable, the Defendant, and its directors had never run a restaurant business before.

(vi)      There were discussions between the parties as to profitability, whereby Mr. Sam Marable of the Plaintiffs sought to convey the robust nature of the Hard Rock business model, with projections and stated returns provided to the Defendant. Paragraph 24D above is repeated.

(vii)      An obligation, inter alia, to disclose all material facts in an accurate and unambiguous manner was assumed on the part of the First Plaintiff by reason of the service of the Franchise Offering Circular on the Defendant shortly before execution of the Franchise Agreement as is pleaded in paragraph 24E above, being in purported compliance with FTC regulations and guidance. Furthermore, the duty of compliance with such FTC regulations had been assumed by the Plaintiffs and their affiliates, and they are estopped from denying the same.

24F4   Paragraph 24F1 above is repeated. The First Plaintiff knew or ought reasonably to have known that a core component of a Hard Rock restaurant in selling food and beverage (a) posed a likely, or significant risk of running at a loss; (b) that retail sales were in fact highly significant, if not essential, to the overall profitability of the franchise and therefore (c) that there was an inherent vulnerability in the continued operation of the franchise, not least over the non-standard, contracted 20 year term.

24F5   The facts and matters referred to in paragraphs 24F1 and 24F4 above were material and reasonably likely to have been material to the Defendant when deciding whether or not to enter into the Franchise Agreement either at all, or alternatively on the terms offered.

24F6   By reason of the matters pleaded above, the First Plaintiff is guilty of (i) dol; (ii) dol par réticence and (iii) acting in bad faith in that it failed (a) to disclose to the Defendant its knowledge of the facts referred to above prior to the execution of the Franchise Agreement; (b) masked or concealed such knowledge from the Defendant; and/or (iii) misled the Defendant in respect of the same.

24F7   The Defendant would not have entered into the Franchise Agreement at all had it know of the matters referred to in paragraph 24F1 and 24F4 above. Further or alternatively, the Defendant would not have suffered the losses which it has incurred as a result of entering into the Franchise Agreement. If and so far as may be necessary the Defendant will contend that, notwithstanding the purported termination of the Franchise Agreement and Memorabilia Lease pleaded in paragraph 11 of the Order of Justice, the said agreements were void by reason of dol or dol par reticence and that the Defendant is entitled to restitution in respect of all costs and expenses incurred in respect of entering into the said agreements and/or damages suffered in consequence thereof. Particulars of such losses will be served in the form of an updated Schedule following receipt of expert evidence.

Erreur

24.F8  Further or alternatively, by reason of the matters aforesaid, at the time of execution of the Franchise Agreement and in the premises, the Defendant was subject to an erreur as to an essential element of the contract, namely the cause of the contract (known also as error as to the basis or purpose of the agreement).

24G     In the circumstances As a result of the matters set out above, the Defendant has suffered serious loss and damage, and the Plaintiffs have been unjustly enriched. Further or alternatively, the Defendant would not have suffered the losses which it has incurred as a result of entering into the Franchise Agreement."

50.      In relation to Island Taste, the assertion of HRCKY is that the Plaintiffs are estopped by their conduct and acquiescence in denying the legitimacy of the role performed by Island Taste Limited.  This led to the following being pleaded at paragraphs 26 to 28:

"26 As the Plaintiffs were well aware that the Franchise Agreement would be operated by Island Taste and continued on such basis from the start to the end of the Franchise Agreement, it was at all times within their contemplation that if loss was suffered as a result of their breach of contract or misrepresentations as set out above, such loss would fall on Island Taste but (subject to any arrangement between the Defendant and Island Taste Limited) the Defendant would be claiming such loss. Accordingly, in law, the Defendant is entitled to claim for all losses suffered by Island Taste.

27 Further or alternatively, the Defendant will rely upon the following. Island Taste went into liquidation by special resolution on 3 October 2013, which liquidation was continued under the supervision of the Grand Court of the Cayman Islands on 18 December 2013.  Island Taste was dissolved by Order of the Grand Court effective 28 February 2015. By a legal assignment made 27 February 2015 between Island Taste and the Defendant (the Assignment) pursuant to an order of the Grand Court of the Cayman Islands, notice of which has been given to the Plaintiffs, all rights of and in Island Taste relating in any way to the Franchise Agreement have been assigned to the Defendant. Accordingly the Defendant is entitled to and does claim all and any loss suffered by Island Taste.

28 As an alternative to the claims of the Defendant under or in relation to the Franchise Agreement whether directly or by virtue of the Assignment, the Defendant will if necessary assert that in the year 2000 by a course of dealings between Island Taste and the Plaintiffs, a contract was entered into between Island Taste and the Plaintiffs on terms similar to those set out in the Franchise Agreement. The Defendant repeats the assertions of damage consequent upon breach of contract and misrepresentation in relation to this contract. Such claims will have been assigned by the Assignment."

51.      What is sought for the claims based on misrepresentation, dol, including dol par reticence, and erreur are damages.  No particulars of the damages sought are pleaded apart from the damages claimed for breach of an implied term of good faith referred to at paragraph 23(b) set out above.

52.      By the time matters came to trial, the complaints of HRCKY arising out of its Re-Re-Amended Answer and Counterclaim can be summarised as follows:

(a)           Whether written projections provided by Mr Marable in March and April 1999 were misrepresentations, amounted to dol, including, or entitled HRCKY to claim damages for entering into a contract dol par reticence on the basis of erreur.  In this judgment, these projections are referred to separately as the "March Projections" and the "April Projections" and together as the "Written Projections";

(b)           Whether Mr Marable made oral representations to HRCKY that HRCKY could expect to make returns of 15 - 30% per annum.  It was alleged in evidence that these representations were made orally at a dinner attended by Mr Marable, Mr Doyle and Mr Frankel on 18 March 1999 at a restaurant in Cayman.  In this judgment, these representations are referred to as the "Oral Representations";

(c)           What was known by the Hard Rock Group about the profitability of the food and beverage side of Hard Rock Cafes owned and run by the Hard Rock Group, and whether this knowledge should have been disclosed to HRCKY, either in combination with the Written Projections or the Oral Representations or on a standalone basis.  The questions for the Court to determine is whether the matters complained of should have been disclosed and, if they should have been, whether they were withheld deliberately or recklessly.

53.      The above matters give rise to the following legal issues:

(a)           What is a misrepresentation as a matter of Jersey law.

(b)           The effect of a misrepresentation.

(c)           The law of dol including dol par reticence.

(d)           Whether a duty of good faith arises between parties prior to formation of a contract.

(e)           The scope of claims based on erreur.

(f)            Whether an implied term of good faith operates during a contract

54.      If HRCKY's claims based on allegations that it would never have entered into the Franchise Agreement had it known what it says was the true position are not successful, HRCKY, in the alternative, pleads that the Franchise Agreement was subject to an implied term of good faith during its operation and that Hard Rock breached that term by refusing to agree to certain variations to the Franchise Agreement as pleaded at paragraphs 19 and 20 of the Re-Re-Amended Answer set out above.

55.      It is right to observe that the Re-Re-Amended Answer and Counterclaim at paragraph 24D(2) relies on service upon HRCKY of a document called a Franchise Offering Circular ("the Circular") on 9 June 1999.  However, in his witness statement dated 13 January 2017 at paragraph 61, Mr Doyle stated the following in relation to the Circular:

"I didn't pay much attention to it given that by the time we received it we had essentially concluded our negotiations of the terms of the RFA and ADA and that we had been furnished with extensive information about the costs and projected returns of the franchise opportunity. At the time I did not understand the importance of the FTC Document. Mr Dawson did not explain its contents or what in particular we should do with the information contained in it."

56.      In addition, the franchise law experts agreed that US franchise law did not give HRCKY any cause of action against Hard Rock for any breach of US franchise Law in relation to the Circular.  Accordingly, it is not necessary to determine the claims of HRCKY in relation to the Circular as pleaded because it was not a document that led HRCKY to enter into the Franchise Agreement and it is not a document that gives HRCKY a direct cause of action against Hard Rock.  We did hear evidence from these experts on the assumption that US Franchise law did apply which we address in relation to the question of Hard Rock acting dishonestly in withholding information about the profitability of the food and beverage side of cafes operated by the Hard Rock Group.

57.      From the perspective of Hard Rock, in addition to disputing the claims of HRCKY Limited, Hard Rock raised the following issues in its pleading for determination:

(a)           Whether the Franchise Agreement created one business or two.

(b)           What was the knowledge of Mr Doyle in relation to what level of merchandise needed to be sold in order for HRCKY Limited to make a profit.

58.      Hard Rock further raised that HRCKY countersigned a letter to it from the Hard Rock Group dated 24 October 2007 (through Hard Rock International) which letter permitted HRCKY to sub-lease a portion of the ground floor of the premises operated by HRCKY to a sub-tenant called Diamonds International).  The letter contained the following provision:

"Except as expressly amended or modified by this Letter Agreement, the RFA shall remain unchanged and in all other respects ratified and confirmed and remains in full force and effect in accordance with its terms. A default or breach by a party of the provisions of this Letter Agreement shall also constitute a default or breach of the provisions of the RFA."

59.      The letter also contained the following:

"This Letter Agreement shall be construed, enforced, and performed in accordance with the internal laws of England, without reference to the principles of comity or conflicts of law thereof."

60.      Hard Rock contend, in relation to this letter, that HRCKY has affirmed the Franchise Agreement and therefore is precluded from bringing any claims known to it at that date, which Hard Rock contend applies to all the claims for damages based on the assertion that HRCKY would not have entered into the Franchise Agreement had it known what it says is the true position. 

61.      Hard Rock further raise causation issues contending that the profitability of the franchise granted to HRCKY was impacted by a number of factors summarised in its opening for trial as follows:

"(i) Hurricane Ivan; (ii) a decline in the Cayman tourism industry; (iii) changes to the characteristics of the cruise ships visiting the Cayman Islands; (iv) the global financial crisis of 2008; (v) the re-positioning of the port in Cayman; (vi) a decline in standards of hygiene in the kitchen area of the Franchise premises; and/or (vii) a decline in the upkeep of the façade and interiors of the Franchise premises."

62.      In relation to issues of loss, apart from putting HRCKY to proof in respect of any losses claimed, Hard Rock also asserted that any losses suffered by Island Taste could not be claimed by HRCKY. HRCKY rely on an assignment made by the liquidators of Island Taste dated 27^th February 2015 and approved by the Grand Court of the Cayman Islands.

63.      Finally Hard Rock contend that any claims that arose more than 10 years prior to HRCKY filing its answer and counterclaim were prescribed.

Legal Issues

64.      We next turn to consider the law in relation to the various legal issues arising in this case together with the legal submissions of the parties.

Misrepresentation

65.      In Hong Kong Foods v Robin Hood Curry Limited [2017] JRC 050, Sir Michael Birt, Commissioner, summarised the following as what amounts to a Representation as a matter of Jersey law:

"134.   In Kwanza Hotels Limited v Sogeo Company Limited (1981) JJ 59, the Royal Court accepted the following as a definition of a representation:

"A statement of fact made by one party to the contract (the representor) to the other (the representee) which, while not forming a term of the contract, is yet one of the reasons that induces the representee to enter into the contract.  A misrepresentation is simply a representation that is untrue."

The Court of Appeal, on appeal in that case (at 1983 JJ 105), must be taken to have agreed with that definition and upheld the Royal Court's decision that, on the facts of that case, there was no misrepresentation as there was no statement of fact.  A broadly similar definition was applied in McIlroy v Hustler (1969) JJ 1181 at 1185 and Newman v Marks [1985-86] JLR 338 at 351.

135.   A statement of opinion (unless not honestly held) is not a representation of fact; nor is a mere commendatory statement e.g. mere puff; accordingly neither of these, even if incorrect, can amount to a misrepresentation."

66.      It is right to record, however, that in relation to a statement of opinion, the position may be more nuanced.  Chitty summarised the position at paragraph 9-010 of the 34^th Edition as follows:

""However, in certain circumstances a statement of opinion (or of intention) may be regarded as a statement of fact, and therefore as a ground for avoiding a contract if the statement is false. Thus, if it can be proved that the person who expressed the opinion did not hold it, or could not, as a reasonable man having his knowledge of the facts, honestly have held it, the statement may be regarded as a statement of fact. If a person states as his opinion something which he does not in fact believe, or which given the facts known to him, he could not honestly hold, he makes a false statement of fact. So where, at a sale of property, the vendor described the occupier as "a most desirable tenant", while in fact he knew that the rent was considerably in arrears, this was held to entitle the purchaser to rescind the contract"."

67.      We do not regard this statement as being inconsistent with Jersey law because, as observed at paragraph 135 of Hong Kong Foods, a statement of opinion unless not honestly held is not a representation of fact.  Accordingly, if a person makes a false statement of opinion which he does not in fact believe or which he could not honestly hold, such a false statement can amount to a false statement of fact. 

68.      In Hore v Valmorbida, [2022] JRC 202 the Royal Court concluded at paragraph 145 that a contract induced by misrepresentation, whether innocent or fraudulent, was voidable rather than void.  For the purposes of this decision, we note that this conclusion followed on from the Court in Hore approving the observations of Sir Michael Birt in Hong Kong Foods including the extract we have cited.

69.      We have referred to this analysis because, if it is found that a false statement of opinion is made and that such an opinion is held to be a false statement of fact as it was not honestly made, this is capable of forming a claim in misrepresentation with the consequences identified in Hore.  In the present case, HRCKY do not seek to set aside the Franchise Agreement and therefore only seek damages as a consequence of any such finding.

Erreur

70.      It is appropriate at this point to deal with the law in relation to erreur.  The different kinds of erreur were summarised in Marrett v Marrett and O'Brien [2008] JLR 384.  The first category of erreur as defined in Marrett is erreur obstacle.  These are described in Marrett as being erreurs that prevent the meeting of minds necessary to constitute a contract.  The second broad category are erreurs that amount to a vice du consentement.

71.      There are three different kinds of erreur obstacle:

(a)           Erreur sur la nature du contrat - a mistake as to the nature of the agreement.  Classically this is where one party thought that an item was being loaned while the other party thought that a gift was being made;

(b)           Erreur sur l'objet - a mistake as to the subject matter of the contract; and

(c)           Erreur sur la cause - a mistake as to the basis or purpose of the agreement.

72.      In relation to erreurs that amount to a vice du consentement, these erreurs are of two kinds:

(a)           Erreur sur la personne; and

(b)           Erreur sur la substance.

73.      In relation to a mistake about the person you are contracting with, this only gives rise to erreur sufficient to amount to a vice du consentement where the identity of the person with whom the contract is made, or for whose benefit is made is an essential reason why the contract was concluded.  This does not arise in this case.  The parties knew whom they were dealing with.

74.      As to what is an erreur sur la substance, this in summary means an erreur relating to the very essence of the contract itself or a mistake as to some essential quality of the subject matter of the contract.

75.      In relation to these different categories of erreur, it should be remembered by reference to Murray v Camerons firstly that the test to establish erreur is an objective one.  Secondly, the effect of a finding of erreur, applying such an objective test is also that a contract is voidable not void (see Hore v Valmorbida at paragraph 162 to 163, and 168).

76.      We have set out the different categories of erreur because, although Mr Doyle's pleaded case refers to erreur sur la cause, the facts on which HRCKY rely, namely that "The vast majority of restaurants (owned by the Hard Rock Group) made a loss and were not profitable", is not an erreur sur la cause because it is not an assertion that HRCKY misunderstood the basis or purpose of the Franchise Agreement.  The basis or purpose of the Franchise Agreement were clear to both parties, namely Hard Rock would receive royalties in return for allowing HRCKY to operate a Hard Rock Café selling food and beverage and merchandise in the Cayman Islands.  Rather, HRCKY's complaint is that they did not understand that an essential part of the Hard Rock Café franchise, namely the sale of food and beverage, was based on a model where the vast majority of the food and beverage side of Hard Rock cafes owned by the Hard Rock Group made a loss and were not profitable.

77.      The complaint of HRCKY, repeated extensively by Mr Doyle throughout the trial, if it is an erreur at all, (which is a matter for the Jurats and which we consider below), is capable of amounting to an erreur sur la substance because it could relate to some essential quality of the subject matter of the contract.  Although we were not addressed specifically on an erreur sur la substance, and we accept it is not referred to in HRCKY's pleading, the material facts relied upon were pleaded and referred to extensively by HRCKY.  We do not therefore consider that the reference to erreur sur la cause should prevent HRCKY from having its complaint of erreur adjudicated upon on the basis of it being an erreur sur la substance.

78.      However, not every erreur allows a party to seek recission of their contract.  As it is put in Pothier Volume 25, Traité de la Procédure Civil at paragraph 153 as follows:

"Observez qu'une personne n'est pas recevable à alléguer l'ignorance de son propre fait, ou de quelque autre chose don't il lui a été facile de s'informer, et qu'elle ne peut par consequent se faire restituer sous prétexte d'une telle ignorance."

79.      In modern terms, a person cannot assert erreur based on some fact which that person could have informed themselves about.  The remarks of Pothier also have to be considered in the context of the 21st Century.  As it was put by Sir Michael Birt, Commissioner, in Hong Kong Foods at paragraph 141:

"141. In our judgment, the Court should, so far as consistent with legal principle and precedent, develop the Jersey law of contract so as to be suitable for the requirements of commercial life in the 21st century and to be as easily ascertainable and understandable as possible."

80.      In Calligo Limited v Professional Business Systems CI Limited [2017] (2) JLR 271, Le Cocq, Deputy Bailiff (as he then was), stated at paragraph 27:

"27     There is also the public policy consideration that English law is used regularly as the preferred system of law in international commercial contracts because of its clarity and legal certainty. It seems to us that it would be to the advantage of Jersey to develop its law, where it is permissible for it to do so, in those directions, namely clarity and certainty, as well."

81.      We have set out these references because the present dispute concerns a franchise agreement.  In the 21st Century in relation to modern commercial agreements, we consider it is a high threshold for one party to a commercial contract to allege they were mistaken as to some essential quality of that contract, so as to amount to an erreur sur la substance applying an objective test.  This is essentially for two reasons.

82.      Firstly, such contracts amount to an assumption of risk by the parties entering into them as to whether or not the contract will prove to be successful in financial terms.  Where a party is entering into a commercial agreement of some kind which carries the risk of whether or not the venture underlying the agreement will be successful or not, it is for that party to carry out its own analysis about the risks of the venture being profitable. 

83.      Secondly, compared to the 18^th Century, the negotiation and drafting of commercial contracts, including the terms of those contracts, is far more sophisticated.  Parties seek or make pre-contractual inquiries and seek warranties or other assurances based on the answers to those enquiries.  It then becomes a matter of commercial negotiation, by reference to the answers received, about the extent of risk a party is willing to accept or not.  If a party is not willing to accept a risk or a term cannot be agreed to address that risk then that party can walk away from the contract.  We are doubtful, therefore, whether the concept of erreur sur la substance applies to contracts of risk, such as the present Franchise Agreement.

84.      However, we have ultimately determined this argument on the basis of the evidence before us and, therefore, later in this judgment assess whether or not HRCKY may invoke the doctrine of erreur. 

Dol / dol par reticence

85.      In relation to what is meant by dol, Pothier's classic definition of dol was cited in AG v Foster [1989] JLR 70 at page 85, line 41 as follows:

""On appelle dol, toute espèce d'artifice dont quelqu'un se sert pour en tromper un autre"

In translation: "dol is any kind of artifice that someone uses to deceive another"."

86.      In Steelux Holdings v Edmonstone [2005] JLR 152, the Court approached dol in this way:

"10. Fraudulent conduct, including the making of a fraudulent misrepresentation, can be a moyen de nullité, or a cause of the nullity of an agreement. The underlying principle of fraud, which we may say embraces both dol and fraude, is bad faith. Fraud is a vice du consentement, that is to say, a defect which nullifies the apparent consent between the parties and allows the defrauded party to treat the contract as void. If, therefore, a party knowingly makes a false statement which induces the other party to sign a document and thereby to enter a contract, there is a defect of consent which allows the other party to treat the contract as void."

87.      It is therefore clear from this extract that dol covers fraudulent misrepresentation.

88.      This resonates with the observations of the Court of Appeal in Hard Rock at paragraph 64, where the Court stated:

"The fact that fraud, falsehood or deception may in a particular case have been constituted by a representation does not matter because the essence of dol is fraudulent or false conduct."

89.      Advocate Pallot contends that what is required for dol is dishonesty.  We accept that submission because it is consistent with Pothier's definition of dol quoted above.

90.      We also see no difficulty in principle why that definition would not extend to a mixture of positive misrepresentations accompanied by silence.  This was implicitly recognised by Birt, Deputy Bailiff (as he then was), in Toothill v HSBC Bank Plc [2008] JLR 77, where at paragraph 21 in exploring the scope of dol par reticence, he stated the following:

"Tacit acquiescence in another's self-deception does not itself amount to a misrepresentation, provided that it has not previously been caused by a positive misrepresentation."

91.      In other words, misrepresentation accompanied by a withholding of information that makes a positive statement untrue or misleading in order to deceive another party into entering into a contract, in our judgment, is also capable of falling within the definition of dol.  Dol is not therefore limited to positive misrepresentations only and may extend to a combination of positive statements, coupled with withholding information, where it is found that this combination was used to deceive another. 

