In a sensational decision in the Victorian Supreme Court, 3 Judges reversed a decision previously in favour of Franchisor Billy Baxters (Franchising) Pty Ltd, and awarded $1.22M damages to the former Franchisees of the Glenelg site. The details of the original case and the Appeal revolve around what representations were made to the Franchisee by the Franchisor's representative, in what was said in telling the Franchisees the location should turn over $1.3M back in 2004. His estimates were found NOT to be based on any research or facts, but rather an opinion he had come to, having thought he knew the correct sales of the Norwood store (found to be incorrect).
I have campaigned for years that the wet finger in the air approach is NOT good enough, and for once I feel fully justified by the Appeal decision. In opening Greenfield sites, you MUST have some logic if you are going to make such statements to potential Franchisees. While most Franchisors do not make any claims, it still must be extremely important for the internal workings of approval of a greenfield's location, that the Franchisor has taken reasonable steps to make an approval decisions for a new site.
In probably the biggest case since the Lenards cases, the complete opposite occurred to Lenards with this Appeal. Lenards lost the original case, and had the decision reversed in their favour on Appeal. In this case the Franchisor won the original case ($250K plus costs), which has now been reversed and "quintrippled" to be $1.22M to the Franchisees.
For a more detailed assessment of the case, please read the attachment by Tony Garrisson, Partner of HWL Ebsworth Lawyers.
.... What you need to know (and ask your franchisor)
A couple of large clients we work with have started their working relationship with us by showing us a series of paper based maps, and saying they have all their territories worked out, and just need a few ‘minor’ issues sorted out, and all will be fine! In these cases our first week of work was to copy all the individual territory maps into our GIS – Geographic Information System or mapping system, to see what we are dealing with.
Peter Buckingham is the Managing Director of Spectrum Analysis Australia. He is a certified Management Consultant, and a Fellow of the FCA and IMC.