A recent Victorian Court of Appeal decision awarded Ross and Sue Pollard (“Franchisee”) $1.22 million in damages against Bill Baxter’s (Franchising) Pty Ltd (“Franchisor”). The Franchisor operates 21 stores throughout Australia and is now in provisional liquidation.
The Franchisor sued the Franchisee, who terminated the Franchise Agreement after the business sustained losses and was unable to pay the franchise fees of $250,000. The Franchisor accepted the termination as repudiation of the contract and sued for the recovery of unpaid royalties and advertising levies under the agreement.
At trial, the Franchisee defended the Franchisor’s claim and issued a counterclaim alleging that they had been induced to enter into the agreement based on the misleading and deceptive conduct of a representative of the Franchisor.
The decision was made pursuant to theTrade Practices Act 1974 (now the Competition and Consumer Act 2010), and considered whether the projected turnover and rent were misleading and deceptive. The Franchisee alleged that the representative of the Franchisor indicated to them an anticipated turnover of $1.3 million, which would allow the business to pay the rent of $160,000 per annum and return a profit.
In May 2009, the Supreme Court of Victoria upheld the Franchisor’s claim and dismissed the Franchisee’s counterclaim. The judgement highlighted that the representative provided a spreadsheet template for the Franchisee, and the Franchisee, being experienced in franchising, ignored the advice to enter their own information into the spreadsheet, and seek independent legal, business and accounting advice.
As a result, the Supreme Court ordered that the Franchisee and guarantors pay the outstanding fees, interest and the Franchisor’s legal costs.
The Court of Appeal found that the figure of $1.3 million was projected to the Franchisee without reasonable grounds, and that the only connection between the ...