92.      However, this conclusion on the breadth of dol should not be confused with the doctrine of dol par reticence, also referred to in Steelux.  The concept of whether silence can amount to fraud was raised for the first time in Steelux at paragraph 13 where the Court stated as follows:

"13 As a matter of general principle, under the law of Jersey the parties to a contract are expected to defend their own interests. The maxim is: La convention fait la loi des parties. But fraud is a flexible notion. Silence can, in certain circumstances, amount to fraud. If one party, particularly a party who is more experienced and worldly-wise than the other, is silent as to a material fact which, if it had become known to the other party, would have led to a refusal to enter into the contract, that may well amount to fraud which may lead to a setting aside of the contract. In French law, the concept is known as réticence dolosive. We would characterize it as dishonest or fraudulent silence. Although Poingdestre did not expressly refer to dishonest silence, he did state (Les Lois et Coutumes de Jersey, at 206 (1928)) that, in the context of a contract between persons of unequal bargaining power-"tout contract ou transaction extorque par ... persuasions indirectes est presume fraudeux principallement quand la personne induite est foible de jugement ou d'age ... " In this case, it is unnecessary to decide whether or not there was dishonest silence, but, if there had been, the obligation to pay interest would have been set aside."

93.      The suggestion in Steelux is that a more worldly-wise party is under a duty to speak up where knowledge of that material fact would have led the other party to refuse to enter into a contract.

94.      Steelux then records that the concept in French law is known as reticence dolosive.

95.      In Duncan Fairgrieve's article 'Comparative Law in Practice - Contract Law in the Mid Channel Jurisdiction' published in 2016, at page 94, Professor Fairgrieve, in considering whether dol can result from silence, in relation to French law, stated the following:

"In stark contrast, the French courts - though initially reluctant - now accept that a knowing and dishonest failure to disclose a matter which the other party has an interest in knowing, may result in dol par reticence and as such give rise to annulment (and potentially damages). This ties into the precontractual duty to disclose information which exists in French law."

96.      It is therefore clear that the concept of dol par reticence is a development of French jurisprudence and a reinterpretation of Article 1116 of the Code Civil by the French Courts which at the time of the Steelux decision read as follows:

"Le dol est une cause de nullité de la convention lorsque les manoeuvres pratiquées par l'une des parties sont telles, qu'il est évident que, sans ces manoeuvres, l'autre partie n'aurait pas contracté."

97.      However, Article 1116 was amended in 2016, leading to Professor Fairgrieve, at paragraph 19, to describe the French law concept of reticence dolosive in the following manner:

"The notion of fraudulent behaviour deriving from an omission has been applied in the relevant French case law, and is known as reticence dolosive. To give rise to the avoidance of a contract, the reticence dolosive must meet different criteria:

-a failure in the disclosure of information important for the other party;

-  an intention to mislead the other party; the error induced is decisive to the party's intention to contract;

-   and the misleading behaviour must come from the contracting party.

These case law developments have been integrated into the new French Civil Code, and it is thus provided in Article 1137(2) that 'intentionally concealing' information which the wrongdoer is under a legal duty to provide can constitute a dol, and thus lead to nullity."

98.      The current version of the French Code Civil, dealing with dol and dol par reticence, is Article 1137 which provides as follows:

"Le dol est le fait pour un contractant d'obtenir le consentement de l'autre par des manœuvres ou des mensonges.

Constitue également un dol la dissimulation intentionnelle par l'un des contractants d'une information dont il sait le caractère déterminant pour l'autre partie. (emphasis added).

Néanmoins, ne constitue pas un dol le fait pour une partie de ne pas révéler à son cocontractant son estimation de la valeur de la prestation."

99.      The relevant provisions of French law have been set out because they are the origins of the notion of dol par reticence referred to in Steelux.  However, in referring to modern French jurisprudence, we are conscious of the warning of Deputy Bailiff MacRae in Hore v Valmorbida at paragraphs 166 and 167:

"166. It may be that modern French law is different. There are difficulties in placing reliance on modern French law, which is a product of the Civil Code which is amended from time to time by the French legislature, and is interpreted by case law which is not binding in France and upon which decisions of various French Courts of Appeal may conflict with each other. The decision of the Court of Cassation in 1982 in Desmares as to the effect of Article 1384 of the French Civil Code and the extent to which courts were divided thereafter as to the merit of the same is a case in point. There is also difficulty in interpreting French jurisprudence. As Bridget McArthur says in her article on French judicial decisions (1984) 14 V.U.W.L.R. 463 "reliance on principles expressed in a different case decided between different parties is not considered to be a sufficient basis for decision. Previous decisions are never considered to be binding, though they are frequently persuasive authority. Furthermore "the Civil Code prohibits judges from making pronouncements of a general or normative kind on the cases brought before them. The court must refer to a particular legislative provision as the basis for its decision. Nevertheless, where the law is silent on a particular point, the court may rely on principles of equity, reason, justice or tradition. Judicial decisions are not regarded as an important source of law in France. In most areas of French law, the only formal source of law is legislation. This, coupled with the absence of any principle of binding precedent of the kind that exists in Common Law countries mean that French judicial decisions do not have the same importance as Common Law judgments. This may be one reason for their particular style and structure." As to the style and structure of French judgments, even a cursory examination of French court decisions reveals that they are in strikingly different form from those that we are used to in Jersey, England and Wales, or indeed many Commonwealth jurisdictions. One of the striking features of the judgments is their brevity. As McArthur says, the judgments produced are "often so laconic and terse that they are difficult to understand. Indeed, many would be unintelligible were it not for the explanatory and critical case-note accompanying them". McArthur goes on to consider the structure of French judgments which are divided into distinct parts; the headnote, the reasons for the decision, the decision "usually only a few words in length" and the academic note which usually follows and is not written by the Court. McArthur concludes by saying that "With their unique style and structure, French judgments pose difficulties for the translator". This arises principally from the structure of the French judgments, particularly if they are translated literally.

167. These are additional reasons for adopting a cautious approach to French law. Not only is the case law difficult to interpret, the principles set out in the Code Civil are often in general terms and capable of more than one interpretation. Famously, the French law of tort consists only of five articles in the Code Civil; the rest is case law - difficult to read, interpret and operating in a system where there is no binding precedent. None of this is meant to be critical of the French system, but there are real difficulties in identifying sound principles for the purpose of their introduction into another jurisdiction."

100.   We have therefore considered whether Pothier discusses the concept of dol par reticence.  We have been unable to find anything in his Traité des Obligation.  However, the concept is discussed in Volume 3, entitled Traité du Contrat de Vente.  Mr Doyle, in his submissions, referred me to paragraph 234, which appears to support the notion of dol by reticence:

"234. Quoique, dans plusiers affaires de la société civile, les règles de la bonne foi se bornent à nous defender de mentir, et nous permettent de ne pas découvrir aux autres ce qu'ils auroient intérêt de savoir, lorsque nous avons un égal intérêt de ne le leur pas découvrir; néanmoins dans les contrats intéressés, du nombre desquels est le contrat de vente, la bonne foi ne defend pas seulement tout mensonge, mais toute reticence de tout ce que celui avec qui nous contractons, a intérêt de savoir touchant la chose qui fait l'objet du contrat."

101.   However, it is clear from paragraph 238 that paragraph 234, and the discussion that follows, is a summary of the principles of Roman law jurisprudence.  The position is summarised at paragraph 239 as follows:

"...néaumoins on les observe peu dans nos tribunaux; et un acheteur n'y est pas facilement écouté à se plaindre qu'on lui a cache quelque vice de la chose vendue, lorque le vice n'est pas un vice rédhibitoire.  L'intérêt du commerce ne permettant pas d'admettre facilement les parties à revenir contre les marches qui ont été conclus, ells doivent s'imputer de ne s'être pas mieux informées des défauts que la chose vendue pouvoit avoir."

"Nevertheless these are rarely observed in our courts and a buyer is not easily listened to to complain that some vice had been hidden from him concerning the property sold when the vice is not a hidden defect.  The interests of commerce do not easily allow parties to come back against the agreements that have been concluded.  They are deemed not to be better informed of the faults that the item sold might have."

102.   For the sake of completeness, Pothier, at paragraph 240, then recognises where the seller does not own the item that he has purported to sell, or that the item being sold is subject to certain charges rentes or hypotheques, then the contract may be set aside on the basis of dol par reticence.

103.   Steelux also, when looking at Jersey law commentators, referred to Poingdestre.  The full quotation of the extract referred to in Steelux was set out by the Court of Appeal in Hard Rock at paragraph 51 as follows:

"Tout contrat ou transaction extorqué par menaces, fausses suggestions, subornement d'un tiers & persuasions indirectes est présumé fraudeux principalement quand la personne induite est faible de jugement ou d'âge, comme un jeune homme, une femme, un décrépit &c."

"Any contract or transaction extorted by threats, false suggestions, bribery of a third person and indirect persuasions is presumed fraudulent, principally when the person so induced is vulnerable in judgment through age, like a young man, or a woman or a decrepit."

104.   This extract, however, does not discuss the question of dol by silence.  Nor do the quotations from Domat or Houard cited by the Court of Appeal at paragraphs 47 and 48. 

105.   The above extracts have been set out because in order to consider whether dol par reticence is part of the law of Jersey, we have reminded ourselves of the approach to be taken to the development of customary law set out in Snell v Beadle by the Privy Council [2001] JLR 118 at paragraphs 16 to 21:

"16  Before turning to the particular sources in which evidence of the cause of action which provides a remedy for déception d'outre moitié is to be found, their Lordships wish to make some brief observations about the nature of customary law in general and its place in Jersey law in particular.

17  The word "custom" may be used in a variety of senses in the legal context. Broadly speaking, custom may be said to be the product of generally accepted usage and practice. It has no formal sanction or authority behind it other than the general consensus of opinion within the community. As Routier, Principes Généraux du Droit Civil et Coutumier de la Province de Normandie, at 1 (1742) puts it:

    "La coutume n'est autre chose qu'un DROIT non écrit, qui s'est introduit par un tacite consentement du SOUVERAIN & du PEUPLE, pour avoir été observée pendent un tems considérable."

18  When the word is used in that sense, as soon as custom is changed into formal or positive law by judicial decision or by statute, it ceases to be custom. Authority is given to the law by the decision of the court or by the statute. It ceases to evolve or develop by usage and practice. Thus, as Routier observed, customary law when reduced to writing in this way acquired the status of written law (op. cit., at 2):

"La rédaction par écrit de nos Coutumes les a renduës le Droit écrit de nos Provinces, chacune dans son détroit; elles y dérogent au Droit Romain; mais elles y cédent à l'autorité des Ordonnances de nos Rois, qui sont les Loix générales du Roïaume, quand il y a clause expresse de dérogation."

As the different systems of French customary law became codified by royal authority they acquired the status of coutumes. This meant that they had an official status, so that nothing that they contained could be abrogated except by statute.

19  Jersey derived its legal traditions from the pays de droit coutumier of Northern France and especially from the ancienne coutoûme of Normandy. The links with Normandy were emphasized by Richard Southwell, Q.C. in A note on sources of Jersey Law, when he said (3 Jersey Law Review, at 213 (1999)) that the Norman origins of Jersey law remain of essential importance. The coutumiers prior to codification varied in their content from area to area, but they were much influenced by principles of Roman law which formed part of the ius commune of the civilian jurisdictions in countries such as France, Spain and Italy. In some instances, when the customary law came to be codified, the ius commune was transformed as it stood into a coutume. In other respects, after codification, the ius commune was resorted to when a coutume was silent on the point at issue. The present action relates to property rights under the law of Jersey, where the customary law has not been codified or enshrined in a coutume.

20  In this context, the word "custom" is used to describe all sources of law other than statute. As Stéphanie Nicolle, Q.C. has observed in The origin and development of Jersey Law, at para. 12.4 (1998), customary law which, like the customary law of Jersey, has not been enshrined in an official coutume can and does change. It is therefore capable of development by judicial decision as well as by statute. In this respect, it may be regarded as being what may be described, in modern terminology, as "the common law" of the island. Like other customary law systems, Jersey law had recourse to the ius commune for areas not covered by municipal customary law: see Nicolle (op. cit., at para 14.7). The principle which is at issue in the present case is an example of the reception of a principle of Roman law through the ius commune into Jersey law by way of the customary law of Normandy.

21  For these reasons, their Lordships consider that, as the customary law of Jersey has not been enshrined in a coutume, the proper approach is to regard it as being still in a state of development. It is capable of being refined or clarified by judicial decision as the customary law is applied to a new set of facts. This may be done by reference to other customary law sources. In the present context, the search for guidance as to the content and the proper application of the principle must be conducted in the first instance by examining the works of the writers on the customary laws of Normandy. It will be helpful also to examine the Roman law, as the origins of the customary law rule lie in the Roman law. French law as it exists today in the French Codes or the current jurisprudence is unlikely to be of direct assistance here, for the reasons explained by Southwell (3 Jersey Law Review, at 214-215 (1999)). Nor is it helpful in this context to have regard to the solutions which have been adopted in the modern codified systems that are to be found in other civilian jurisdictions." [Emphasis added]

106.   The question for this Court is whether the notion of dol should be refined to extend to dol par reticence as suggested by the Court in Steelux. 

107.   In Toothill, Birt, Bailiff, having noted the observations in Steelux, at paragraph 21 and 22 expressed caution as follows:

"21     The above dictum is clearly obiter, as the court in that case did not need to consider the issue further. The position under English law is expressed somewhat differently. It is summarized in 1 Chitty on Contracts, 29th ed., para. 6-013, at 436 (2004) as follows:

    "Non-disclosure The general rule is that mere non-disclosure does not constitute misrepresentation, for there is, in general, no duty on the parties to a contract to disclose material facts to each other, however dishonest such non-disclosure may be in particular circumstances. So, for example, in Percival v Wright, a company director who had inside information about certain facts likely to enhance the value of the company's shares was held to be under no duty to disclose this fact to a shareholder from whom he bought some shares. For the same reason it is not possible to set up an estoppel on the basis of an omission to disclose unless a duty to disclose can be established in the particular circumstances of the case. Tacit acquiescence in another's self-deception does not itself amount to a misrepresentation, provided that it has not previously been caused by a positive misrepresentation. But there are exceptions to the general rule that there is no duty to disclose. First, there are many statutory exceptions. Second, there are exceptions at common law where the contract is within the class of contracts uberrimae fidei, where there is a fiduciary relationship between the parties, and where failure to disclose some fact distorts a positive representation."

22       This court would wish expressly to leave open the question of whether the law of Jersey should recognize a duty of positive disclosure in the wider circumstances envisaged by the Bailiff or whether a duty of positive disclosure should be confined to those circumstances where it exists under English law, even if, jurisprudentially, it is preferred in this jurisdiction to treat it as dol par réticence. Such a decision would be a matter of considerable practical importance to those who contract under Jersey law and should be the subject of full argument and consideration. However, we are today concerned only with the question of whether the appellant has shown an arguable defence. In the light of the dictum of the Bailiff, it is obviously arguable that, if HSBC may have been guilty of "dishonest or fraudulent silence," the appellant may have a defence to the claim and leave to defend should be given."

108.   The other relevant authority where dol par reticence is explored is the case of Sutton v The Insurance Corporation of the Channel Islands Limited [2011] JLR 80.  This case concerned a claim under an insurance policy for a watch which the plaintiff claimed he had lost. 

109.   The relevant part of the judgment in relation to dol par reticence is paragraph 48 which provides as follows:

"48 We have therefore approached the facts of the present case on the premise that the four questions set out in para. 22 above require an answer because under his contract as we understand it the plaintiff has to establish they can be answered affirmatively. In addition, even if we are wrong on that, the first two questions at least require to be answered as central to the issue of whether there was a valid insurance contract between the plaintiff and the defendant in relation to the Hublot Big Bang watch, and whether it should be set aside on the basis of the plaintiff's alleged failure to inform the defendant about the valuation and the circumstances in which the watch was acquired, and in particular the silence on the plaintiff's part to inform the defendant of-

(i) the questionable circumstances in which the watch was alleged to be acquired;

(ii) the questionable circumstances in which the plaintiff came to be in possession of the valuation; and

(iii) the fact that, by the date of this valuation, the valuer had not had the watch in its custody for at least eight weeks.

These alleged failures require to be considered whether they were innocent or fraudulent. In our judgment, given our view of the evidence as appears below, the failure on the plaintiff's part to inform the defendant about those matters did amount to a reticence dolosive which enables the defendant to reject the addition of the watch to the insurance policy and thus the claim under that policy. Had the plaintiff not produced a valuation, the insurance of the watch would not have been continued. The position would have been the same had he been forthcoming on this critical information as set out above. To this extent only, the court finds the defendant's allegations of fraud proved. We have considered the court's hesitation in Toothill as to whether the doctrine of réticence dolosive is part of the law of Jersey. In our view, the doctrine is useful in a case such as the present because it forms part of that package of principles which go to identify whether the parties to a contract of insurance, being a contract uberrima fides, have that common will or volonté to make it, and thus provide a proper basis for an assertion that la convention fait la loi des parties. Not all silences will have the effect of providing grounds for a claim in nullity. The party making that claim has to relate the alleged reticence dolosive to a material particular of the contract and its actual impact upon his will or volonté to make the contract in order to discharge the burden of showing that the claimed ground of nullity has been established."

110.   In our judgment, we consider that the reference to reticence dolosive in paragraph 48 of Sutton was not necessary for the Court to find against the plaintiff and therefore its reference to réticence dolosive is obiter and not binding upon us.  The contract between the plaintiff and the defendant in Sutton was a contract of insurance which, as the Royal Court noted at paragraph 48, was a contract of utmost good faith.  In relation to insurance contracts, it is well known that a failure to disclose a material fact entitles an insurer to avoid a contract of insurance and accordingly a claim made under a void contract of insurance will be rejected.  In this case, the plaintiff did not satisfy the Court that he had made full disclosure of the circumstances in which the watch was acquired.  He also failed to satisfy the Court as a matter of evidence that the watch was lost.  This is why his claim failed.  

111.   We have set out our view of the decision in Sutton because, on this basis, the reference to the doctrine of reticence dolosive was not necessary for the Court to decide the case.  In our view, therefore, Sutton should be limited to a claim in relation to non-disclosure by an insured and otherwise was a case that turned on its own facts and a failure by the plaintiff in that case to prove his claim as a matter of evidence.

112.   Should, therefore, the concept of dol be extended in the way suggested in Steelux based on the approach to developing customary law as set out in Snell v Beadle? 

113.   Firstly there is a difference of opinion between three former Bailiffs as explored in Steelux, Toothill and Sutton.  It cannot be said, therefore, that there is a general consensus of opinion as to what the law of Jersey might be. 

114.   Secondly, what is clear is that such an extension is not supported by customary law sources, but is rather a creation of more recent jurisprudence of the French Courts and latterly amendments to the Code Civil itself.

115.   Thirdly, in our judgment, it is a step too far to apply to every contract governed by Jersey law the principle that any party who is more experienced or worldly wise when silent as to a material fact should disclose the same.  The introduction of such a principle is more than a refinement or clarification of Jersey contract law.  Rather such a development would fundamentally alter the starting point for contractual negotiations which, even as noted in Steelux, requires parties to have regard to their own interests.  The recognition of such a principle would have too many wide ranging consequences for too many contracts and could lead to a plethora of disputes where one party sought to set aside a contract on the basis of an allegation that the other party failed to disclose a material fact.

116.   Fourthly, in relation to contracts, the States of Jersey, by passing the Supply of Goods and Services (Jersey) Law has already entered the regime of providing certain protection to individuals entering into contracts who are classified as consumers.  While Mr Doyle argued that there was an inequality of bargaining power between Hard Rock and HRCKY and so the doctrine of dol par reticence should apply, such a principle would create a different classification of persons which should receive protection when entering into contracts. The Royal Court should however be slow to develop customary law where to do so might cut across existing legislation or where the legislature has already entered the arena even if there remains more to be considered.  In particular Article 24 of the Supply of Goods and Services Law imposes a warranty confirming disclosure of certain defects in sales of goods to consumers.  The principle contended for in Steelux would cut across this provision which further supports why it should not be recognised as a customary law development.  The requirement of the Royal Court to observe caution in relation to development of customary law where there is existing legislation was recognised in McDonald v Parish of St Helier [2005] JLR 212 at paragraph 46.

117.   For all these reasons we have therefore concluded that dol par reticence is not a principle of Jersey customary law that applies to all Jersey law contracts.

118.   If we are wrong in the above analysis, we do not consider that such a doctrine should apply to commercial contracts, i.e. those between businesses.  Where businesses are contracting with each other, they are able to make appropriate enquiries and / or seek appropriate warranties or assurances in the contract (see Mackie v Scott [2018] (2) JLR 63 as an example of the effect of pre-contractual enquiries at paragraphs 61 and 62). We have therefore concluded that the starting point for such businesses having regard to their own interests does not need to be varied by imposing a duty to speak up where knowledge of a material fact known to one party only would have led the other party to refuse to enter into a contract if it had known that fact.

