Business Franchise Australia and New Zealand 19GUIRGUIS AND MIchEL ’S
pATISSERIE cASE^2
In this case, the former franchisee of a
Michel’s Patisserie franchise in Townsville
brought a claim against the franchisor for
misleading and deceptive conduct. The
franchisor counterclaimed for breach of the
franchise agreement (and related occupancy
licence) and sought payment of royalties,
occupancy costs, lease surrender costs and fees
for removal of plant and equipment.
The franchisee had abandoned the franchise
business on 18 July 2013 and sought to
terminate the franchise agreement on 22
July 2013, although the term of the franchise
agreement was not due to expire until 2022.
On 25 July 2013, the franchisor issued its
own termination notice on the grounds of the
franchisee’s abandonment.
Prior to entering into the franchise agreement,
the franchisee had signed a Deed of Prior
Representations and Questionnaire, which
asked the franchisee to write down full
details of any verbal or written statements,
representations or warranties which may have
been made to it and which influenced its
decision to enter into the agreement.
Apart from some representations regarding
lease terms, skills and ongoing support,
the franchisee had not listed any other
representations alleged to have influenced its
decision to enter into the franchise agreement,
despite the franchisor sending a follow up
letter after the franchise agreement had been
entered into, querying whether there were any
other representations on which the franchisee
had relied.
This Deed of Prior Representations and
Questionnaire was central to the Court’s
finding that that the franchisee had not relied
on the representations (if they had indeed
been made). Accordingly, the franchisee’s
claims failed.
The Court found in favour of the franchisor
on the counterclaim. The franchisee did
abandon the franchised business and its
purported termination of the franchise
agreement was unlawful because it did not
comply with the terms of the franchise
agreement. The franchisor was awarded
$650,552.24 in damages against the franchisee
and its guarantors.Key learning points
This case made it clear that, in order to
succeed in a misrepresentation claim, a
franchisee must be able to show that it in fact
relied on the specific representations made at
the time of entering the franchise agreement.
The case also highlights that thorough risk
management practices by a franchisor prior to
entry into a franchise agreement can assist in
defending future claims made by a franchisee.
Franchisors should also take this case as a
reminder to:- ensure that any promises and statements
made to franchisees are accurate; - include appropriate warranties and
disclaimers in franchise documentation
to minimise risk and to displace potential
reliance on any representations that may
have been made; - actively encourage franchisees to seek
independent advice and undertake extensive
research prior to entry into the franchise
agreement; and - consider using documents, such as prior
representations statements, to provide an
opportunity for the franchisee to record any
representations which it believes have been
made and which influenced its decision to
enter into the franchise.
TobAcco STATIoN AND
fREEchoIcE cASE^3
This matter involved tobacco product
franchisor TSG Franchise Management
Pty Ltd (TSG) and its market competitor,
Cigarette & Gift Warehouse (Franchising)
Pty Ltd, trading under the business name
“Freechoice” (Freechoice).
TSG initiated proceedings against Freechoice
after it made several approaches to high
performing TSG franchisees, offering them
financial incentives to persuade them to end
their contractual relationship with TSG and
join the Freechoice network.Business Franchise Australia and New Zealand 19“in order to succeed in a misrepresentation
claim, a franchisee must be able to show that
it in fact relied on the specific representations
made at the time of entering the franchise
agreement.”esther gutnick | senior Associate | Mst lawyersTSG received notice from some of these
franchisees stating their intention to terminate
their franchise agreements and requesting
pay-out figures. The franchise agreements did
not include any right for the franchisees to
terminate by notice.
The claim included allegations that Freechoice
had engaged in:- the tort of procuring or inducing breach of
contract by inducing TSG franchisees to
terminate their franchise agreements before
the fixed term contracts had expired; and - misleading or deceptive conduct by making
false representations to TSG’s franchisees
to induce them into entering into new
franchise agreements with Freechoice.
The Court found that: - Freechoice was aware that the TSG
franchisees could not terminate their
franchise agreements without TSG’s
consent; - Freechoice and the relevant terminating
franchisees had been given formal notice by
TSG’s lawyers that TSG did not consent to
the franchisee’s purported early termination
attempts; - Freechoice persisted in signing up
terminating franchisees, arranging fit out
of shops with the new branding and other
interfering conduct until interlocutory
injunctions were sought from a court; and - Freechoice had calculated the net benefit
of inducing these franchisees to move to
Freechoice and incorporated the costs
of doing so into its model and was not
deterred from its strategy by the threat of
legal proceedings.
The Court ordered that Freechoice be
permanently restrained from inducing or
attempting to induce TSG franchisees to
terminate their contracts, and also ordered
that Freechoice pay TSG’s costs of the
proceeding.
The Court also made declarations to the
effect that Freechoice had made a number
of misleading or deceptive statements to
TSG franchisees in seeking to procure
them, thereby contravening the Australian
Consumer Law, and that Freechoice had
knowingly and intentionally induced the
owner of two franchised stores to breach the
terms of her franchise agreement with TSG.
Key learning points
Franchisors must beware of the risks of
aggressive expansion tactics, and should
ensure that its growth strategies do not
involve:- actively seeking to poach franchisees of