The case of St Leger Investments Pty Ltd v True Blue James Pty Ltd & Anor [2013] FCCA 601 dealt with a Franchisee’s claim of compensation in the sum of $268,764.35 plus interest from a Franchisor.

Franchisee failed to prove that any of the alleged oral representations were made

The Franchisee alleged that the Franchisor assured the Franchisee that the level of sales projected by the Franchisee was realistic, easily achievable or achievable.

The Court determined that the Franchisee failed to prove that any of the alleged oral representations were made in light of:

  • the inconsistent evidence in relation to all of the alleged oral representations;
  • the importance of identifying the contravening conduct; and
  • the importance of the need of proof of the words alleged with a requisite degree of precision.

The Court also determined that even if the alleged representations were made, such representations do not amount to misleading or deceptive representations. Further, even if the alleged representations were made and amounted to misleading or deceptive representations, the Franchisee failed to prove that it relied on the alleged representations.

Franchisee failed to prove reliance on the Franchisor’s non-disclosure

The Franchisor failed to disclose in its disclosure document the contact and entity details of:

  • the previous franchisee of the franchised business; and
  • a Victorian Statewide Master Franchisor that had ceased to act in that capacity.

The Franchisee’s director knew of their existence prior to entering into the franchise agreement. However, the Franchisee’s director alleged that the Franchisor or their agent ignored his attempts to obtain the contact details of these parties prior to the execution of the franchise agreement.

The Franchisee’s director maintained that if the contact details had been provided:

  • he would have contacted them as part of his due diligence; and
  • he would not have entered into the franchise agreement if he had known of their experience.

The Court accepted that the Franchisor failed to make the disclosure required by Clause 6 of the Code. However, the Court was not satisfied that the failure caused the loss suffered because the Franchisee’s director:

  • had full knowledge of their existence; and
  • chose in the end to go ahead and enter into the franchise agreement, notwithstanding his knowledge that there had been the unsuccessful involvement of other franchisees in his area in the past.

Further, even if the Franchisee’s director had contacted the previous franchisee and state master franchisor, the Court was not convinced that he would not have committed himself to the franchise business.

 

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