119.   The above conclusions are not to say that a failure to speak up may not amount to dol in certain circumstances.  We agree with Birt, Bailiff, in Toothill, that the doctrine may be of relevance in relation to a contract created where there is a fiduciary relationship between the parties or if one party has placed trust and confidence in another (outside the commercial arena).  The precise scope of where customary law might be extended is, however, a matter for another day because the Franchise Agreement is clearly between businesses and, in our judgment, as a matter of law, the concept of dol par reticence at its lowest cannot apply to such commercial arrangements.

An implied term of good faith

Does an implied term of good faith apply to all contracts governed by Jersey law?

120.   We next turn to consider the legal principles applicable to the claims made by HRCKY on the basis of a lack of good faith.

121.   Firstly, as pleaded at paragraph 24F2 of its Re-Re-Amended Answer and Counterclaim set out above, HRCKY plead that in the power to execution of the Franchise Agreement, there was a duty upon Hard Rock "to act in good faith".  Secondly, as pleaded in its original Answer and Counterclaim as set out at paragraph 2 above, HRCKY also assert a breach of an implied duty of good faith and cooperation pleaded at paragraphs 2, 19 and 20 of the Re-Re-Amended Answer and Counterclaim.  In this part of the judgment, we consider whether, as a matter of law, such terms form part of any contract governed by Jersey law.

122.   Firstly, in relation to HRCKY's assertion that Hard Rock was under a duty to act in good faith prior to execution of the Franchise Agreement, in his Skeleton Argument for opening at paragraph 105, Mr Doyle for HRCKY made reference to the current version of Article 1104 of the new Code Civil, which in translation provides that contracts must be negotiated, concluded and performed in good faith.  However, this version was only introduced in 2016.  The original version of Article 1104 made no reference to contracts being negotiated in good faith.  It is not, therefore, possible to rely on a revision inserted into the Code Civil in 2016 as support for the proposition that Jersey's customary law should extend to such an obligation.  Again, we remind ourselves of the warnings of Deputy Bailiff MacRae in Hore v Valmorbida set out at paragraph 98 above.  While Mr Doyle referred extensively to the judgment of the Court of Appeal in this matter in 2019, nowhere in that judgment is there any support for the proposition for a duty of good faith prior to execution of the Franchise Agreement.  In addition, no other authority was drawn to our attention by either party in support of this proposition.  The Court of Appeal did not say that there is a separate ground of good faith entitling a party to set aside a contract it has entered into.  We can see, that acting in bad faith may be part of a finding of fraud or dol.  It may also lead to an erreur sur la substance.  These legal possibilities, however, do not make a requirement of good faith a standalone obligation prior to a contract being created. 

123.   We next turn to consider whether there is an implied term of good faith during the operation of a contract governed by Jersey law.  In support of these arguments, Mr Doyle for HRCKY relied extensively on the observations of the Court of Appeal in Hard Rock in 2019 to which reference has already been made. 

124.   In relation to the Court of Appeal's decision, we have reminded ourselves that this was an appeal against a decision of the Royal Court granting summary judgment in favour of Hard Rock.  The Royal Court's conclusions were summarised by the Court of Appeal at paragraph 20 as follows:

"20. In relation to the various claims that were made for summary judgment, the Royal Court reached the following conclusions:

(i) The Respondents had argued that there was no implied term of good faith, but the Royal Court concluded that, for the purpose of summary judgment, it could not say that the Appellant could have no real argument to make in that respect as far as the law was concerned (see paragraphs 24 and 25 of its judgment).   ( Emphasis added]

(ii) Having reviewed the evidence, the Court concluded that there was insufficient evidence to establish that there was any breach by the Respondents of the implied term of good faith, if one existed (see paragraph 28).

(iii) There was no causal link established on the pleadings between the losses incurred by the Appellant and the lack of good faith alleged on the part of the Respondents (see paragraphs 31 -33).

(iv) There was a disconnect, whether in dol or as a misrepresentation, in asserting a claim that the Respondents made a representation that there would be returns to the Appellant of 15 - 30% per annum, which persuaded the Appellant to enter the Franchise agreement, and a claim that the restaurant business would have high outgoings in the Cayman Islands and would be unprofitable to run in accordance with the Respondent's business model as required under the Franchise agreement because the Franchise agreement included both the restaurant business and the merchandise business (see paragraphs 36 / 37).

(v) The evidence of the joint experts produced by order of the Master in January 2017 did not support the factual allegation (see paragraphs 38 / 39). Accordingly results achieved by comparable cafes during the years 1999 - 2003 were not out of the way with the actual financial results of the Appellant for the period 2001 - 2005.

(vi) There was an entire agreement provision in the Franchise agreement which excluded the effect of any misrepresentation, even if made.

(vii) There was no dol par réticence because the Franchise agreement related to two different businesses, was not unprofitable until external factors caused material difficulty in 2004 and it contained no warranties or guarantees as to profit."

125.   The reasoning for the Court of Appeal setting aside the Royal Court's judgment was set out at paragraph 61 to 63 as follows:

"61. In our judgment, the Royal Court erred in exercising its discretion to grant the application for summary dismissal of the counter-claim. The factual matrix which was essential to enable that counter-claim to be weighed had not been established. It can reasonably be foreseen that Mr Doyle would want to call as a witness in the proceedings his partner who might give material evidence. There is clearly an arguable point as to whether the Franchise agreement and the memorabilia lease are to be taken, for the purposes of any allegation of dol, as forming one agreement or two. Furthermore, disclosure which the Royal Court has ordered has still not been completely provided by the Respondents, and that makes it difficult to say at this stage that there are no other factual areas to be investigated. This would take place at trial.

62. Until the facts have been properly established, it seems to us that the expert opinion is not as persuasive as the Respondents would contend. As McNeill JA set out at paragraph 43 of his judgment, the contention of the Appellant that a distinction should be drawn between the different elements of the business might well be supported if, for their own business purposes, the Respondents kept a separate record of the financial results of the two parts of the franchise; and discovery in that respect is not yet complete.

63. As we indicated at the outset, the pleadings leave something to be desired. Nonetheless, the fundamental questions raised by the Appellant's amended counter-claim are not in our judgment such as to lead to a conclusion that, on the paperwork alone, the counter-claim ought to be dismissed. For the reasons which we have given, a claim in dol does introduce different considerations for the trial court - without deciding the matter, it does on the face of it mean that the 'entire contract' provisions in the Franchise agreement may not be as reliable for the Respondents as they would wish to contend, for it is hard to see how a party who has by deception encouraged another party to enter into a contract can thereafter rely on any part of a contract which has only been entered into as a result of that deception."

126.   This led the Court of Appeal, in its Act of Court dated 2 July 2019, to set aside the decision of the Royal Court dated 1 February 2018, where the Royal Court had granted summary judgment.

127.   We have referred to these paragraphs because, at the opening of trial, Advocate Pallot for Hard Rock contended that, because leave to appeal was not granted by the Royal Court or McNeill JA, sitting as a single judge, in respect of the implied term of good faith, the Royal Court decision on the good faith issue was not overturned by the Court of Appeal in 2019.  We disagree because, while the Court of Appeal overturned the Royal Court's decision for the reasons set out above and those reasons do not involve a consideration of whether an implied term of good faith forms part of a contract as a matter of Jersey law, the Court of Appeal set aside the decision of the Royal Court in its entirety.

128.   Secondly, as the Court of Appeal itself noted, the Royal Court did not make any ruling on whether or not an implied duty of good faith forms part of Jersey law.  Consequently, the Court of Appeal decision cannot be construed as preventing consideration of the arguments put forward by Mr Doyle on behalf of HRCKY as to the existence of such a term. 

129.   What the Royal Court did consider was whether or not there was evidence of breach of such a term assuming in HRCKY's favour that one existed.  It is also right to observe that McNeill JA, in his judgment at [2018] JCA 152, stated the following at paragraph 33, leading to his conclusion in the final sentence of paragraph 34:

"33.      As is clear from the determination of the Royal Court, this claim involves a number of complexities, but the most serious hurdle for the defendant is the failure to identify, with any reasonable degree of precision, the losses which flowed from any such breaches or the formula by which they might be calculated.  As indicated in principle (v) from Easyair, the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial.  That consideration, however, does not absolve a party from the consequences of failing to lay the basis in pleadings or supporting statements for essential elements of its case.  In the present matter, the section of the expert opinion set out at paragraph 31 of the determination of the Royal Court shows that very detailed consideration would require to be given to the necessary nature of a restructuring, the likely acceptability to the franchisor and the net financial effect.  This would require, at the very least, a firm outline but, as the Royal Court has indicated, if the case proceeded to trial as presently pleaded there is no appraisable case as to the establishment of what if any loss flowed from the alleged breach of a term of good faith.

34.      In my judgment the point taken by the Royal Court is of fundamental importance.  Even were there to be more extensive recovery and a breach of good faith shown, the defendant's case must be capable of showing losses arising from those breaches.  The defendant's expert suggests a more fundamental problem and no clear causal link is offered.  In my judgment there is no prospect of the defendant succeeding in overturning the determination of the Royal Court that it was appropriate that this basis of claim, breach of trust, should be dismissed summarily."

130.   However, notwithstanding McNeill JA's views, the full Court of Appeal overturned the determination of the Royal Court in its entirety, including noting that the question of any further expert's reports from HRCKY's accountant was left to the Master of the Court to determine (see paragraph 68).

131.   Accordingly, we conclude that we are required to determine whether or not an implied term of good faith forms part of Jersey law. 

132.   To evaluate this contention, it is first necessary to consider the observations of the Court of Appeal in Hard Rock on this question.  The extract upon which Mr Doyle relied was the first sentence at paragraph 56 as follows:

"The extracts from Pothier at paragraphs 44 to 46 above show that there is in every contract a continuing obligation of good faith which may be part of the law of Jersey as Le Gros suggests."

133.   The central part of the extract from Pothier was set out at paragraph 45 by the Court of Appeal, citing paragraph 30 of Traité des Obligations Part 1 Chapter 1, as follows:

"Dans le for extérieur, une partie ne seroit pas écoutée à se plaindre de ces légères atteintes que celui avec qu'il a contracté auroit données à la bonne foi ; autrement il y auroit un trop grand nombre de conventions qui seroient dans le cas de la rescision, ce que donnerait lieu à trop de procès et causeroit un dérangement dans le commerce. Il n'y a que ce que blesse ouvertement la bonne foi qui soit, dans ce for, regarde comme un vrai dol, suffisant pour donner lieu à la rescision du contrat, tel que toutes les mauvais manœuvres et tous les mauvais artifices qu'une partie auroit employés pour engager l'autre à contracter ; et ces mauvaises manœuvres doivent être pleinement justifiées. Dolum nisi perspicuis indiciis probari convenit."

"A person cannot be allowed to complain of trifling deviations from good faith in the party with whom he had contracted; otherwise there would be too many contracts that would be liable to rescission which would give rise to too many lawsuits and cause damage to business. There is only what overtly offends good faith, which in this forum is to be considered as a dol, sufficient to give place to the rescission of the contract, such as all tricks and devices which one party might have employed to engage the other to contract; and his questionable dealings must be fully justified. [No] fraud is proved unless by clear evidence."

134.   Pausing there, what Pothier was recognising was that any lack of good faith had to amount to a dol prior to formation of a contract for that contract to be set aside on the grounds of dol.

135.   At paragraph 46, the Court of Appeal continued:

"46. In the quotations above, Pothier has been dealing with fraud which induces a contract. However he goes on to describe dol as having a continuing effect during the contract:-

"31. Il n'y a que le dol qui a donné lieu au contrat qui puisse donner lieu à la rescision; c'est-à-dire, le dol par lequel l'une des parties a engagé l'autre à contracter, qui n'auroit pas contracté sans cela: tout d'autre dol qui interviens dans les contrats donnent seulement lieu à des dommages et d'intérêts pour la réparation du tort qu'il a causé à la partie qui a était trompée.

32. Il faut aussi, pour que je puisse faire rescinder mon engagement, que le dol qu'on a employé pour me porter à contracter était commis par la personne avec qui j'ai contracté, ou du mois qu'elle on est était participant : s'il a été commis sans sa participation, et que je n'ai pas d'ailleurs souffert une lésion énorme, mon engagement est relable, et n'est pas sujet à rescision que l'on j'ai seulement action contre le tiers qui m'a trompé, pour mes dommages et intérêts."

"31 It is only dol that gives rise to the contract that can lead to rescission; that is to say, the dol by which one of the parties has engaged the other to contract, who would not have contracted without it: any other dol which arises during the contracts gives rise only to damages and interest for the repair of the wrong which has been caused to the party who has been deceived. (Emphasis added)

32. It is also necessary, in order that I should be able to rescind my contract, that the dol which operated to persuade me to contract has been committed by the person with whom I have contracted or at least was a participant in it: if the dol was committed without that participation, even if I have nonetheless suffered enormous damage, my contract is valid and is not subject to rescission: I have only an action against the third party who has deceived me, for my damages and interest.""

136.   With respect to the Court of Appeal, what Pothier is not talking about is an implied term of good faith, but rather dol continuing during the operation of the contract.  It may be this was recognised by the Court of Appeal in paragraph 56, where the Court of Appeal stated this:

"According to the proven facts in any particular case, that may depend on the extent to which a breach of the obligation of good faith would fall within the category of dol as described in the authorities. We think that any conclusion on this issue is likely to be fact specific and therefore it is inappropriate to close down the argument at this stage of the proceedings."

137.   Our reading of Pothier is that it is only if a lack of good faith is found to amount to dol during the operation of a contract, can the victim of that dol claim damages or interest.  We also agree with the Court of Appeal that a victim of dol during the operation of a contract should be permitted to be released from that contract. 

138.   In relation to the quotation from Houard, the Court of Appeal noted the following:

"En effet, le dol personnel ou le réel, il est vrai, ont ordinairement pour principe la mauvaise fois; mais la mauvaise foi, lorsqu'elle a consisté à déguiser la valeur de l'objet vendu ou de l'obligation contractée, a des effets très différents de ceux qu'elle produit, quand des voies de fait ont produit son triomphe. Il y a plus : le dol réel quelquefois est exempt des ruse et de supercherie ; tous les jours un acquéreur croit se procurer à bon marché un héritage, mais ni son importance ni sa valeur ne lui sont parfaitement connus et la vilité du prix par lequel il le paie ne part point en ce cas du desir faire préjudice au vendeur ; cependant comme il résulte de l'ignorance qui justifie l'acheteur, que ni lui ni le vendeur n'ont eu en contractant ensemble une connaissance de l'objet du contrat, telle que la loi exigeroit qu'ils l'eussent pour le rendre irrévocable ; la bonne foi exige qu'il soit resolu."

"Indeed it is true that the principle underlying both dol personnel et réel is bad faith; but bad faith, when it takes the form of concealing the value of the object sold or of the obligation undertaken has very different effects from those it produces when threatening behaviour has been used to bring about the desired result. Moreover: the dol reel is sometimes free of cunning and deceit; every day a purchaser believes he has obtained a property at a good price, but neither its significance nor its value are fully known to him and the inadequacy of the price which he pays for it does not in this case arise from the desire of doing some harm to the seller: rather it results from the ignorance which justifies the purchaser, in that neither he nor the vendor had knowledge when contracting together of the object of the contract, sufficient law to render it irrevocable: good faith requires that it be set aside."

139.   In relation to this extract, what Maitre Houard is discussing is dol personnel and dol réel, and he notes that what underpins both is bad faith.  The discussion is also about the basis upon which contracts can be set aside on the basis of dol, whether dol réel or dol personnel, not bad faith during the currency of an agreement.

140.   The Court of Appeal, in paragraph 50, then relied on an extract from Le Gros, as follows:

""C'est une principe en quelque sort sacré que la convention fait la loi des parties, mais la bonne foi est une condition essentielle et ce n'est pas quoi non de la convention. La raison en est évidente : c'est un principe, à tous les contrats que les contractants se doivent franchises, sincérités sans voile. Toutes espèces d'artifices que l'une des parties se serrent pour trompé l'autre peur être de nature à rendre le contrat annulable. Ce n'est pas à dire que le préjudice qu'éprouve le vendeur par suite de la suffisance du prix suffit pour rescinder le contrat. D'autre circonstances doivent concourir à l'annulation du contrat, tel que le dol."

"It is a sacred principle that la convention fait la loi des parties, but good faith is an essential condition and a sine qua non of the contract. The reason for this is obvious: it is a principle common to all contracts that the contracting parties must be candid, with unveiled genuineness. Any kind of artifice which one of the parties uses to deceive another is of a nature to render the contract voidable. This is not to say that the prejudice which the vendor may suffer as a consequence of the insufficiency of the price [always] is sufficient to rescind the contract. Other circumstances must run alongside for the annulment of the contract, such as dol."

141.   In our judgment, the extract from Le Gros is a discussion about claims of revocation as a consequence of a deception involving the just price of immovable property, in other words, the remedy of lesion.  The paragraphs immediately preceding the extract quoted by the Court of Appeal explain the following:

"On peut poser comme règle qu'un contrat est vicieux lorsque le vendeur d'un immeuble souffre une lésion qui excède la moitié du juste prix. La loi présume que la volonté de vendre pour le prix porté dans le contrat n'a pas été libre et que l'égalité qui doit régner entre les contractants a été blessée par la lésion. Basnage, Article 3, titre "De Juridiction" explique la déception d'outre-moitié comme suit: "La lesion ultradimi-diaire est lorsque ce qui vaut vingt livres, dix sols a été vendu pour dix livres."

"We can posit a rule that a contract is defective when the seller of immovable property suffers a discounted price being below half of the fair price. [In such circumstances] The law presumes that the will to sell for the price stated in the contract was not free and that the equality which should prevail between the contracting parties was injured by the discount. Bosnage, Article 3, title 'De Juridiction' explains the beyond-half deception as follows: 'The severe discount is when what is worth twenty pounds and ten sols, has been sold for (merely] ten pounds.'"

142.   Apart from the remedy of lesion, to set aside other contracts, what is required is dol, as the final sentence quoted by the Court of Appeal recognises.  Again, therefore Le Gros is not support for the general implication of an implied term of good faith in relation to the performance of every contract.

143.   The other case where a reference is made to an implied term of good faith is Sutton, to which we have already referred.  At paragraph 17 of Sutton, the Court  referred to Snell v Beadle at paragraphs 42 to 46, suggesting that "this might add some support to the view that a requirement of  good faith under Jersey law might be of wider application than a claim in relation to a claim for deception d'outre moitie."  The conclusion of the Court of the Privy Council in Snell is at paragraph 46 which states as follows:

"46  Here again, there is a recognition of the fact that the remedy is based on the principle of good faith and that the dol réel owes its existence not to a desire on the part of the purchaser to outwit or harm the vendor but from a lack of knowledge on the part of the contracting parties of the value of the property. Thus, parties who deal with each other with full knowledge of the facts, and who enter into a bargain at a price which is intended by both of them to be a specially reduced price, cannot say that there was a dol réel simply because the price which they agreed to was less than the juste prix. They cannot say that in their case good faith requires that the price be made up to the juste prix or the bargain be cancelled."

144.   This conclusion is not in our judgment recognising a general implied term of good faith, but is rather saying that a party cannot invoke the remedy of deception d'outre moitie where they have dealt with each other with full knowledge of the facts and have agreed a price intended to be a specially reduced price.  In those circumstances, they cannot show that the principle of good faith that underlies the particular remedy requires the bargain they have reached to be cancelled.

145.   Returning to Sutton, and paragraph 17, the Court also referred to European legislation.  However, as with dol par reticence, the existence of such legislation is not a basis to determine, as a matter of customary law, that an implied term of good faith is part of Jersey law.

146.   Finally, the Court in Sutton referred to Article 5 of the Supply of Goods and Services (Jersey) Law 2009, introducing a definition of good faith for the purposes of that legislation.  However, the concept of good faith in the Supply of Goods and Services Law only applies to a sale of goods by a seller with voidable title (see Article 49).  The law does not otherwise refer to any concept of good faith.

147.   We are therefore left in a position that neither the commentators or any Jersey authority state definitely that an implied term of good faith is a part of every Jersey law contract.  In our view, as with dol par reticence, to reach such a conclusion for every type of contract would be a highly significant development.  It would move away from the parties being entitled to have regard to their own interests.  It could potentially cut across the provisions of the Supply of Goods Law, in particular in relation to consumers.  Such a conclusion is far more than a refinement or clarification of the law of Jersey.

148.   In addition, it is not clear what such a term means.  Pothier is clear that dol during the performance of a contract could lead to claim for damages.  Sutton recognises the possibility of taking that further and releasing an innocent party, the victim of dol, from an ongoing obligation to perform.  Those are understandable and clear principles.  However what does the concept of good faith mean beyond these principles.  Is a party required to agree to vary a contract, where the other party does not enjoy the benefit expected?  As with dol par reticence, how does such a term sit with contracts covered by the Supply of Goods and Services Law.

149.   We are fortified in our conclusions by looking at the position both in France and in England.  In France, while the Code Civil, since 1804, recognised that contracts should be executed in good faith (see Article 1134), as with dol par reticence, it is French jurisprudence in the 20^th Century that developed this principle.  Like the position in relation to dol, Article 1134 has now been replaced by modifications to the Code Civil which came into force on 1 October 2016.

