Final note sounds in Hard Rock court case

Tuesday 20 February 2018

Proceedings in a long-running legal battle involving a Jersey-registered company and the Hard Rock group of companies have finished after a counter claim was dismissed by the Royal Court.

The Court considered the counter-claim proceedings had no "realistic prospect of succeeding" and granted an application for summary dismissal.

In June 1999, HRCKY Limited signed a franchise deal with the Hard Rock group of cafés, and another branch of the company that leases memorabilia, to set up a branch in the Cayman Islands. Hard Rock Limited, which is registered in Jersey and deals with franchise agreements for the Hard Rock Group, and Hard Rock Café International (STP) Inc, which deals with memorabilia leasing agreements, terminated the franchise in 2013. They later took HRCKY to Court, claiming that they were owed $120,000, with the Court ruling that HRCKY should pay back £90,000.

But HRCKY made several counter claims, with the latest one arising out of a Restaurant Franchise Agreement (RFA) from 11 June 1999, which allowed them to operate a Hard Rock Café in Grand Cayman.  

HRCKY said that Hard Rock Limited had prevented them "from taking steps to reduce or prevent the huge losses which it has continually suffered on the restaurant side of its operation or to repay and/or recoup its investment in the Grand Cayman franchise" and forced them "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."

The Deputy Bailiff, Tim Le Cocq - sitting with Jurats Nicolle and Ronge - said there was no evidence to suggest a breach of good faith, as a number of requests had been granted. "It is difficult to see that given the express terms of the RFA a simple refusal to vary the franchisor’s requirements to protect the integrity of its franchise or to meet its commercial aims generally could be seen as a lack of good faith."

The BVI company also said that a doI was committed, meaning that they were misled, but Court said that evidence suggest that Kevin Doyle, director of HRCKY, was familiar with the figures and was "undoubtedly a person of business experience who should, had he wished to rely on them, have ensured that any representations were embodied in contractual provisions."

HRCKY also said that the two companies had failed to notify that the restaurant part of the business was not "typically profit making", but the Court considered that the RFA agreement related to one business and franchise. In their judgment, the Court noted that there was no evidence that the franchise business was unprofitable until Hurricane Ivan hit the Cayman in 2004, leading to a three month closure of the restaurant and the cruise terminal, which was close to the restaurant, and was moved away in 2006, causing material difficulties to the business. 

The Court said it would be difficult to suggest that a distinction should have been made between parts of the franchised operation, which were to be carried out together. They added that Mr Doyle was "fully au fait with the figures involved in operating the restaurant business", having provided financial projections for new premises.

They added that the RFA contained a "no warranties or guarantees provision", concluding: "In our view the evidence suggests strongly that the Plaintiffs (Hard Rock Limited and Hard Rock Café International (STP) Inc) and the Defendant (HRCKY) entered into the RFA in good faith and believed that the business overall would be profitable. Although the Defendant now wishes to make a distinction between elements of the business, that distinction does not to us seem to be borne out by the RFA itself nor the way the business was conducted. We do not think that the Defendant can succeed in a claim of dol par réticence."

Considering that HRCKY had"no realistic prospect of succeeding", they granted Hard Rock Limited and Hard Rock Café International (STP) Inc's application for summary dismissal of the counter-claim.