Joint ventures with larger organisations can provide the branding, financial muscle and expertise necessary to get small businesses off the ground. As a High Court case concerning three failed opticians’ shops showed, however, it is vital to obtain independent professional advice before putting your money at risk.
The operators of the shops entered into 50/50 joint ventures with a national chain of opticians’ stores which had the benefit of a well-recognised brand and the ability to arrange financial and other backing whilst the nascent businesses were becoming established. None of them had a happy experience: none of the three shops ever became profitable and they lost their investments. They launched proceedings against the chain after terminating the joint venture agreements (JVAs).
In upholding the operators’ claims, the Court found that one of the chain’s business development managers had made a series of false statements regarding the likely performance of the shops. Those statements went to such matters as the number of daily eye tests they could expect to carry out, the rate at which those tests were likely to be converted into spectacle sales and the projected time that it would take for them to become profitable.
The Court found that the business development manager’s representations to the operators were fraudulent, in the sense that he either knew them to be false or was reckless as to whether or not they were true. He had intended the operators to rely on the truth of his statements, and they had done so. The operators were awarded damages with a view to putting them back in the same position that they would have enjoyed had the fraudulent misrepresentations never been made.