150.   Looking the other way, towards the United Kingdom, in Pakistan International Airline Corporation v Times Travel (UK) Limited [2021] UKSC 40, the Supreme Court rejected at paragraph 95 the use of a wide principle of good faith dealing:

"I do not think that this is an appropriate case in which to rely on a general principle of good faith dealing insofar as that would require a Court to try to apply a standard of what is commercially acceptable or unreasonable behaviours.  That would be a radical move forward for the English law of contract and the uncertainty caused by it seems unlikely to be a price worth paying."

151.   The case then went on to consider the scope of a lawful act of economic duress.  However, the general concerns set out by the Supreme Court should be borne in mind in relation to the development of Jersey law, because the creation of an implied term of good faith would likewise be a radical move forward for this jurisdiction.  We suggest that any change of this kind is a matter for the legislature.

An implied term of good faith for 'relational' contracts

152.   We next turn to consider the alternative argument advanced by Mr Doyle, that an implied term of good faith should form part of Jersey law for relational contracts including franchise agreements, even if we were not willing to imply a term of good faith in relation to performance of every contract governed by Jersey law.

153.   Mr Doyle's alternative argument was firstly based on the case of Yam Seng PTE Limited [2013] EWHC 111.  The discussion of Leggatt J (as he then was) begins at paragraph 119.  At paragraph 121, the judge firstly noted that the general view among commentators was that in English contract law there was no legal principle of good faith of general application.  This led to the following observation at paragraph 124:

"124. In refusing, however, if indeed it does refuse, to recognise any such general obligation of good faith, this jurisdiction would appear to be swimming against the tide. As noted by Bingham LJ in the Interfoto case, a general principle of good faith (derived from Roman law) is recognised by most civil law systems - including those of Germany, France and Italy. From that source references to good faith have already entered into English law via EU legislation. For example, the Unfair Terms in Consumer Contracts Regulations 1999, which give effect to a European directive, contain a requirement of good faith. Several other examples of legislation implementing EU directives which use this concept are mentioned in Chitty on Contract Law (31st Ed), Vol 1 at para 1-043. Attempts to harmonise the contract law of EU member states, such as the Principles of European Contract Law proposed by the Lando Commission and the European Commission's proposed Regulation for a Common European Sales Law on which consultation is currently taking place, also embody a general duty to act in accordance with good faith and fair dealing. There can be little doubt that the penetration of this principle into English law and the pressures towards a more unified European law of contract in which the principle plays a significant role will continue to increase."

154.   The same decision then reviewed the differing stages of development of an implied term of good faith in Canada, Australia and Scotland.  The judge then stated the following at paragraph 131:

"131. Under English law a duty of good faith is implied by law as an incident of certain categories of contract, for example contracts of employment and contracts between partners or others whose relationship is characterised as a fiduciary one. I doubt that English law has reached the stage, however, where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties."

155.   The heart of the judgment, for the purposes of the present case, is to be found at paragraphs 134 to 142 which it is necessary to set out in full:

"134. Importantly for present purposes, the relevant background against which contracts are made includes not only matters of fact known to the parties but also shared values and norms of behaviour. Some of these are norms that command general social acceptance; others may be specific to a particular trade or commercial activity; others may be more specific still, arising from features of the particular contractual relationship. Many such norms are naturally taken for granted by the parties when making any contract without being spelt out in the document recording their agreement.

135. A paradigm example of a general norm which underlies almost all contractual relationships is an expectation of honesty. That expectation is essential to commerce, which depends critically on trust. Yet it is seldom, if ever, made the subject of an express contractual obligation. Indeed if a party in negotiating the terms of a contract were to seek to include a provision which expressly required the other party to act honestly, the very fact of doing so might well damage the parties' relationship by the lack of trust which this would signify.

136. The fact that commerce takes place against a background expectation of honesty has been recognised by the House of Lords in HIH Casualty v Chase Manhattan Bank (2003] 2 Lloyd's Rep 61. In that case a contract of insurance contained a clause which stated that the insured should have "no liability of any nature to the insurers for any information provided". A question arose as to whether these words meant that the insured had no liability even for deceit where the insured's agent had dishonestly provided information known to be false. The House of Lords affirmed the decision of the courts below that, even though the clause read literally would cover liability for deceit, it was not reasonably to be understood as having that meaning. As Lord Bingham put it at [15]:

"Parties entering into a commercial contract ... will assume the honesty and good faith of the other; absent such an assumption they would not deal."

To similar effect Lord Hoffmann observed at [68] that parties "contract with one another in the expectation of honest dealing", and that:

" ... in the absence of words which expressly refer to dishonesty, it goes without saying that underlying the contractual arrangements of the parties there will be a common assumption that the persons involved will behave honestly."

137. As a matter of construction, it is hard to envisage any contract which would not reasonably be understood as requiring honesty in its performance. The same conclusion is reached if the traditional tests for the implication of a term are used. In particular the requirement that parties will behave honestly is so obvious that it goes without saying. Such a requirement is also necessary to give business efficacy to commercial transactions.

138. In addition to honesty, there are other standards of commercial dealing which are so generally accepted that the contracting parties would reasonably be understood to take them as read without explicitly stating them in their contractual document. A key aspect of good faith, as I see it, is the observance of such standards. Put the other way round, not all bad faith conduct would necessarily be described as dishonest. Other epithets which might be used to describe such conduct include "improper", "commercially unacceptable" or "unconscionable".

139. Another aspect of good faith which overlaps with the first is what may be described as fidelity to the parties' bargain. The central idea here is that contracts can never be complete in the sense of expressly providing for every event that may happen. To apply a contract to circumstances not specifically provided for, the language must accordingly be given a reasonable construction which promotes the values and purposes expressed or implicit in the contract. That principle is well established in the modern English case law on the interpretation of contracts: see e.g. Rainy Sky SA y Kookmin Bank [2011] 1 WLR 2900 : Lloyds TSB Foundation for Scotland y Lloyds Banking Group Ple [2013] UKSC 3 at [23]. [45] and [54]. It also underlies and explains, for example, the body of cases in which terms requiring cooperation in the performance of the contract have been implied: see Mackay v Dick (1881) 6 App Cas 251, 263; and the cases referred to in Chitty on Contracts (31st Ed), Vol 1 at paras 13-012 - 13-014.

140. The two aspects of good faith which I have identified are consistent with the way in which express contractual duties of good faith have been interpreted in several recent cases: see Berkeley Community Villages Ltd v Pullen [2007] EWHC 1330 (Ch) at [95]-[97]; CPC Group Ltd v Qatari Diar Real Estate Investment Co [2010] EWHC 1535 (Ch) at [246].

141. What good faith requires is sensitive to context. That includes the core value of honesty. In any situation it is dishonest to deceive another person by making a statement of fact intending that other person to rely on it while knowing the statement to be untrue. Frequently, however, the requirements of honesty go further. For example, if A gives information to B knowing that B is likely to rely on the information and A believes the information to be true at the time it is given but afterwards discovers that the information was, or has since become, false, it may be dishonest for A to keep silent and not to disclose the true position to B. Another example of conduct falling short of a lie which may, depending on the context, be dishonest is deliberately avoiding giving an answer, or giving an answer which is evasive, in response to a request for information.

142. In some contractual contexts the relevant background expectations may extend further to an expectation that the parties will share information relevant to the performance of the contract such that a deliberate omission to disclose such information may amount to bad faith. English law has traditionally drawn a sharp distinction between certain relationships - such as partnership, trusteeship and other fiduciary relationships - on the one hand, in which the parties owe onerous obligations of disclosure to each other, and other contractual relationships in which no duty of disclosure is supposed to operate. Arguably at least, that dichotomy is too simplistic. While it seems unlikely that any duty to disclose information in performance of the contract would be implied where the contract involves a simple exchange, many contracts do not fit this model and involve a longer term relationship between the parties which they make a substantial commitment. Such "relational" contracts, as they are sometimes called, may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements, franchise agreements and long term distributorship agreements." ( emphasis added)

156.   Mr Doyle, for HRCKY, emphasised that the Franchise Agreement was a relational contract and therefore the implied duty of good faith as described, in paragraph 142 of the Yam Seng decision should apply as a matter of law to the present arrangement. 

157.   Mr Doyle further referred me to Bates v Post Office Limited [2019] EWHC 606.  The Bates case concerned a series of claims made in group litigation by operators of sub-post offices against the Post Office in relation to alleged shortfalls in money said to be missing from accounts of sub-post offices and owing to the Post Office.  The Court characterised the relationship between the Post Office and sub-post offices as a relational contract which it concluded imposed an implied duty of good faith on both parties.  The conclusions of the judge are found at paragraphs 710 and 711 as follows:

"710. However, in this respect I must disagree with the learned editors of Chitty in the passage I quote at [708] on the subject of relational contracts, and a duty of good faith. There are two distinct respects in which I disagree. Firstly, a term requiring good faith does not mean honesty. That emphasised sentence in the passage in Chitty is, in my judgment, simply wrong, and ignores statements in the cases explaining what a term requiring good faith means. There is more to a duty of good faith than a requirement to act honestly. It includes honesty, but there is more to it than that. Secondly, by stating that English law generally rejects a legal requirement of good faith, the passage at 1-058 uses its opposition to the doctrine as a justification for why that doctrine is said not to be of application. It is a wholly circular argument, and ignores a number of cases, not only Yam Seng itself but the subsequent cases. I do not consider that, on the authorities I have identified, English law rejects a legal requirement of good faith. What the cases make clear is that such a duty will not be routinely applied to all commercial contracts.

711. I therefore consider that in this respect, the learned editors of Chitty do not correctly summarise the jurisprudence in this area of the law. I consider that there is a specie of contracts, which are most usefully termed "relational contracts", in which there is implied an obligation of good faith (which is also termed "fair dealing" in some of the cases). This means that the parties must refrain from conduct which in the relevant context would be regarded as commercially unacceptable by reasonable and honest people. An implied duty of good faith does not mean solely that the parties must be honest."

158.   Having reviewed a number of other first instance authorities, the judge, at paragraph 725, then set out a list of characteristics to assist in determining whether a contract was a relational one or not, leading to the implication of an implied term of good faith.  Paragraph 725 therefore stated as follows:

"725. What then, are the specific characteristics that are expected to be present in order to determine whether a contract between commercial parties ought to be considered a relational contract? I consider the following characteristics are relevant as to whether a contract is a relational one or not:

1. There must be no specific express terms in the contract that prevents a duty of good faith being implied into the contract.

2. The contract will be a long-term one, with the mutual intention of the parties being that there will be a long-term relationship.

3. The parties must intend that their respective roles be performed with integrity, and with fidelity to their bargain.

4. The parties will be committed to collaborating with one another in the performance of the contract.

5. The spirits and objectives of their venture may not be capable of being expressed exhaustively in a written contract.

6. They will each repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships.

7. The contract in question will involve a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty.

8. There may be a degree of significant investment by one party (or both) in the venture. This significant investment may be, in some cases, more accurately described as substantial financial commitment.

9. Exclusivity of the relationship may also be present."

159.   This list was subject to the following warning at paragraph 726:

"726. I hesitate to describe this as an exhaustive list. No single one of the above list is determinative, with the exception of the first one. This is because if the express terms prevent the implication of a duty of good faith, then that will be the end of the matter. However, many of these characteristics will be found to be present where a contract is a relational one. In other cases on entirely different facts, it may be that there are other features which I have not identified above which are relevant to those cases."

160.   In Candey Limited v Bosheh and Another [2021] EWHC 3409 (Comm), the Court of Appeal in England reviewed the various first instance decisions, including Yam Seng and Bates. In doing so, it firstly reminded itself as to the relevant English law test for implied terms at paragraph 29 as follows:

"29. The test for implied terms has been stated in slightly different ways in different cases over the years. Perhaps the most comprehensive summaries in recent times can be found in Marks & Spencer PLC v BNP Paribas Securities Services Trust Co. (Jersey) Limited [2015] UKSC 72; [2015] 3 WLR 1843 and Europa Plus SCA SIF & Ors v Anthracite Investments (Ireland) Plc [2016] EWHC 437 (Comm) at paragraph 33. The test can therefore be formulated in this way:

(a) The term must be reasonable and equitable; and

(b) The term must be necessary to give business efficacy to the contract (in other words, does the contract lack commercial or practical coherence without the term?); or

(c) The term must be so obvious that it 'went without saying'; in other words, if pointed out to the parties that it was missing, they would say "of course, so and so will happen; we did not trouble to say that; it is too clear": see Reigate v Union Manufacturing Co. (Ramsbottom) Limited [1918] 1 KB 592 at 605; and

(d) The term must be capable of clear expression and be formulated with sufficient precision: see Shell UK Limited v Lostock Garage Limited [1976] 1 WLR 1187 at 1204; and

(e) The term must not be inconsistent with, much less contradict, an express term: see Marks and Spencer PLC v BNP Paribas at [28]."

161.   The Marks and Spencer decision was followed in this jurisdiction in Waterfront (LC) Limited v Cine UK Limited [2022] JRC 212 at paragraphs 113 and 114. 

162.   The Candey case then continued by stating the following at paragraph 30:

"30. As a consequence of the decision of Leggatt J (as he then was) in Yam Seng Pte v International Trade Corp [2013] EWHC 111(QB), contractual claims can now be put by reference to an implied duty of good faith. Leggatt J was clear that such an obligation would only arise in a category of 'relational' contracts like a joint venture, in which the parties were committed to collaborating with each other, typically on a long-term basis, in ways which respected the spirit and objectives of their venture which they had not tried to specify, and which it might be impossible to specify exhaustively, in a written contract. That explains why relational contracts feature heavily in chapter 11 of Hewitt on Joint Ventures, 7th edition. In Sheikh Tahnoon Shakhboot Al Nehayan v Kent [2018] EWHC 333 (Comm) at [167] Leggatt LJ (as he then was) refined what he was looking for:

" ... such 'relational' contracts involve trust and confidence but of a different kind from that involved in fiduciary relationships. The trust is not in the loyal subordination by one party in its own interests to those of another. It is trust that the other party will act with integrity and in a spirit of cooperation. The legitimate expectations which the law should protect in relationships of this kind are embodied in the normative standard of good faith.""

163.   The Court, at paragraph 31, then cited with approval, the checklist in Bates v Post Office set out above.

164.   The Court of Appeal also, at paragraph 32, expressed the following note of caution:

"32. Of course, the mere fact that some relationships are long-term does not make the underlying contract a relational contract: see Fancourt J in UTB LLC V Sheffield United Limited [2019] EWHC 2322 (Ch)[1]. Moreover, as a general rule, it is important not to veer from the test as to implied terms noted above. As Beatson LJ observed in Globe Motors Inc v TRW Lucas Variety Electric Steering Lid [2016] EWCA Civ 396 at [68]:

" ... An implication of a duty of good faith will only be possible where the language of the contract viewed against its context permits it. It is thus not a reflection of a special rule of interpretation for this category of contract."

Putting that another way, it might be said that the elusive concept of good faith should not be used to avoid orthodox and clear principles of English contract law."

165.   Advocate Pallot, in his written submissions on the law, suggested that there was some doubt as to the extent of any implied term by reference to differing conclusions reached by different first instance decisions.  In doing so, he relied on the following extract from Chitty 34^th Edition at paragraph 2-089:

" ... if there were such a term, it would have imposed on the parties only "a duty to deal with one another on an open and collaborative basis" and not an "obligation to maximise profit" and would not qualify a party's right to terminate on reasonable notice by limiting it to exercise only in "good faith" nor its contractual right to set prices: the relevant party would still be free to exercise its contractual rights honestly in its own commercial interests, rather than being obliged to subordinate those interests to further the other party's competing interests. 550 Similarly, it has been held that even if it were possible to imply a term of good faith in the particular franchise agreement before it, this would not impose a duty upon the franchisor to remind the franchisee of its own contractual rights. Moreover, while the duty of good faith requires asking whether a party's conduct would be regarded as "commercially unacceptable" by reasonable and honest people, such a duty does not require a party to renegotiate key aspects of the contract or to give up its right to hold the other party to its bargain. It may be, therefore, that a court will be more willing to imply a term merely requiring honesty of the parties, as distinct from a term imposing wider or more demanding obligations."

166.   However, this extract predated the Candey decision which is now clear recognition as a matter of English law that if a contract is found to be a relational contract, this brings with it an implied obligation of good faith. 

167.   While we have concluded that it would be wrong to imply in every contract governed by Jersey law an implied term of good faith, we see no reason why Jersey law, in relation to relational contracts, should not permit an implied term of good faith applying the approach set out in Candey.  In reaching this conclusion, we recognise that whether a long term contract is relational leading to the implication of such a term will be fact specific.  In that regard, although the extract in Chitty referred to by Advocate Pallot does not prevent the implication of such a term, it is nevertheless a useful extract in relation to the limits of any implied term, in particular, parties, notwithstanding the existence of such a term, are still free to exercise their contractual rights honestly in their own commercial interests, and do not have to subordinate those interests to further the interests of the other party.  Secondly, any implied term of good faith does not require a party to renegotiate key aspects of a contract, or to give up its right to hold the other party to its bargain.

168.   What the doctrine focuses upon in particular is the commitment of parties to collaborating with each other on a long term basis and in ways which respect the spirit or objectives of their venture which they could not necessarily specify at the outset.

169.   We consider later in this judgment whether the Franchise Agreement is a relational contract by reference to the checklist of factors referred to in Bates and Candey and, if the Franchise Agreement is such a contract, whether any implied term of good faith has been breached.

The entire agreement clause

170.   This part of the judgment deals with the general provisions in Section 18 of the Franchise Agreement set out at paragraph 45 above, in particular, Section K.  The issue that arises as a matter of construction is whether Section K precludes any claims in dol, misrepresentation or erreur. This question of construction is a question of law.

171.   In relation to an entire agreement clause and claims in dol, the Court of Appeal in Hard Rock in 2019 stated the following at paragraphs 63 and 64:

"63.  ...For the reasons which we have given, a claim in dol does introduce different considerations for the trial court - without deciding the matter, it does on the face of it mean that the 'entire contract' provisions in the Franchise agreement may not be as reliable for the Respondents as they would wish to contend, for it is hard to see how a party who has by deception encouraged another party to enter into a contract can thereafter rely on any part of a contract which has only been entered into as a result of that deception.

64. The fact that fraud, falsehood or deception may in a particular case have been constituted by a representation does not matter because the essence of dol is fraudulent or false conduct. When a contract is induced by such fraudulent or false conduct then it will be void and the contract will fall. That will mean that each and every one of the clauses, terms and conditions of the contract will be regarded as being void and not enforceable by either party. This will apply as much to an "entire contract" clause as it will to any other clause in the void contract, and it seems to us to mean that the existence of such a clause is no answer to a claim that the contract has been induced by dol. If the contract has been induced by dol, that is by fraud or falsehood, then the contract falls as a whole and cannot be kept alive by a condition which was as much induced by the fraud of falsehood as any other. The fact that the dol may have been committed in the form of a misrepresentation in a particular case does not matter because it will be the fraud or falsehood which vitiates the contract, not the misrepresentation. In that sense, we cannot see how the "entire contract" clauses quoted above can save it."

172.   However, it should be remembered that subsequently in Hore, the effect of a finding of dol is that a contract is voidable rather than void.  If a contract is not voided and a party only seeks damages (as is the position of HRCKY in this case), can the other party (Hard Rock in this case) rely on an entire agreement clause?

173.   In our judgment, as a matter of principle, the existence of an entire agreement clause should not prevent, following a finding of dol, the innocent party from electing to claim damages, rather than have the contract avoided for the reasons set out by the Court of Appeal at paragraphs 63 and 64.  In addition,  the power vested in the Court to refuse such an election should not mean that a claim for damages based on a finding of dol is then precluded by an entire agreement clause.  While Hore does not debate when that power might be exercised, it is not difficult to see that such an election might be refused if to treat the contract as void was simply not practical or was impossible because there were simply too many transactions to be unwound.  In such circumstances, it would not be just or equitable for the party having found to have committed an act of dol to still be able to rely on an entire agreement provision where the Court refused to avoid a contract.  The entire agreement clause should not be able to save the perpetrator of a dol in such circumstances.  We see no difference between this scenario and one where a party elects to claim damages on the basis of dol where it would also be unjust or inequitable for an entire agreement clause to prevent a claim for damages following a finding of dol.

174.   In reaching this conclusion, we add for the sake of completeness that there is a distinction between the party electing to claim damages or only being awarded damages because a contract cannot be declared void and a positive act of affirmation following a finding of dol.  If a party being aware of the facts amounting to dol then seeks to affirm the contract, such an affirmation would prevent reliance on dol.  However, that is not reliance on an entire agreement clause, but reliance on an act of affirmation.  As to what is affirmation after an extensive review of the authorities, in Hore, from paragraphs 170 to 182, the Royal Court stated the following at paragraph 183:

"183. What then should be the test for holding that a party has elected to rely on its contractual rights, notwithstanding the existence of dol / fraud? In our view, the circumstances in which the innocent party can be held to have elected to treat a contract as binding, notwithstanding the presence of dol/fraudulent misrepresentation, prima facie giving them an entitlement to avoid the contract are as follows:

(i)         The election must be made by the innocent party in knowledge of all the relevant facts i.e. knowledge of the dol / fraud; and

(ii)        It is for the party alleging that the innocent party has elected to treat the contract as binding to prove that knowledge (or that it should be imputed to the innocent party) and to prove that the innocent party has made the election; and

(iii) The Court should be slow in this context, i.e. admitted or proved dol / fraudulent misrepresentation, to hold that the innocent party has made such an election in the absence of clear evidence to this effect."

175.   We address later in this judgment whether there has been an act of affirmation as alleged by Hard Rock.

176.   In relation to erreur, any erreur obstacle renders a contract void.  Accordingly, the entire agreement clause will fall for the same reasons outlined by the Court of Appeal in Hard Rock in relation to claims in dol.

177.   Where there is an erreur amounting to vice du consentement or where there are claims for damages based on innocent or careless misrepresentation falling short of dol, we repeat our observations at paragraph 82 above in relation to the scope of erreur sur la substance.  Parties may seek or make pre-contractual inquiries and seek warranties or other assurances based on the answers to those enquiries.  It then becomes a matter of negotiation about the extent of risk a party is willing to accept or not.  Often if a party is not willing to accept a risk or a term cannot be agreed to address that risk then that party can walk away from the contract.  Parties are therefore free to decide whether to accept a clause excluding any liability for statements made prior to the contract which do not amount to dol. 

178.   We add for the sake of completeness that an entire agreement clause in contracts for the supply of goods or services may be struck down by reference to the Supply of Goods and Services (Jersey) Regulations 2010.  Our observations are therefore limited only to the customary law of Jersey.  The 2010 Regulations, however, do not apply to the terms of the Franchise Agreement.

Determination of issues

179.   We now return to consider the issues summarised at paragraph 52 above in relation to:

(a)        the Written Projections ("Issue 1");

(b)        the Oral Representations ("Issue 2"); and

(c)        the profitability of the food and beverage of Hard Rock Cafés owned and run by the Hard Rock Group ("Issue 3").

180.   Following consideration of these issues we set out our conclusions on the arguments raised by Hard Rock summarised at paragraphs 57-63 above when evaluating questions of prescription, causation and loss.  

Issue 1- The Written Projections

181.   While the Written Projections were provided by Mr Marable in March and April 1999, to put these Representations in context it is necessary to go back to certain events in 1997 and 1998.  

182.   In 1997 Mr Doyle and Keith explored the possibility of acquiring and establishing a franchise for a Planet Hollywood restaurant and bar in the Cayman Islands and put together a group of investors to do so.  However, Mr Doyle, at the end of 1997, became very nervous about negative publicity surrounding the Planet Hollywood brand and decided to pull out and instead approach Hard Rock Café.  Mr Doyle therefore cold called Hard Rock Café to ascertain whether they would be interested in issuing a Hard Rock Café franchise to him in the Cayman Islands.  While an initial proposal was put to Hard Rock by Keith, the Hard Rock Group in response asked Mr Doyle and Keith to explore business opportunities on their behalf, focussing primarily on identifying suitable locations in the Cayman Islands for the Hard Rock Group to open a hotel / resort operation or a restaurant retail operation and to advise Hard Rock as to how to establish an appropriate ownership structure in Cayman.  What Mr Doyle and Keith brought to the arrangement for Hard Rock was that they had been living in Cayman for some five years, had a local retail operation selling souvenirs and had been offered and turned down a Planet Hollywood franchise.

183.   This approach led to Mr Doyle writing to Mr Marable on 15 May 1998 setting out various suggestions on viable options including making the following statement:

"Hard Rock - we believe the original idea for a café / retail outlet remains viable and that there are two possible sites...."

184.   Mr Doyle therefore was aware from the outset that the Hard Rock business proposition was a combined operation.

185.   On 27 May 1998, Hard Rock appointed Mr Doyle as an independent contractor to investigate "different investment structures and exploring partnerships and / or franchise opportunities with local investors with the above referenced business ventures". 

186.   The business ventures referred to were "hotel / resort operations and / or restaurant / retail operations".

187.   In a letter dated 1 July 1998 from Mr Doyle to Mr Marable, Mr Doyle explained the need to obtain a trade and business licence in the Cayman Islands and that normally a non-resident who wished to obtain such a licence was only allowed to retain a 40% shareholding in the venture.  At this stage Mr Doyle was looking at buying a site and leasing it to Hard Rock.

188.   In October 1998, Mr Marable produced a report for the Hard Rock Group seeking approval to open a Hard Rock Café in the Cayman Islands.  Attached to the presentation was a projected income statement (Case Center J136) which contained figures for gross and net sales broken down between restaurant and merchandise. 

189.   In his witness statement in relation to this statement, Mr Goodwin, who was Mr Marable's superior, made three observations:

(a)           The figures for indirect labour and taxes and benefits did not vary from year to year which he regarded as unrealistic;

(b)           Non-controllable expenses excluding rent had suddenly declined in Year 4; and

(c)           The form stated that the residual value of the project was calculated as being 7.5 times Year 5 cashflow which assumed that the project would continue to grow at the same rate for nine years after Year 5 without the further need for capital expenditure.

190.   Mr Goodwin's evidence was that this assumption of continual growth was contrary to his experience for Hard Rock Cafes at that point with Hard Rock Café revenues generally declining after Year 5 of a café opening.  In his oral evidence, Mr Goodwin explained, and we accept his evidence, that the residual value was the value of the franchise at the end of the period of the franchise, in this case thirty years.  No one suggested during the course of the trial that these errors had been made deliberately or were acts of dishonesty.  We refer to them however because they found their way into the Written Projections.

191.   Ultimately, however, in or around December 1998, the Hard Rock Group informed Mr Doyle and Keith that they were not going to proceed with opening their own corporate café in the Cayman Islands.  Instead they discussed with Mr Doyle the possibility of granting him a franchise arrangement. 

192.   On 17 December 1998, Mr Doyle therefore wrote to Mr Marable enclosing certain projections.  This followed an earlier email sent on 9 December 1998 but we do have a copy of that email.  The letter of 17 December stated:

"Attached are projections based on the new premises.  This time I've used as a basis your 'Almond Tree financials' layout when putting these latest figures together."

193.   These figures were an estimated budget for opening i.e. the capital costs required for Mr Doyle to open a franchise.  The same email also contained figures for sales and the cost of sales both split between the restaurant and merchandise.  Labour costs were also split between the restaurant and merchandise with a much higher figure for the restaurant.

194.   Ultimately, this schedule produced a figure for net investment required, the net profit obtainable and a return on investment.  It was not clear whether the sales figures set out in this document were for Year 1 of the intended franchise or were intended to reflect income and expenditure on an annual basis.

195.   Mr Doyle's evidence was that these figures were based on the figures that Mr Marable had put to Hard Rock to open a café / retail operation in the Cayman Islands in October.  This is why he referred to the "Almond Tree Financials" as Almond Tree was the project name used by Hard Rock when it was considering opening its own café in the Cayman Islands.  We accept that part of Mr Doyle's evidence.

196.   Mr Doyle was cross-examined on the extent of his knowledge and experience on the figures sent to Mr Marable in December 1998.  We set out later our conclusions on the experience of Mr Doyle in putting together figures and his experience because there are further documents Mr Doyle prepared prior to HRCKY signing the Franchise Agreement where he was also questioned about the extent of his experience.  We set out our summary of his experience when we set out our conclusions on those other documents.

197.   On 27 December 1998, Mr Doyle wrote to Mr Marable confirming his interest in opening "a HRC franchise in Grand Cayman before December 1999 as well as looking at possibility of franchise in other jurisdictions throughout the Caribbean".

198.   On 15 January 1999, the Hard Rock Group through Mr Marable offered to Mr Doyle an offer of franchise rights to Hard Rock Cafes in a number of territories in the Caribbean. 

199.   Also in January 1999, Mr Doyle secured an option to lease premises for twenty years in the Cayman Islands.  The purpose for securing this option was to secure premises to operate a Franchise Agreement granted by the Hard Rock Group.  The lease had to be signed by 31 May.  By March 1999, this had developed into a twenty year term with two automatic options to extend the lease by consecutive periods of five years. 

200.   Also, by March 1999, a draft Franchise Agreement had been sent to Mr Doyle and Keith.  Keith primarily reviewed this document leading to this observation in his email of 4 March 1999 to Mr Doyle:

"Overall, the individual restaurant franchise has us tied up all over the place - you have no room to move at all once you sign. You have no redress. Nothing. These are very serious pieces of paper, and need to entered into with eyes wide open."

201.   Mr Doyle, in cross-examination, accepted he understood what Keith was saying to him.

202.   The same email also referred to an Area Development Agreement.  This was an agreement relating to Mr Doyle and other investors he represented opening other franchise operations for Hard Rock within the Caribbean.

203.   On 6 March 1999, Keith provided further detailed comments to Mr Doyle about the Franchise Agreement (referred to as an RFA) in his email.  His email started with the following general comment:

"Here is my latest take on RFA but in reality there is nothing to concern us."

204.   Keith in the same email raised that in section 2c of the draft Franchise Agreement he had reviewed that there was a section dealing with the franchisee having experience of developing and operating restaurants and other businesses.  The reference to experience of operating restaurants was removed in the final version of the Franchise Agreement signed by Hard Rock and HRCKY.  Mr Doyle's evidence at paragraph 29 of his witness statement was that he had raised the question of his lack of restaurant experience in a meeting with Mr Marable and Mr Goodwin when he was offered the Franchise Agreement in a call on 15 February 1999.  While we accept that some form of call took place offering the Franchise Agreement, no note of the call was produced to us and therefore we have no contemporaneous document exploring whether or not Mr Doyle's lack of experience in running a restaurant was raised with Hard Rock or why the reference to it in an earlier draft was removed.

205.   Mr Doyle also gave evidence at paragraph 30 of his witness statement that he specifically raised the question of his lack of restaurant experience with Mr Marable at a meeting on 15 March 1999 in Orlando and he was reassured that the Hard Rock Group would provide the infrastructure for the franchise operation saying that HRCKY would have the ability to smoothly operate the franchise.  Again, there is no note of these discussions. 

206.   Between 10 and 16 March 1999, Mr Doyle and Keith attended various meetings in Orlando at the headquarters of Hard Rock.  During these meetings, Mr Doyle and Keith met with Mr Marable where they discussed numbers of staff required and potential revenues.  They also considered likely development costs. 

207.   These discussions led to Mr Marable sending the March Projections which set out various scenarios based on revenues between US$ 4.6 million up to US$ 8.66 million.  These projections were five pages, all in the same format, and, as with the projections prepared by Mr Marable in October 1998, each projection broke down sales and costs between restaurant and merchandise with, as Mr Doyle put it in his witness statement, the bulk of the costs being geared towards the restaurant business. 

208.   The first page was a break even analysis for Year 1 based on sales of US$ 4.6 million, increasing to US$ 4.979 million at the end of Year 5.  The second page was based on gross sales of US$ 6 million in Year 1 and an initial growth net profit of 6.7%.  The third page was based on projected sales of US$ 6.3 million and a net profit of 8.4%.  The fourth page was based on gross sales US$ 7 million and a net profit of 9.8%.  The fifth page was based on Year 1 sales of US$ 7.5 million and a net profit of 11%.

209.   Each page contained figures for present value described as NPV and IRR and a figure for Rona.   Mr Doyle stated in his evidence, and we accept this part of his evidence, that he did not understand this part of the figures but rather focussed on net profit and the capital expenditure required.  He also stated that he was looking at a return on investment of 25%.

210.   Following provision of the March Projections, on 18 March 1999 a meeting over dinner took place between Mr Marable, Mr Frankel and Mr Doyle in Cayman at a restaurant.  It is alleged that Mr Marable made the Oral Representations at this dinner. 

211.   The April Projections are found at J288 to J292 on Case Center and are dated 15 March 1999.  However, it was accepted by both sides that the April Projections were provided at some point in April 1999.  The precise date does not matter.  These were the last set of projections received by HRCKY.

212.   The April Projections were essentially in the same format as the March Projections and comprised 4 pages.  Page 1 was based on income figures starting with US$ 6.5 million in Year 1.  The remaining pages were based on increasing income figure of US$ 7 million, US$ 7.5 million and US$ 8 million.  They were based on a capital expenditure of US$4,030,000.  The figures for net profit ranged from 7.8% to 11.6%.  These percentages were after payment of royalties and cost of borrowing money.  Otherwise the same percentages used to calculate deductions for costs and allocation of costs used for the March Projections were repeated in the April Projections.

213.   Subsequent to receipt of these figures, Mr Doyle produced a series of spreadsheets, all of which were in the same format and essentially followed the same format used by Mr Marable to create the Written Projections.  The variations Mr Doyle applied were to the gross income which in turn depended on how many individuals were estimated to attend the café each day and the percentage split between restaurant sales and merchandise sales.  He used percentage splits of either 50/50 or 40/60 in favour of merchandise sales.  The Written Projections, by way of contrast were all based on a 50/50 split.

214.   The figures in five of these spreadsheets created by Mr Doyle showed losses.  The remaining spreadsheets calculated a figure for net profit ranging between 10% and 30% depending on the total volume of sales and the percentage split between restaurant and merchandise.  The highest split was based on total sales of US$ 10,590,000 with 40% representing restaurant sales and 60% representing merchandise sales.

215.   The spreadsheets also contained the same figures for costs of sales and operating expenses and recorded that labour costs were much higher for direct costs involved in running the restaurant. 

216.   These projections led Mr Doyle to produce a restaurant opportunity document to attract investors.  This document contained the following statement:

"Whilst Hard Rock Restaurants generally outstrip the opposition in terms of Food & Beverage Sales, the sale of Hard Rock Merchandise from the on-site Retail outlets is equally as high. In the Caribbean, the revenue split, actually heavily leans towards Merchandise - and the Profits attributable to HRC Merchandise are high."

217.   In relation to revenues, the restaurant franchise opportunity document also stated the following:

"The higher the split is in favour of merchandise sales, the more profitable an establishment becomes. Again, we are tending to be conservative and only indicate a budgeted ratio split for Food & Beverage: Merchandise of 50:50." (Emphasis added)

218.   The figures for staff costs were based on an estimate of around seventy people and recognised that costs of importing goods for sale were higher than for a business operating in the United States.

219.   The conclusion to the report stated the following:

"Based on projections of Gross Revenues of $6m we estimate our Total Cost of Sales will be $3,978,000; Non-Controllables will account for a further $390,000 leaving a Gross Trading Profit of $1,520,000. Royalties paid to HRC will account for $443,800 leaving a Net Trading Profit of $1,076,200, which is a Return on Revenue (ROR) of 18%. Based on Capital employed of say, $4,000,000 the resulting Return on Investment (ROI) would be 27%."

220.   Mr Doyle sent these projections to Mr Frankel by fax on 22 April 1999 which contained the following statement:

"I attach the Development Costs and the P&L Projections based on Revenues of $6.7 & $8M. It is now apparent that the Development Costs alone will be in the region of $3.6 - $4M and that the ADA will cost a separate SIM. Within a couple of hundred thousand dollars, we now know what the overall cost is likely to be for Development of Cayman - and we know what the likely returns are - based on the differing levels of Revenues. On that basis, we should make a decision now - not later - on whether we are going to progress the HRC deal. If we opt to go ahead now, we will make it easier to meet the Nov./Dec Opening deadline."

221.   The same fax also contained the following statement:

"But the Cayman RFA Project, at a Cost of $4M in Development Costs, is showing projected Profits and ROE that are substantial - based on Cash Equity participation of 30% plus Bank borrowings which can be amortized over 7/10 years. The real value of both the ADA and RFA is the multiple of Profits at which they will be valued once the various Restaurants are operational, and, as you know HRC have already virtually guaranteed a price level."

Were the Written Projections representations?

222.   In relation to the Written Projections, the first question we have considered was whether they amount to representations.  Mr Doyle, when cross-examined on the figures he produced in December 1998 (which we accept were based on Mr Marable's calculations in October 1998) and the March Projections and April Projections, accepted that they were projections or forecasts.  Given this acceptance, the Written Projections, unless made in bad faith or fraudulently, cannot amount to misrepresentations for HRCKY to found a claim for damages based on misrepresentation.  The Written Projections as a matter of fact are not therefore misrepresentations.

223.   We have also concluded by reference to the evidence of Mr Goodwin, referred to at paragraphs 186 and 187 above, that Mr Marable did reasonably believe the opinions contained in the Written Projections to be true.  Although they contain certain errors as identified by Mr Goodwin, there is no material before us to conclude, in relation to the Written Projections, that Mr Marable was acting in bad faith.  Rather, both the presentation he made to the Hard Rock Group and the Written Projections contained the same errors, but in our view those errors do not allow for a conclusion that the written projections as a whole were made in bad faith and are therefore capable of amounting to representations and to support a claim in misrepresentation.

224.   In relation to production of the Written Projections, Mr Doyle, in evidence, himself accepted that Mr Marable was not dishonest in relation to production of these figures.  Rather, his complaints of dishonesty were about Mr Marable's failure to disclose the position in relation to the profitability of the corporate cafes.  This means that the Written Projections cannot be set aside on the basis that they were produced fraudulently.  In reaching this conclusion, we also have regard to the evidence of Keith who gave evidence that he was doing his best to assist the Court and stated that his counsel to Mr Doyle was not to "stand up and shout fraud".  We commend Keith for what was undoubtedly a very difficult situation for him for the way in which he gave his evidence that fraud could not be alleged.

225.   Accordingly, we have concluded that a claim based on misrepresentation or dol cannot be made out in relation to the Written Projections alone.  We deal later with the effect of the claim based on a failure to disclose the position in relation to the corporate cafes.

Did HRCKY rely on the Written Projections

226.   We next turn to Mr Doyle's response to the Written Projections.  In his evidence, Mr Doyle sought to persuade us that he was not experienced in figures and therefore relied on Mr Marable in relation to the figures that were produced.  He also suggested that his own figures were simply a re-working of the figures produced by Mr Marable and that he was not experienced in understanding accounts. 

227.   We do not accept this part of Mr Doyle's evidence.  Firstly, given his career in the finance industry where he held a number of senior positions including being managing director of an institution in the Cayman Islands for five years, we have concluded that Mr Doyle, while not an accountant, was experienced enough to understand the Written Projections provided by Mr Marable.  Our assessment of Mr Doyle is that he had the experience to understand those figures.  While at times Mr Doyle found it difficult to present the case himself, given he is not legally qualified and was effectively acting as a litigant in person, he is articulate and intelligent and in our view was able to and did understand the information provided to him in the Written Projections.

228.   This conclusion is further confirmed by the seventeen spreadsheets he produced.  In our view, this was not just Mr Doyle playing with figures; rather it was Mr Doyle assessing what Mr Marable was saying and testing the possibilities. This can be seen from the restaurant franchise opportunity document and the extracts which we have quoted at paragraphs 216-219 above, as well as the covering fax to Mr Frankel of 22 April 1999 referred to at paragraphs 220 and 221 above. 

229.   In relation to this analysis, we consider that Mr Doyle was doing his own assessment of the figures and evaluating whether or not to enter into the Franchise Agreement.  Not only did he alter the income figures he created different income levels based on numbers of customers, how much they might spend per head and differencing splits between restaurant and merchandise sales.   This was not just reworking the numbers.  This is clear from the fax of 22 April 1999 to Mr Frankel where Mr Doyle, based on his projections not the Written Projections, was asking for a decision whether or not to proceed.  This request for a decision based on documents created by Mr Doyle and his own analysis means that Mr Doyle was not relying on the Written Projections in deciding whether or not to proceed, but sought approval based on his own projections.  Ultimately, in our opinion HRCKY made a decision to enter into the Franchise Agreement based on its own analysis. 

230.   Prior to HRCKY entering the Franchise Agreement, Mr Goodwin also gave evidence that he had informed Mr Doyle on a visit to Cayman where they discussed suitable locations for a Hard Rock Cafe that sales of merchandise were essential for the Hard Rock model.  He recalled that he made this observation both about the Hard Rock model generally and a Hard Rock café in Cayman.  Mr Doyle understood this as can be seen from the quotation at paragraph 217 above.  We accept Mr Goodwin's evidence which supports our conclusions that Mr Doyle made his own assessment about the profitability of the Franchise Agreement.

231.   In reaching our conclusion that HRCKY and Mr Doyle did not rely on the Written Projections, when deciding whether or not to enter into the Franchise Agreement, and that Mr Doyle was capable of understanding the figures provided to him and preparing his own calculations and therefore the risks involved, we have also taken into account the evidence of HRCKY's own expert accountant, Mr Borelli. Mr Borelli, in response to a question from the Court, accepted that someone fairly sophisticated would be able to see that the profitability of the franchise depended on sales of merchandise when looking at the Written Projections.  Mr Doyle in our view was such an individual.  Mr Borelli was a very impressive witness and we accept his evidence on this point unreservedly. 

232.   Finally, we wish to add that the fact of Mr Doyle not having any experience of running a restaurant (which we accept) does not affect our conclusion on his ability to evaluate figures.  He had experience to do the latter and did so and made a decision with Mr Frankel on the basis of this analysis.

One business or two

233.   The evidence in relation to the Written Projections also leads to consideration of the argument whether the franchise granted was one business or two.  Mr Doyle maintains that what he was granted were two separate businesses, namely a café and a retail operation rather than a single business.  We reject this contention for the following reasons.

234.   Firstly, it is clear from the terms of the Franchise Agreement itself that it was a single business.  This is clear from both the definition of restaurant quoted at paragraph 30 above and the grant of the franchise contained in Section 2A.

235.   Secondly, what was provided by the Written Projections were a series of accounts representing the net profit of one business.  While the accounts did split certain costs between restaurant sales and merchandise sales, the overall forecasts were to assess what profit might be made in respect of a single business. 

236.   Thirdly, Mr Doyle understood this both from his own calculations and from the restaurant franchise opportunity and the extracts we have quoted at paragraphs 216-219 above.  In particular, the conclusion on profits made by Mr Doyle is focussed on one business rather than two.  Likewise, the email to Mr Frankel of 22 April to which we have already made reference was clearly discussing a decision to invest in a single business. 

237.   Fourthly we refer to Mr Goodwin's evidence at paragraph 230 above which is consistent with a single business model.  Mr Doyle understood this.  In his letter of 16 May 2002 to Mike Kneidinger of the Hard Rock Group complaining about losses made on the restaurant side, which we discuss in more detail later, he stated this:

"Our business in Cayman is without doubt 'cruise ship driven' with 80% of our F&B and 93% of our merch sales occurring between 10am and 5pm daily."

238.   In other words what Mr Doyle was describing while the franchise was up and running was one business with two parts.  As Keith put it when writing in 2010 to Harley Warren, director of franchise retail of the Hard Rock Group:

"we're a souvenir store that sells burgers .... if we were not, if we really were a premium dining establishment, then we wouldn't only be located in tourist meccas, we wouldn't have the vast majority of our guests walk to the dining room though or adjacent to a retail store, we wouldn't be selling souvenir glassware at every chance, then our greeters wouldn't be wearing the fu"&en pins on their shirts ... and so on, and so forth ...... could someone please stop this nonsense of trendy homogeneity in the retail around the world ....... the CORE selection is TOO WIDE .... it should be cut to bare basics, and then we should be allowed to offer a specific, regional themed very wide selection."

239.   Fifthly this conclusion is also consistent with Keith's observations to Mr Munday in his email of 22 May 2006 seeking permission to operate a bar and retail operation from a new port area in the Cayman Islands.  The letter included this statement:

"As we started to realize very early on in our relationship with Hard Rock Cafe, these operations are not restaurants in the normal understanding. We strongly doubt that any HRC makes money as a standalone restaurant, and that includes Corporate stores that are not even charged the royalty."

240.   Sixthly, the budgets and accounts produced internally within HRCKY were also one set of accounts.  Separate sets of accounts for the merchandise and the food and beverage side of the franchise operations were not produced by HRCKY.

241.   All these matters are supportive of our conclusion that what was granted to HRCKY by the Franchise Agreement and what HRCKY understood they were taking was one business with two parts.

The accuracy of the Written Projections

242.   In the event that we are wrong in the above conclusions we have reached about HRCKY's reliance on the Written Projections, we next turn to consider, if they were representations, whether they were misrepresentations.  The Written Projections both set out a range of scenarios of income and profit for the first five years of the franchise based on different levels of gross income. 

243.   The actual turnover for the first five years of the franchise operation was as follows:

Year                   2000     2001     2002     2003     2004

Turnover            6219     6845     6668     6812     6223

(in USD 000s)

244.   The net profit achieved for each of these years by reference to the accounts produced by HRCKY was 11.8%, 12.9%, 15.8%, 14.3%, and 12.7%. 2004 was the year when Cayman was hit by Hurricane Ivan which affected profits for the latter part of 2004 and the first part of in 2005 as the café was closed and had to be repaired. 

245.   The range of net profit figures based on the April Projections at page J289, and a turnover of US$ 7 million rising to US$ 7.5 million was 9.24% for 1999, 9.6% for 2000, 10% for 2001, 10.33% for 2002 and 10.28% for 2003. 

246.   By reference to the actual performance figures we have set out, apart from Hurricane Ivan, the net profit figures achieved exceeded the April Projections.  While the above figures are based on our calculations, in reaching this conclusion, we have accepted the evidence of Mr Borelli and Mr Gibley and Mr Lewis.  At paragraph B2 of the joint report between Mr Borelli and Mr Gilbey, the experts agreed that for 2002-2005.

"HRCKY's actual results were probably consistent with scenario 2 of the amended projections prepared by Sam Marable of Hard Rock in March 1999."  

247.   The same report also stated later in the same paragraph:

"The Projections in respect of net trading profit are also comparable with actuals."

248.   Mr Lewis was more cautious in terms of highlighting some of the variations between actual performance and the Written Projections, but this caution did not affect his overall conclusion. 

249.   We therefore conclude if, contrary to our findings, the Written Projections were statements of fact and not opinions and were relied upon by HRCKY in deciding whether or not to enter into the Franchise Agreement, they were not misrepresentations because HRCKY's actual results were broadly consistent with the Written Projections.

250.   The agreement of Mr Borelli and Mr Gilbey, as accepted by Mr Lewis, also mean that there cannot be any finding of erreur by reference to the Written Projections alone.  There is nothing fundamentally inaccurate about the Written Projections themselves which could amount to any kind of erreur upon which HRCKY could rely.

The terms of the Franchise Agreement in relation to Issue 1

251.   If we are wrong in our conclusions about the effect of the Written Projections not being representations or misrepresentations, and if we are also wrong in our conclusions about Mr Doyle having sufficient experience to evaluate the written projections, we have also concluded that Mr Doyle could have taken his own independent accounting advice prior to entering into the Franchise Agreement.  He took his own legal advice but chose to analyse the figures himself rather than rely on any expert input.  The uniform franchise offering circular provided to Mr Doyle and HRCKY on 9 June 1999, said in the general warning at page 19 that it also counselled any franchisee "to retain the services of an experienced accountant or financial adviser to develop a business plan or financial projections for your particular operation".  A similar warning was set out in Part 19 of the same document dealing with earnings claims.  The circular is also relevant because it provided a list of franchisees and their contact details therefore allowing HRCKY the opportunity of making contact with other franchisees to further explore the risks of entering into a Franchise Agreement.  We have referred to these matters because, in addition to Mr Doyle not reading this document and taking heed of these warnings in it, it was HRCKY's risk not to retain their own accountants and not to conduct further enquiries about the profitability from other franchisees.  The decision of Mr Doyle not to retain expert accounting advice is where Mr Doyle could have better informed himself about the risks contained in the Written Projections if, contrary to our view, he did not understand those risks.  Again this means that HRCKY cannot invoke erreur by reference to the Written Projections applying the principle set out at paragraph 76 above.

252.   In any event, as Mr Doyle accepted, the Franchise Agreement excluded liability for any representations made absent dol.  As we have found that there was no dishonesty committed by Mr Marable in providing the Written Projections, Hard Rock is entitled to rely on the entire agreement provision at Clause 18(K) of the Franchise Agreement set out at paragraph 45 above to exclude liability for any claims based on the Written Projections.

Issue 2- The Oral Representations

253.   In light of our conclusions on Issue 1, we next consider whether Mr Marable made oral representations to HRCKY that HRCKY could expect to make returns of 15% to 30% per annum.  It was alleged in evidence that these representations were made orally at a dinner attended by Mr Marable, Mr Doyle and Mr Frankel on 18 March 1999 at a restaurant in the Cayman Islands. 

254.   In relation to this part of HRCKY's claim, we accept that a dinner took place.  Given that this dinner took place shortly after Mr Doyle and Keith had been in Orlando for five days and that negotiations were continuing with Mr Marable providing the April Projections, we also accept there would have been discussion at the dinner about potential profits that might be made.  Mr Wolszczak sought to suggest in his evidence that any discussions were about Mr Doyle's own figures not figures from Hard Rock because the latter were not authorised to provide such figures.  We reject that evidence because the reality is that figures were provided by Hard Rock through Mr Marable and were discussed.  We further accept that the purpose of the dinner was for Mr Frankel to meet Mr Marable as Mr Frankel was the other investor taking an interest in HRCKY apart from Mr Doyle.

255.   In approaching this issue, we have reminded ourselves that the burden of proof is on HRCKY to establish what may have been said by Mr Marable at this dinner.  We set out the following conclusions with this in mind.

256.   Firstly, for the moment assuming that Mr Marable said that HRCKY would receive a return of 15% to 30%, it was not completely clear to us whether such a return was a return on capital invested or was a reference to net profit.  Although the Written Projections referred to IRR and Rona, it was clear to us that Mr Doyle did not understand what these terms meant but rather focussed on net profit or a return on investment.  However both he and Mr Frankel did refer to a return on investment which we conclude is a reference to the capital invested because both expected that capital to be repaid within 3 to 5 years and that Mr Marable made such a statement.

257.   Secondly, there was a lack of clarity about for what period of time HRCKY and its investors would make such a return.  We find it hard to accept that Mr Marable, if he did make a statement that HRCKY's investors would receive a return of between 15% and 30%, was referring to the entirety of the Franchise Agreement, i.e. for thirty years.  Rather we think Mr Marable was referring to the period covered by the Written Projections which is consistent with HRCKY's case that capital invested would be repaid within at least a 5 year period. 

258.   Thirdly, we were not persuaded by Mr Doyle's evidence on what was said at the meeting.  At the end of cross-examination, Mr Doyle stated, in response to a question that there was no record of any promise by Mr Marable, that he had written down what Mr Marable was telling him on a napkin and that he had kept that napkin for years, but he could not now find it.  This evidence did not appear in Mr Doyle's witness statement and there was no mention in his discovery of having had a document, i.e. the napkin, which had been lost.  We do not accept it.

259.   In relation to Mr Frankel, whilst he was clear that Mr Marable had promised him a return of 15% to 30%, although Mr Frankel was an engaging individual, we did not find him to be a credible witness in relation to his recollection of events.  Apart from the dinner, he recalled little to nothing about the Franchise Agreement that assisted us.  In particular, he had no recollection of the restaurant opportunity document or the fax of 22 April 1999 sent to him, referred to at paragraphs 216 to 221 above.  Yet the fax of 22 April 1999 was the fax asking for Mr Frankel to make a decision to invest based on projections produced by Mr Doyle.  Neither the fax of 22 April nor the restaurant opportunity document made any reference to the Oral Representations.  If they were so important, as is now alleged, we would have expected to have seen reference to them in the documents produced by Mr Doyle leading to the decision by Mr Doyle and Mr Frankel whether or not to enter into the Franchise Agreement.  Yet there is no such reference. 

260.   Indeed, we would go further.  There is no reference to the Oral Representations at all in any documentation until the matter was pleaded for the first time in 2015.  In particular:

(a)           There was no reference to the oral representations in complaints made by HRCKY to Hard Rock about losses being made on the restaurant side.  The first complaint about such losses was made by Mr Doyle in a letter to Mr Kneidinger dated 16 May 2002.  Mr Kneidinger was director of worldwide franchise operations.  The first paragraph of the letter referred to a return on revenue of 9% and an average return on investment of 11%.  Yet there is no complaint or reference to the oral representations promising returns of between 15% and 30%;

(b)           Ms Clinch said she had an awareness of a return of 15% to 30% but these figures were not used to prepare budgets and she did not report to the board on the basis of such a return; and

(c)           There is no reference to the Oral Representations in the letter before action correspondence sent on behalf of HRCKY in 2013. 

261.   Accordingly, we are not persuaded that Mr Marable made a specific promise that HRCKY, during the Franchise Agreement, could expect to make returns of 15% to 30% per annum as alleged at paragraph 24D(i) of the Re-Re-Amended Answer and Counterclaim. 

262.   If we are wrong in our conclusion and Mr Marable did say something about returns of 15% to 30%, for the same reasons we have concluded that the Written Projections were not misrepresentations, we conclude that Mr Marable was not making any representation but only proffering statements of opinion.  Mr Frankel, when cross-examined, expressly accepted that what Mr Marable stated were statements of opinion.  Mr Doyle described what Mr Marable said as an estimate or projection.  We consider that an estimate or projection is not a representation of fact but rather is within the category of a statement of opinion unless made dishonestly.  Whatever Mr Marable may have stated, we conclude that anything he did say were not representations of fact.  Neither Mr Frankel nor Mr Doyle suggested that Mr Marable was being dishonest in making any alleged statement in their witness statements or oral evidence and so the exception to statements of opinion, as with the Written Projections, does not apply in relation to the Oral Representations. 

263.   The lack of any evidence of dishonesty, apart from the issue of withholding information about the profitability of the corporate cafes, means that a claim in misrepresentation or dol cannot be founded on the basis of the Oral Representations alone.

264.   We also note that the actual returns on profit achieved by HRCKY for the first five years of the operation of the Franchise Agreement record that a net profit margin of over 15% was only achieved for 2002.  Yet there was no complaint about this by HRCKY, notwithstanding their complaints about losses on the restaurant side of the business.

265.   Furthermore, if Mr Marable made a statement about HRCKY achieving a 15% to 30% return on investment, until Hurricane Ivan hit in 2005, the percentage return on capital based on net profit compared to capital invested exceeded 15% for each of the years 2000-2004 based on the actual capital invested of US$ 4.7 million.  Any statements made by Mr Marable orally, which were about a return on capital, if they were representations, were therefore not misrepresentations because the return on capital achieved from 2000 to 2004 exceeded 15%. 

266.   In addition, just as HRCKY did not rely on the Written Projections prior to making a decision to enter into the Franchise Agreement, for the same reasons they did not rely on the Oral Representations.  The decision to enter into the Franchise Agreement was made after calculations had been prepared by Mr Doyle as sent to Mr Frankel on 22 April 1999.  As noted above, that assessment did not make any reference to any oral statements made by Mr Marable.  Accordingly, we conclude that the decision to invest was based on Mr Doyle's workings and analysis and ultimately not anything that may have been said orally by Mr Marable. 

267.   Finally, in relation to Issue 2, our analysis in relation to the effect of the terms of the Franchise Agreement applies equally to the Oral Representations and accordingly even if, contrary to our findings, an oral misrepresentation was made by Mr Marable, the Franchise Agreement excluded liability for any such representations made absent dol. 

268.   Our analysis at paragraph 251 above also applies to the Oral Representations.  Again, this means that HRCKY cannot invoke erreur in relation to the oral representations any more than it they may not do so in relation to the Written Projections.

Issue 3 - the profitability of the food and beverage of Hard Rock Cafés owned and run by the Hard Rock Group

269.   In relation to this issue, we record at the outset the admission made by Hard Rock in a summary judgment application heard on 3 November 2017 before Deputy Bailiff Le Cocq, as he then was.  In that hearing, Advocate Garrood who then acted for Hard Rock stated that Hard Rock, since May 2015, had 'accepted that there was evidence that the cafes and the restaurants themselves did not make any money and were not inherently profitable'.  This led the Deputy Bailiff to enquire:

"We can proceed on the base that if information had been available in 1998 it would have disclosed that restaurants were inherently not profit making?"

270.   In response Advocate Garrood conceded that about half the Cafes (which had retail operations) operated by the Hard Rock Group did not make profits on the food and beverage side. 

271.   This led to Advocate Pallot confirming Advocate Garrood's admission in 2017 during his opening as follows:

"The admission that was made at the time was that some of the restaurants were inherently on the food and beverage side loss making." (Day 2 line 85:20 - 85:21)

272.   In relation to this admission, however, there is a difference between HRCKY's pleaded case and the admissions made by Advocate Pallot for Hard Rock.  HRCKY's pleaded case was that "The restaurant business was only profitable in a very few locations and in the majority of locations it was unprofitable and loss making" (see paragraph 24 F1(a)). 

273.   Notwithstanding the admission by Hard Rock, in light of the different position of the parties, it is necessary to review the evidence on whether the food and beverage side of the cafes operated by the Hard Rock Group were unprofitable and loss making in the majority of locations as alleged by HRCKY. 

274.   Before we do so, we wish to make it clear that we are analysing this part of HRCKY's claim on the assumption that the doctrine of dol par reticence is part of Jersey law (contrary to the view we have reached above) and therefore that Hard Rock were under a duty to make disclosure about the profitability of the corporate cafes because, if the lack of profitability  was a material fact and Hard Rock did not disclose the same, a failure to disclose would amount to deliberately withholding material information.

275.   The extent of the profitability of the food and beverage side of the corporate cafes is also relevant to whether withholding of any such information affects our conclusions on the Written Projections or the Oral Representations.  This is because HRCKY allege the First Plaintiff, in providing the Written Projections and / or Mr Marable making the Oral Representation, concealed material facts from HRCKY, namely a "central weakness in the Hard Rock business model" (see paragraph 24F2(c) of the Re-Re-Answer and Counterclaim).

276.   Finally, in relation to our assessment of the evidence for Issue 3, we repeat our conclusions at paragraphs 231 to 239 that the Franchise Agreement granted to HRCKY was one business with two parts and that this was understood by HRCKY.

The profitability of the corporate cafés

277.   The key document upon which Mr Doyle relied was a spreadsheet dated 16 December 1999.  This spreadsheet was described as "F & B Revenue to Construction Ratios" (Case Center reference J680a).  The spreadsheet listed all the cafes operated by the Hard Rock Group at that time and included, for each café, a column headed "Annualised total trading profit".  The spreadsheet then contained two further columns.  The first was headed "Rest mix" which we understand to mean a reference to restaurant mix, i.e. a percentage of the turnover that came from sales in the restaurant as distinct from sales of merchandise.  The final relevant column is headed "Annualised restaurant trading profit without merchandise". 

278.   Of the fifty-six cafes listed in this document, only two, namely Atlanta and Baltimore, showed a trading profit for restaurant sales without merchandise in the "Annualised restaurant trading profit without merchandise" column.

279.   It was this document Mr Doyle relied upon in support of HRCKY's claim that the vast majority of the corporate cafes operated by the Hard Rock Group were inherently loss making as at the date of the Franchise Agreement.  By cafes he meant the food and beverage side of the Hard Rock Cafes which sold both food and beverage and merchandise.

280.   We observe that, while the spreadsheet post-dates the Franchise Agreement, it covers the whole of 1999.  Given the extent of the losses identified, we accept, on the basis of probabilities, that the position that existed at the end of 1999 also existed at the time that HRCKY entered into the Franchise Agreement. 

281.   That is not to say that the schedule upon which Mr Doyle relied is not without its difficulties.  In particular, we did not hear any evidence on the assumptions used behind the spreadsheet to make the calculations recorded in it and how the conclusions were arrived at.

282.   However, the expert accountants, Mr Borelli and Mr Gibley, in their joint report, agreed that "the HR restaurant operations were loss making" (page 3).  At paragraph B6 of their joint report they stated:

"The experts agree that regardless of the methodology adopted the retail operations remained profitable and the restaurant operations continued to incur losses."

283.   They then carried out a comparison for the period of 2001 to 2006, leading Mr Borelli to calculate the operating margin for the restaurant side as -21% and Mr Gibley at -15%, compared to trading profits on the retail side.

284.   Again, while these figures relate to a period slightly after when the Franchise Agreement was entered into, they show a similar pattern as recorded in the December 26, 1999, spreadsheet.

285.   In the joint report of Mr Borelli and Mr Lewis, Mr Borelli stated this:

"Mr Borelli concludes that, on review of the 99-03 Summary PL, the September 99 Discovery and Hidden Worksheets, HRI held information indicating that almost all of its Hard Rock Owned restaurant operations (32 of the 34 locations reviewed from the September '99 discovery) generated restaurant trading losses and were reliant on retail operations to subsidise these losses."

286.   Mr Lewis' position on this issue was recorded at paragraph 16 as follows:

"It is Mr Lewis' opinion that the restaurant and retail operations of the Hard Rock model are intrinsically linked but it is Mr Lewis' view that the analysis on one stream individually is not conducive to the analysis of the overall performance and profitability of the Cayman Cafe. Notwithstanding this, it appears prior to signing the Restaurant Franchise Agreement, sufficient information was available to the Defendant to indicate that the Cayman Cafe would have been heavily reliant on the retail element of the business, including the April '99 Projections, which state "[i]n the Caribbean, the revenue split, actually heavily leans towards Merchandise - and the Profits attributable to HRC Merchandise are high"."

287.   On balance therefore the expert evidence, albeit with some qualifications, supported the position put forward by HRCKY. 

288.   That position was also supported with some variations by Mr Leonard and Mr Beaudrault, Mr Crippen, Mr Cavalaris, Mr Turnbull and Mr Goodwin.  We summarise each of their evidence as follows.

289.   In relation to Mr Turnbull, at paragraph 8 of his witness statement, he gave evidence as follows:

"Hard Rock had loss making cafes particularly when going into a new country for the first time and understood by financial analysts in the city that profitability in the location was dependent on retail sales."

290.   In his oral evidence he confirmed that profitability of a location depended on retail sales because the food and beverage side carried a lot more costs.  He also recalled that separate profit and loss accounting information was provided by the restaurant and retail sides of the Hard Rock Café business.  While Mr Turnbull could not provide any more detail in relation to his recollection, given that he was a finance director of Rank and was operating at a high level, this is not surprising. In addition, we found him to be a credible witness and accept his evidence. 

291.   In relation to Mr Leonard, he was chief financial officer of the Hard Rock Group until August 1998.  Like Mr Turnbull, we found him to be a credible witness.  In summary, his evidence was that the food and beverage side of Hard Rock Cafés' operations owned by the Hard Rock Group was not profitable outside the United States and at best broke even.  He explained this was due to high labour costs.  He also confirmed that the cafes reported on a separate and consolidated basis to Rank with the cafes being largely profitable on a consolidated basis.  He also confirmed that there were no separate reports on profit and loss from franchisees.

292.   Mr Beaudrault was chief operating officer of the Hard Rock Group from 1997 until October 1999 and then became CEO and President until his retirement in 2003.  We also found Mr Beaudrault to be a credible witness.  His recollection was that most of Europe was loss making on the restaurant side and that there were separate reports produced by the corporate cafes for food and beverage and retail.  He further confirmed that reports were sent to Rank both on a consolidated basis and showing the profitability on the restaurant and retail sides.  He also confirmed that most of the Hard Rock Cafes operated by the Hard Rock Group were profitable on a consolidated basis.

293.   Mr Goodwin's evidence was that he had seen the witness statements of Mr Turnbull, Mr Beaudrault and Mr Leonard and there was nothing in those witness statements that he would take exception to or feel the need to dispute (see paragraph 14).  He was not cross-examined on this paragraph.

294.   Mr Cavalaris, in his witness statement at paragraph 7, stated that financial reports were produced on corporate owned restaurant operations which "recorded in detail the separation of financial figures of HRI's corporate owned restaurant operations and merchandise operations".  This led him to say in paragraph 8 the following:

"During my time working for HRI it was well known to me and to many of its executive staff that several of HRI's corporate restaurants were loss-making and I am aware that Rank Group Plc were concerned about the negative impact of such loss-making corporate owned restaurants that in 1999 Rank's CEO Mike Smith visited HRI in Orlando and advised executive staff that they were going to reduce the numbers of HRI executives in order to reduce losses, stating that the entire business could fail within ten years unless drastic action was taken immediately to reduce the losses generated by HRI's loss-making restaurant operation. I was one of the many executives culled (as I have referred to above in 2)."

295.   This evidence was not challenged apart from Mr Cavalaris confirming that information about profitability was not provided by the franchisees to the Hard Rock Group.

296.   The final witness who gave evidence was Mr Crippen whose evidence was at paragraph 12 of his witness statement where he stated the following:

"HRC had knowledge of and was aware that in some locations its cafes were operating loss-making restaurant operations which were being sustained by profits generated from the merchandise operations of such cafes."

297.   His evidence was of like effect to that of Mr Cavalaris.

298.   In relation to all these witnesses, in essence their evidence was, to a greater or lesser degree, that the Hard Rock Group knew that the majority of its corporate owned cafes on the food and beverage side were loss making in 1999.  The differences between their individual recollections is understandable after this length of time and given the different positions they held but these differences do not affect our overall conclusion.

299.   When combined with the evidence of the experts, and the December 1999 spreadsheet, we accept that as at the date of the Franchise Agreement, on the balance of probabilities, the vast majority of the food and beverage side of the corporate cafes owned by the Hard Rock group were loss making.  We further consider that this was known to the senior executives of the Hard Rock Group and its then shareholder Rank.  We also accept that the Hard Rock group did not have the same information in relation to the profitability of franchisees, which we consider in more detail shortly.

300.   The next material part of evidence relevant to the profitability of the corporate cafes upon which HRCKY relied concerns a document described as "Hard Rock Strategic Report 2006 - Company Owned Division" (Case Center J1387-1505).  This document was an assessment of the corporate cafes owned by the Hard Rock Group and included the following statements:

(a)           The executive summary stated "Merchandise will continue to drive profitability in corporate cafes with F&B becoming profit neutral by 2010".

(b)           Slide 25 was headed "Without merchandise sales HRC's restaurant sales per unit is much lower than its top of industry competitors".

(c)           Slide 31 stated that "Hard Rock's standalone restaurant profitability compares unfavourably to industry.  Higher occupancy cost is the significant driver for the gap".  The same document recorded the industry median as being 4.7% compared to HRC for restaurant only, showing income before income taxes as being loss making with a figure of (2.1%).

(d)           Slide 34 stated that "Economics presently dependent upon retail sales".

(e)           Slide 35 contained the following "Standalone restaurant economics are unfavourable at present - strong retail sales are imperative to sustain profitability".

(f)            The report also contained a historical performance summary starting at slide 38.

(g)           Slide 46 was headed "The decline in retail sales has spurred rapid profit decline".

(h)           Slide 47 contained the following "Profits declined substantially with retreating retail sales and loss generating standalone restaurant business". 

(i)            In the section dealing with recent performance trends, slide 58 contained a table showing the restaurant trading profit from April 2003 to March 2006.  The restaurant trading profit in 2006 was -12.4% reducing to -4.6% in 2006. 

(j)            On page 59 under a bullet point headed "Standalone restaurant profits", the slide noted "substantially improved in recent years - HRC standalone restaurants still loses money".

(k)           In the conclusions on page 61, the report stated "Average unit restaurant sales must be moved beyond the breakeven point and achieve standalone profitability". 

(l)            In terms of a strategy, the report at page 75 noted that "A middle average unit value increase of 17% must be accomplished to achieve standalone restaurant profitability".

301.   In relation to this report, evidence was given by Mr Dodds, Mr Mundy and Mr Perez.  All three described the 2006 Strategic Report as an "analytical exercise" and based on assumptions.  We were not persuaded by this evidence which appeared to us to be a line that the witnesses had adopted in order to try to explain away the 2006 Strategic Report.

302.   In our view, the extracts from the 2006 Strategic Report which we have quoted speak for themselves and confirm the conclusions we reached about the profitability of the food and beverage side (described as the restaurant side) of the corporate cafés in 1999 which situation was continuing.  The 2006 Strategic Report was clearly a plan put to the then owners of the Hard Rock Group setting out how to improve profitability of the food and beverage side.

303.   Mr Dodds also gave evidence that the Hard Rock Cafes were one business with two parts and that both the corporate cafes and franchises were a combined offering; we accept that part of his evidence which is consistent with our conclusions above on this question.  The fact that the Hard Rock model involved one business with two parts however does not affect our conclusions on the 2006 strategic report and the suggestion that it was an analytical exercise only. 

Effect of the food and beverage side of corporate cafes being loss-making in 1999

304.   We next consider the effect of our finding that the vast majority of the corporate cafes on the food and beverage side in 1999 were loss making.

305.   Firstly, we conclude that this finding does not affect our conclusions in relation to the Written Projections or the Oral Representations involving Mr Marable.  In our view, the Written Projections were standalone documents and the figures spoke for themselves.  This can be seen by the analysis Mr Doyle carried out himself which we have considered in the section of the judgment on Issue 1 dealing with whether HRCKY relied on the Written Projections at paragraphs 226-230. 

306.   Secondly, we repeat the evidence of Mr Borelli (referred to at paragraph 231 above) that someone fairly sophisticated would have been able to see that the profitability of the franchise depended on the sales of merchandise.  We have already concluded that Mr Doyle was such an individual. 

307.   We next consider, if Mr Marable had made disclosure of the food and beverage side of corporate cafes being lossmaking in 1999, whether it would have made any difference to HRCKY entering into the Franchise Agreement.  In considering this question we accept that Mr Marable would have been privy to the knowledge of senior executives within the Hard Rock Group about the loss making position.

308.   In our view, it would not have made any difference to HRCKY had this position been known to HRCKY.  We consider that Mr Doyle would still have performed the same analysis that he did to evaluate the figures he received from Mr Marable to which we have already referred.  Mr Doyle's email to Mr Frankel of 22 April 1999 is revealing in that regard where he states, "The real value of both the ADA (the Agreement to open other franchises in the Caribbean) and RFA is the multiple of profits at which they will be valued once various restaurants are operational and, as you know, HRC have already virtually guaranteed a price that will".  In other words, as best we can assess matters, Mr Doyle and Mr Frankel were looking to build up a series of franchises in order to sell the benefit of those franchises on to a third party.  That was the opportunity they were pursuing and their decision to enter the Franchise Agreement was part of that strategy based on their assessment of the numbers provided.

309.   In addition, Mr Doyle and Mr Frankel, notwithstanding in 2002 being aware of the food and beverage side being loss making in the Cayman Islands, entered into a second franchise with Hard Rock to operate a Hard Rock café in Nassau, The Bahamas.  Not only is this reflective of the intent recorded in the email of 22 April 1999 to which we have just referred, but the challenges to profitability that HRCKY were facing in Cayman did not prevent Mr Doyle and Mr Frankel from taking the benefit of a second franchise.  The current case that HRCKY would not have entered into the Franchise Agreement in respect of the Cayman Islands, had it known that the food and beverage side of the corporate cafes were not profit making, does not therefore sit with the later conduct of Mr Doyle and Mr Frankel.

310.   Furthermore, when Keith obtained a copy of a draft of the 2006 strategic report which he sent to Mr Doyle on 9^th May 2006 with the warning "don't show anyone....but you'll want to read this over the week or so.", Mr Doyle claimed he did not read this document until 2011.  Given the significance of the Strategic Report, we do not accept Mr Doyle's evidence that he was not aware of the Strategic Report in 2006.  While this evidence is relevant to questions of prescription and affirmation which we deal with later in this judgment, for the purposes of this part of our decision it is also relevant to our assessment whether Mr Doyle and HRCKY would have entered into the Franchise Agreement had they known that the food and beverage side of the corporate cafes operated by the Hard Rock Group in 1999 were loss making.  When Mr Doyle became aware of the conclusions of the Strategic Report in 2006, he said nothing about it for another 9 years, did not object or raise any concerns about the Franchise Agreement HRCKY had entered into and did not mention dishonesty.  Rather he continued to try and maintain the benefit of the Franchise Agreement for another seven years.  This conduct supports the conclusion that he would have entered the Franchise Agreement had he known the position in 1999.

311.   Even if we are wrong on that conclusion, and Mr Doyle did not know about the Strategic Report until the end of 2011, even then he did not raise any concerns and still attempted to preserve the benefit of the Franchise Agreement until it was terminated in 2013.  He also did not refer to the Strategic Report until 2015.

312.   For all these reasons we conclude that, even if Mr Doyle and HRCKY had known the position as we have found it to be in relation to the corporate cafes on the food and beverage side being loss making at the time HRCKY entered into the Franchise Agreement, we do not consider this would have made any difference to the decision taken by HRCKY.

Was the non-disclosure of the food and beverage side of corporate cafes being lossmaking in 1999 deliberate or intentional?

313.   We pose this question because if dol par reticence is part of the law of Jersey, contrary to our findings, it appears that any withholding of significant information must be deliberate or intentional for the doctrine to apply.  This is the position under modern French law and the current version of Article 1137 of the Code Civil and the commentary on it referred to by Professor Fairgrieve (see paragraphs 95 to 98 above). 

314.   It is also implicit from the quotation at paragraph 13 of Steelux that not every silence will amount to fraud even if a material effect is withheld.  The implication is therefore that what is necessary to establish dol par reticence is a deliberate or intentional withholding of information for which the party withholding the same knows to be relevant to the other party.

315.   In relation to the profitability of the food and beverage side of the corporate cafes, while we have found that HRCKY ultimately reached its own view on whether or not to proceed, we accept that, had HRCKY known of the true position, it is something they would have considered.  It should be remembered that Mr Doyle had already pulled out of entering into a Planet Hollywood venture because of concerns about profitability based on adverse media reports. 

316.   Firstly we again refer to the evidence of Mr Goodwin in cross examination as set out at paragraph 230 above that he informed Mr Doyle, prior to HRCKY signing the Franchise Agreement, that sales of merchandise were critical to profitability.  This evidence, which we accepted, is inconsistent with a finding of dishonesty. While Mr Goodwin had reservations about whether or not a franchise in the Cayman Islands could be successful over the long term which he shared with Mr Marable ( see paragraph 9 of his witness statement), the fact that he had reservations does not make a failure to disclose those reservations or information about the profitability of the food and beverage side of the corporate cafes dishonest. Hard Rock was entitled to assess whether or not granting a franchise would succeed.  It was not however obliged to share any such assessment with HRCKY.

317.   We next address the argument of Hard Rock, however, is that there were sufficient differences between the corporate cafes the Hard Rock Group operated and businesses operated by franchises; in particular, the size of any premises leased by a franchisee and the amount of staff employed by a franchisee were matters for a franchisee to assess and were significant costs affecting profitability.

318.   HRCKY argued in response that how Hard Rock cafes operated was under the control of Hard Rock and any franchisee had to operate any café as directed by Hard Rock.  They pointed to the requirements to employ a certain number of managers contained in Section 7 of the Franchise Agreement and the requirement to operate to the standards set by Hard Rock in Section 9 and in manuals provided by Hard Rock.

319.   The conclusion we have reached is that we accept Hard Rock's submissions that there were sufficient differences between a franchise and the running of a corporate café which mean that we accept that Hard Rock did not regard the fact that cafes were loss making as significant for franchisees.  Firstly, it was for a franchisee to select premises from which to operate a franchise.  While Hard Rock had a right of veto over those premises, the choice of premises was a matter for the franchisee. 

320.   Secondly, in relation to staff numbers, although Section 7 required a franchisee to appoint certain senior figures with each appointee requiring the prior written approval of Hard Rock, otherwise numbers of staff were determined by HRCKY.  Termination of employment of any employee was also a matter for HRCKY including any appointees approved by Hard Rock.  Although Mr Doyle attempted to suggest otherwise when being cross-examined, we do not accept that evidence.  It was HRCKY who were running the Hard Rock café in the Cayman Islands. 

321.   We have also already concluded that the operation of the Hard Rock café was one business with two parts and that this had been disclosed to HRCKY and Mr Doyle through the Written Projections, which Mr Doyle understood and analysed.  The provision of the Written Projections allowed Mr Doyle to understand that profitability depended on retail sales, with there being much higher costs on the food and beverage side.  The provision of information about the profitability of the food and beverage side of the corporate cafes would only have confirmed the same story.

322.   What Mr Doyle invited us to do was to draw an inference of dishonesty.  He relied on the business model of Hard Rock being unusual plus the evidence of Mr Bundy that the Franchise Circular should have been clearer to comply with US law.

323.   In response to these submissions, firstly, we agree with Advocate Pallot that care needs to be taken to make a finding of dishonesty which requires strong evidence (see Jafari-Fini v Skilglass [2007] EWCA Civ 261 at paragraph 73).  We also agree that caution is required to make a finding of dishonesty based on witness statements or oral evidence as distinct from making an assessment based on contemporaneous documents - (see Essex County Council v UBB Wate 202 EWHC 1581 (TCC) at paragraph 6).

324.   In relation to the evidence of Mr Bundy, in cross examination he accepted that there was no mandatory requirement on the part of a franchisor to make any statements about profitability in a circular.  He also accepted that the Franchise Circular itself did not contain any statements about profitability.  Accordingly, Mr Doyle's reliance on the Franchise Circular (which he did not read at the time see paragraph 55 above) is not sufficient to support a finding of dishonesty as he contended.  For all the reasons set out in this part of the judgment we therefore conclude that we do not regard the failure to disclose that the corporate cafes were loss making on the food and beverage side was intentional or deliberate such as to amount to dishonesty.  It might be said to be careless or that individuals being prudent might have chosen to make disclosure but that is not sufficient to persuade us that the non-disclosure of the food and beverage side of corporate cafes being lossmaking was dishonest to amount to any kind of dol, or fraudulent misrepresentation.

325.   Mr Doyle also argued that the fact of the Nassau operation failing was also evidence of dishonesty.  However, although we referred to the Nassau operation being loss making, and certain references to it appeared in some of the correspondence, no detailed evidence was adduced to explain why the Nassau operation failed and so we cannot take this assertion into account.

An implied term of good faith

326.   Given our findings in respect of Issue 1, Issue 2 and Issue 3 where, for the reasons set out above, we have found in favour of Hard Rock, we next consider whether or not the Franchise Agreement was a relational contract to which an implied term of good faith can be applied and, if so, whether that implied term was breached.

327.   By reference to the check list set out in the decision of Bates v Post Office Limited which we have listed at paragraph 158 above, we have reached the following conclusions.

328.   Firstly, we do not consider there is any express term in the Franchise Agreement that prevents a duty of good faith being implied into it.  In our judgment, although the entire agreement clause at Section 18(J) was intended to exclude representations, it does not prevent the implication of an implied term of good faith. The implication of such a term is not amending, changing or varying the Franchise Agreement.  Rather such term is necessary "to give business efficacy to the arrangements" as it was put by Leggatt J in Yam Seng. 

329.   Secondly, returning to the checklist, the remaining factors listed all clearly apply.  In particular in respect of factor 7, the Franchise Agreement by reference to the terms we have set out requiring that HRCKY provide regular reports to Hard Rock and the operation of the cafes as set out in the manuals, mean that the contract in question involved a high degree of communication, cooperation and predictable performance.

330.   In respect of factor 8, there was clearly a substantial financial commitment made by HRCKY in entering into the Franchise Agreement by reference to the capital costs of US$4.7 million expended in order to set up the café as well as commitment to a long term lease of twenty years with two possible extensions.

331.   We therefore have no doubt that the implied term of good faith for relational contracts applied to the Franchise Agreement.  

A breach of the implied term

332.   We next consider whether or not there was a breach of such an implied term.  HRCKY's complaint was that Hard Rock refused to agree to reductions in opening hours, reduction of menu sizes, and downsizing of portions.

333.   Hard Rock's position was that the system it operated was, as it was put in Hard Rock's opening skeleton "to ensure brand uniformity and integrity internationally.  This, and customer expectations of familiar, uniform, high quality operations are key components of the Hard Rock brand....". (paragraph 43)

334.   Hard Rock also relied on the fact that it permitted HRCKY to downsize the premises HRCKY had leased to sublet part and to move the premises to a new location which ultimately did not happen.

335.   Mr Mundy and Mr Perez in their witness statements also gave extensive evidence about how they responded to requests to vary the standard model operated by Hard Rock.  However, Mr Doyle did not cross-examine Mr Mundy or Mr Perez at all on this part of their evidence.  Accordingly, it is unchallenged evidence.

336.   In relation to the evidence adduced by HRCKY, both Keith and Colin recalled the downsizing in 2007.  Keith also recalled Hard Rock agreeing that HRCKY could move to a new location.  Neither gave any evidence sufficient to rebut the unchallenged evidence of Mr Mundy and Mr Perez.

337.   As noted at paragraph 167 above, a party is still free to exercise its contractual rights honestly and in their own commercial interests and they do not have to subordinate those interests to further the interests of the other party.  In our view, on the evidence before us, what Hard Rock were doing in refusing to agree to some of the requests, was no more than exercising their contractual rights for their own commercial interests.

338.   To the extent that there is conflict between the unchallenged evidence of Mr Mundy and Mr Perez and the evidence of Mr Doyle, we prefer the former.  While we have no doubt that Mr Doyle feels wronged by the losses that HRCKY have suffered, that is very far from establishing that a breach of an implied term has occurred.  In addition, as we set out in more detail below, we have concluded that what caused the losses suffered by HRCKY in respect of its café in Cayman were either external events or costs within the control of HRCKY.  In respect of the latter point as Colin put it "the restaurant was just too big".  In addition, the staff numbers initially retained by HRCKY were much higher than the Written Projections and the assumptions used by Mr Doyle. 

Causation

339.   In relation to this section of the judgment, we deal with the arguments raised by Hard Rock that if we had found for HRCKY in relation to any of Issues 1, 2 or 3 that this was not causative of any loss HRCKY were able to establish.  Instead Hard Rock said that the losses suffered by HRCKY were due to:

(a)           Hurricane Ivan which hit the Cayman Islands in 2004 and caused extensive damage;

(b)           The relocation of the disembarkation point for cruise ship passengers to a new site in October 2006; and

(c)           The financial crash of 2008.

340.   In relation to these arguments, if we had found in favour of HRCKY in respect of any of Issues 1, 2 or 3, we would not have exercised our discretion to avoid the Franchise Agreement because to do so for an operation that ran for fourteen years would not have been possible.  Rather, we would have awarded damages on the basis that HRCKY would not have entered into the Franchise Agreement.  Those damages, in summary, would have been on the basis of monies expended by HRCKY for making its investment less the benefit of profits received.  This is essentially Basis 4 calculated by Mr Borelli in his third addendum report at paragraph 130 which Mr Lewis accepted had merit. 

341.   The question of causation in relation to assessing damages for HRCKY being wrongly persuaded to enter into an agreement does not therefore arise.  The effect of subsequent events is only material to the level of profit made for which credit should be given when assessing damages on this basis. 

342.   Where the question of causation does arise however is in respect of any losses flowing from breach of an implied term.  Although we have found against HRCKY in respect of such a breach, had one been established, we would have concluded that any such breach was not causative of the losses suffered by HRCKY.  The profits and losses made by HRCKY were summarised helpfully in a table attached to Hard Rock's opening skeleton as follows:

Schedule 2: Summary of the Franchise's annual performance

	Gross profit	Gross margin	Operating profit	Operating margin
2001	2,799,000	41%	880,000	13%
2002	3,139,000	47%	1,054,000	16%
2003	3,067,000	45%	974,000	14%
2004	2,830,000	45%	793,000	13%
2005	1,984,000	44%	406,000	9%
2006	3,015,000	49%	886,000	14%
2007	2,343,000	45%	297,000	6%
2008	1,868,000	44%	(76,000)	(2%)
2009	1,229,000	40%	(302,000)	(10%)
2010	1,237,000	41%	28,000	1%
2011	798,000	45%	35,000	2%
2012	871,000	43%	(24,000)	(1%)
2013	928,000	45%	58,000	3%
TOTAL	26,108,000		5,009,000
AVERAGE		44%		6%

343.   From this table it can be seen that significant profits were made up to and including 2006, albeit the figure for 2005 when the café was closed for repair following Hurricane Ivan in September 2004 were lower. 

344.   In October 2006 the disembarkation point for cruise passengers also moved to a new location.  This meant that the premises from which the Hard Rock Café operated was no longer the closest restaurant to the departure point for cruise ship passengers.  Yet such passengers were the principal source of revenue for HRCKY as Mr Goodwin had foreshadowed in 1999.  It can be seen from the above table that HRCKY never really recovered from this relocation from 2007 onwards and at best only just broke even in 2010, 2011 and 2013.  The effect of the world-wide financial crash in 2008 and 2009 can also clearly be seen.

345.   In summary, the franchise was successful in terms of profit up to and including 2006 and thereafter its profits declined significantly so that, for the period after 2006, HRCKY at best broke even.  The causes of this are the external factors to which Hard Rock referred. 

Loss

346.   We next turn to consider if we are wrong in all our above conclusions what losses HRCKY suffered.

347.   In relation to Issues 1, 2 and 3, if we had found in favour of HRCKY, we agree with Mr Borelli that the correct approach to take is Basis 4 set out in Table 25 of his Amended Third Addendum Report at paragraph 130 referred to above which produced a figure for loss of US$2,643,789.  This figure was calculated on the basis of money spent to set up the franchise plus interest paid on bank borrowings less profits earned on a combined basis. HRCKY has to give credit for profits made by Island Taste because, if it did not do so, then it would be being over-compensated.

348.   In relation to the figures, Mr Borelli accepted that he had not seen the supporting documents to prove whether the payments of development costs had in fact occurred.  Rather his figures had been based on accounts provided by HRCKY's auditors (Grant Thornton).

349.   Hard Rock also contended that there should be further deductions from any such figure namely the benefit of certain loans made by HRCKY to the operation in Nassau which were later written off, together with the benefit of an insurance payment made following Hurricane Ivan which had been distributed. 

350.   Hard Rock also attempted to contend that the premium paid by the incoming tenant when Hard Rock permitted subletting had not been recorded in the accounts.  Ultimately we were satisfied that the premium had been recorded in HRCKY's books and records.  Accordingly we reject any suggestions that there had been any deliberate concealment of these monies which was put to Mr Doyle in cross-examination. 

351.   Where we were left in respect of the basis of calculation of loss is that we would have required the experts to carry out further work to review with the parties whether or not the relevant development costs had been incurred and to comment further on whether any further deductions should have been made to reflect loans written off or distributions made to or for the benefit of the shareholders.

352.   In relation to losses claimed for breach of an implied term of good faith, although we have determined that HRCKY has failed to prove any breach, we would have rejected any claim for damages for breach of such an implied term because no evidence was adduced before us to show what those damages would have been.  This is notwithstanding the Court of Appeal in its judgment recognising the possibility following the setting aside of the Royal Court summary judgment that further expert accounting evidence might be permitted (at paragraph 68).  Yet no further evidence was adduced although the Act of Court of 24 June 2020 and 1 September 2020 permitted such further evidence.

353.   It is now too late to start looking at evidence of such loss when it has not been adduced and despite a further opportunity being given for such evidence to be adduced.  Accordingly we would have dismissed this part of HRCKY's claim, even if we had found a breach of an implied term, because there was no evidence of loss.

Prescription and affirmation

354.   We next deal with questions of prescription and affirmation.  Again it is not necessary to do so because of our previous findings, but we do so for the sake of completeness. 

355.   The applicable limitation prescription period in this case was agreed as being ten years.  In the case of Issues 1, 2 and 3 this would run from the date the projections or representations were made.  However, the parties were in agreement that prescription would be suspended until such time as the parties knew or would reasonably have been aware of such a breach based on any projections or representations being held to be misrepresentations.  We have not set out the applicable legal principles in relation to this agreement because they are well known and, given our other conclusions, it is not necessary to lengthen this judgment any further by doing so. 

356.   In relation to the Written Projections and the Oral Representations, (assuming they were misrepresentations) they did not start becoming untrue until after 2006.  As proceedings were commenced within ten years of this date, the proceedings in respect of these parts of the Counterclaim were bought within time. 

357.   In relation to the failure to disclose the fact that the food and beverage side of corporate cafes was loss making, we deal with this in two parts.  Firstly, HRCKY, as Mr Doyle accepted in evidence, were aware by September 2001 that the food and beverage side of the Franchise Agreement HRCKY was operating was loss making.  However, HRCKY did not see any evidence, until Keith obtained a draft of the Strategic Report in 2006, that the food and beverage side of the corporate cafes operated by the Hard Rock group were loss-making generally.  Accordingly from this date, HRCKY were on sufficient notice to make enquiries about whether information about the profitability of the food and beverage side had been deliberately withheld from them.  Again, this is less than ten years before proceedings were commenced.  Although the allegations were not made in the original Counterclaim, these allegations were made within ten years of HRCKY being put on enquiry.  Accordingly, the proceedings were bought within time subject to the question of affirmation. 

358.   In respect of breaches of the implied term, the requests started in 2002.  Accordingly any complaints based on refusals to agree to requested variations made more than ten years prior to the issue of proceedings are made out of time. 

359.   The point raised on affirmation concerned the downsizing of the premises leased to operate the franchise.  The argument relied upon by Hard Rock was that HRCKY, by countersigning a letter dated 24 October 2007 from Hard Rock, which gave permission to downsize the café, HRCKY affirmed the Franchise Agreement and therefore could not rely on any claims that might have arisen before that date.  The relevant provision of the letter stated as follows:  "Except as expressly amended or modified by this Letter Agreement, the RFA shall remain unchanged and in all other respects ratified and confirmed and remains in full force and effect in accordance with its terms. A default or breach by a party of the provisions of this Letter Agreement shall also constitute a default or breach of the provisions of the RFA."

360.   Advocate Pallot also relied on an observation from Keith in a memo to Mr Doyle and Mr Frankel dated 18 December 2006 where Keith stated, "That without the support of merch sales the entire HRC Cafe as a restaurant operation is non-viable". This led to the submission that HRCKY had enough knowledge of the material facts necessary to plead dol by this date and so, by affirming the Franchise Agreement, lost the right to do so.

361.   The relevant authorities on waiver and renunciation were considered in Valmorbida at paragraphs 171 to 184 leading to the following summary at paragraph 183:

"183. What then should be the test for holding that a party has elected to rely on its contractual rights, notwithstanding the existence of dol / fraud? In our view, the circumstances in which the innocent party can be held to have elected to treat a contract as binding, notwithstanding the presence of dol/fraudulent misrepresentation, prima facie giving them an entitlement to avoid the contract are as follows:

(i)         The election must be made by the innocent party in knowledge of all the relevant facts i.e. knowledge of the dol / fraud; and

(ii)        It is for the party alleging that the innocent party has elected to treat the contract as binding to prove that knowledge (or that it should be imputed to the innocent party) and to prove that the innocent party has made the election; and

(iii) The Court should be slow in this context, i.e. admitted or proved dol / fraudulent misrepresentation, to hold that the innocent party has made such an election in the absence of clear evidence to this effect."

362.   It is therefore for Hard Rock to prove that HRCKY by agreeing to the terms upon which the lease should be downsized and otherwise to reaffirm the contract was making an election to rely on its contractual rights, notwithstanding knowledge of the existence of material facts to support a claim in dol or fraudulent misrepresentation.

363.   In reaching our conclusion we note in particular that the Court should be slow in this context to hold that an innocent party has made such an election in the absence of clear evidence to this effect.

364.   The conclusion we have reached is that HRCKY did not make such an election.  At that stage it was focussing on downsizing and maintaining the franchise, notwithstanding the difficulties it was facing.  While it had the knowledge of the draft strategic report, it had not at that stage taken any legal advice on what is a complex area, as can be seen by the analysis in this judgment.  The focus of Keith's memo was also why losses were being suffered and the challenges of turning things round. It was not an evaluation of a claim that HRCKY might bring.  We further consider that the wording on which Hard Rock rely in its letter was standard wording focusing on the lease and not bringing to an end any possible claims HRCKY might have to set aside the Franchise Agreement.  Accordingly we do not accept that Hard Rock have proved that HRCKY, by signing the letter acknowledging Hard Rock's consent to the downsizing, was electing to waive all or any claims it might have at that time. 

Losses suffered by Island Taste

365.   This part of the judgment arises because of the defence to the counterclaim raised by Hard Rock that, if the Cayman Island's business was operated by Island Taste, it was denied that HRCKY had suffered any actionable loss or damage.  While it is not necessary for us to decide this issue in view of our previous findings in relation to liability and loss, we nevertheless do so in case we are incorrect in any of our previous conclusions. 

366.   HRCKY raised three defences in response to the position of Hard Rock as set out at paragraphs 26 to 28 of the Re-Re-Amended Answer and Counterclaim as pleaded at paragraph 50 above.  In summary, these are:

(a)           Hard Rock were unaware that the Franchise Agreement would be operated by Island Taste and are estopped from asserting otherwise;

(b)           In the alternative, HRCKY relied on an assignment made on 27 February 2015 between Island Taste and HRCKY which assignment was approved by an order of the Grand Court of the Cayman Islands dated 28 February 2015; and

(c)           By virtue of the course of dealings between Island Taste and the Plaintiffs, the contract was entered into between Island Taste and the Plaintiffs on terms similar to those set out in the Franchise Agreement.

The assignment issue

367.   We first deal with the assignment.  The recitals to the assignment state: "The Company (Island Taste) has claims for substantial damages for breaches of the contract by Hard Rock International and Hard Rock Limited ("the claims")".

368.   The assignment, through the liquidators, assigned to HRCKY "the claims by way of legal assignment to hold the same to the assignee absolutely upon the trusts or for the purposes declared below".  The trusts were to hold any recovery for the benefit of creditors.  It was governed by the law of the Cayman Islands.  The assignment contained a list of creditors totalling US$2,004,172.30.  The two largest creditors were HRCKY in the sum of US$1,233,817.42 and Kevin Doyle in the sum of US$487,874.78.  The other creditors appeared to be trade creditors. 

369.   The difficulty with this document is that it does not explain what claims for substantial damages Island Taste may have against Hard Rock.  The only contract that exists is a contract between Hard Rock and HRCKY.  Hard Rock did not permit delegation of HRCKY's obligations under the Franchise Agreement by consenting to the creation of a sub-franchise between HRCKY and Island Taste as permitted by paragraph (E) of Section 2A of the Franchise Agreement.  Any such delegation could also have only taken place after the Franchise Agreement was entered into and therefore does not give Island Taste any claims against Hard Rock for the manner in which Hard Rock entered into the Franchise Agreement with HRCKY.  Any such agreement would also only have given Hard Rock the right to enforce compliance with the sub-Franchise Agreement directly against Island Taste.  It would not have created any rights in favour of Island Taste against Hard Rock.  Accordingly, HRCKY has not satisfied us that there are any contractual claims that could be assigned by Island Taste to it pursuant to the assignment. 

370.   We add for the sake of completeness that to the extent that Island Taste was referring to some claim in tort relating to the Franchise Agreement, no particulars of any such claim were pleaded or advanced in any written submissions filed.  In addition, no claims could now be brought in this jurisdiction in tort by Island Taste against Hard Rock because they would clearly be time barred.  Finally, no proceedings have been brought by Island Taste in any other jurisdiction against Hard Rock whether in contract or tort. 

371.   In view of this conclusion, it is not necessary for us to deal with the argument raised by Hard Rock that, if such claims were capable of assignment, notwithstanding the assignment was subject to Cayman law and was approved by the Cayman Courts in respect of an assignment of claims from a Cayman company in liquidation to a BVI company, that the assignment was contrary to the principle contained in the 1771 Code that "personne ne pourra contracter pour choses ou matieres en litige" as applied In the Matter of The Valetta Trust [2012] (1) JLR 1 and in Barclays Wealth Trustees (Jersey) Limited and Another v Equity Trust (Jersey) Limited and Another [2013] (2) JLR 222.  The argument was that the assignment by Island Taste took place after a counterclaim had been filed and therefore was prohibited by reference to The Valetta Trust and the Barclays Wealth decisions.  We were not however addressed on whether the Royal Court would recognise the decision of another Court applying the principles of comity to assign claims where such an assignment was not valid under Jersey law.  This is potentially an important issue and we therefore leave it for another day in light of our other conclusions. 

An estoppel?

372.   In relation to the estoppel point, this requires an evaluation of the extent to which Hard Rock were aware of how the Franchise Agreement was operated in Cayman as described at paragraphs 23 to 26 above. 

373.   We firstly note that when Hard Rock was considering opening its own café in the Cayman Islands, it took legal advice from Truman Bodden and Company on the necessary legal requirements to open a proposed Hard Rock Café in Grand Cayman.  Truman Bodden therefore wrote to Mr Wolszczak on 25 September 1998 which letter included the following statement:

"However, the basic rule of thumb is that any corporation in the Cayman Islands engaged in a trade or business must, in addition to the Trade & Business Licence herein referred to, obtain from the same Immigration Board a Local Companies (Control) Licence under the Local Companies (Control) Law where sixty percent (60%) of that company is not beneficially owned and controlled by Caymanians or persons who hold the grant of Caymanian status."

374.   The same letter referred to the relevant licences being discussed with Mr Marable and another unnamed colleague, also referred to in the letter of 25 September 1998.  Mr Wolszczak, in his evidence, accepted what the letter said but otherwise had no recollection of it.

375.   This advice followed the letter dated 1 July 1998 from Mr Doyle to Mr Marable, where Mr Doyle explained the need for a trade and business licence in the Cayman Islands and that normally a non-resident who wished to obtain such a licence was only allowed to retain a 40% shareholding in the venture. 

376.   The key document relevant to this issue was a fax from Mr Giglioli, HRCKY's Cayman lawyer, to Mr Horace Dawson dated 11 June 1999. Mr Dawson was the head of legal for Hard Rock and was succeeded by Mr Wolszczak as described at paragraph 10 above.

377.   The letter to Mr Dawson was short and stated as follows:

"Attached you will find the biography for Mr. Kenneth Thompson. You will recall that Mr. Thompson will control the voting shares of Island Taste Ltd.

I believe with this document you should be able to advise whether or not Hard Rock would approve a sub-franchise from Anakin Holdings Limited (the former name of HRCKY Limited) to Island Taste Ltd."

378.   Mr Wolszczak was questioned on this letter because he accepted in his evidence that he was the lead draftsman in relation to the drafting of the Franchise Agreement.  In relation to this letter and the other documents referred to below Mr Wolszczak's evidence was not impressive.  His evidence was that he was not told by Mr Dawson about the structure involving Island Taste and he did not know who Mr Thompson was at the time.  He therefore suggested he was only aware of the principle that some form of local ownership was required but otherwise he did not have any recollection of any communication between Mr Giglioli and Mr Dawson.

379.   Nor did he have any recollection of seeing a draft sub-Franchise Agreement (at Case Center JA2 - JA55).  This agreement bore the date in June 1999 but was not executed.  It was, however, sent in draft from HRCKY.

380.   Nor could Mr Wolszczak assist with a letter from Hard Rock to Mr Doyle dated 11 January 2000 where Hard Rock agreed to grant a franchise and a sub-franchise for Nassau.  The rationale for the sub-franchise in Nassau was said to be the same rationale for a sub-franchise being needed in the Cayman Islands.

381.   Nor could Mr Wolszczak assist with the letter of 27 March 2000 from Mr Giglioli to Mr Dawson which contained the following:

"I would make the following comments. I believe Kevin Doyle has made you aware of the legal restrictions on non-Caymanian controlled companies carrying on business within the Islands. In essence, unless a company is Caymanian controlled, it needs a licence in order to carry on business. On the whole, these licences are not readily granted and, if granted, they usually take several months to obtain. As you know, Mr. Ken Thompson, a Caymanian, has the controlling interest in the sub-franchisee which will actually be carrying on business in Cayman. HRCKY Ltd. (which is British Virgin Islands' company) does not carry on business in the Islands, It is merely taking a lease of the premises and has sold a sub-franchise to Island Taste Limited (the Sub-franchisee). However, HRCKY Ltd. effectively controls the site through the head lease and through the franchise it has from Hard Rock Cafe Ltd.

 I should stress that it is not anticipated that there would be any difficulty within Island Taste Limited however, we must cater for all possibilities. In light of the legal constraints on non-Caymanians carrying business in the Cayman Islands, the only way in which HRCKY Limited's (and Hard Rock Cafe Limited's) positions can be adequately protected is by granting HRCKY Ltd. the power to terminate the sub-lease and sub- franchise without cause on notice. You will see this appears in the sub-franchise at Clause 13.A. This is to provide only for the situation in which some form of dissent arises between the shareholders of Island Taste Ltd. (effectively Messrs. Frankel & Doyle and Thompson) but that dissent does not amount to a default under the terms of the sub- franchise or sub-lease but is acting to the detriment of Messrs. Frankel & Doyle's interests. By having the power to terminate without cause Messrs. Frankel & Doyle can then "redirect" the operation of the Restaurant to a third party with whom they could work. Without this power I do not see how my clients can control the Franchise. I trust this explanation puts Kevin's earlier request to you regarding this provision in its proper light."

382.   Neither party produced any further correspondence and we do not know whether Mr Dawson replied to the letter of 27 March 2000.  All we do know is that a Sub-Franchise Agreement was never executed.  It was not clear to us why this was so.  However, what we are able to conclude from the above material is that Hard Rock were aware of the need for a Caymanian to have an interest and that Island Taste were operating the café.  Given the detail in the documentation, we do not find it credible that Mr Dawson was not keeping Mr Wolszczak informed of his correspondence with Mr Giglioli.  Mr Wolszczak's approach was only to admit the content of documents where he was a recipient or sender and otherwise say he could not recall anything due to the passage of time.  For an experienced lawyer who became head of legal for the Hard Rock Group, this approach lacked credibility.  In relation to whether this sequence of correspondence gives rise to an estoppel, preventing Hard Rock from denying a claim for losses suffered by Island Taste in our view Hard Rock cannot deny that they were unaware that Island Taste were operating the cafe.  However this finding does not mean that HRCKY can claim for losses suffered by Island Taste on the evidence before us (if we had found in HRCKY's favour on liability).  This is not because Hard Rock were not aware of Island Taste.  Rather the problem HRCKY faces is that the correct basis of any loss suffered by HRCKY is the cost of its investments as set out above.  The fact that there was no written sub-Franchise Agreement does not prevent HRCKY from claiming the lost costs of its investment, had we found for HRCKY in respect of Issues 1, 2 and 3.

383.   This is because no evidence was adduced by HRCKY to explain that HRCKY had met Island Taste's losses and this is why HRCKY was a creditor of Island Taste.  It may be that HRCKY advanced further funds to keep Island Taste going.  That would be a claim for HRCKY to bring for any sums it advanced but it has not done so.  It cannot short circuit that requirement for evidence by simply claiming from Hard Rock its claims as a creditor of Island Taste when the latter has not been explained. 

384.   As for Mr Doyle's position as a creditor of Island Taste, any additional funds he advanced directly to Island Taste or any personal claims he has, as creditor, cannot be added to claims of loss by HRCKY.  To allow otherwise would ignore the separate legal personalities of HRCKY and Mr Doyle.  Hard Rock's knowledge of Island Taste does not address these difficulties.

385.   In relation to the claim for losses based on breach of an implied term of good faith, as no figures for any loss suffered as a result of such a breach have been advanced by HRCKY, the question of whether any such losses were suffered by Island Taste, not HRCKY, cannot be determined.

Conclusion

1.         For the reasons set out in this judgment:

(a)   We rule as a matter of law that dol par reticence and a general implied term of good faith does not form part of the law of Jersey;

(b)   An implied term of good faith does form part of Jersey law in relation to long-term relational contracts;

(c)   The Franchise Agreement is such a long-term agreement and there is nothing in it to exclude an implied term of good faith;

(d)   The complaints of HRCKY as summarised at paragraph 52 arising out of its Re-Re-Amended Answer and Counterclaim are dismissed whether they arise on the basis of dol, dol par reticence, fraudulent misrepresentation or any kind of erreur.  This is notwithstanding the food and beverage side of the majority of the corporate cafes operated by the Hard Rock Group in 1999 being loss making.

(e)   The claims for breach of an implied term applicable to the Franchise Agreement are dismissed.

(f)       HRCKY has failed to prove any loss in relation to any breach of an implied term.

(g)   The reasons for HRCKY losing money during the operation of the Franchise Agreement arise out of factors external to both HRCKY and the Hard Rock Group.

(h)   Had HRCKY established any breach amounting to dol, fraudulent misrepresentation or erreur, further evidence would have been required in respect of losses arising from any such findings.

Accordingly, all the counterclaims of HRCKY against the Plaintiffs are dismissed.

Authorities

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