Court Finds That Patisserie Franchisor Can't Have Its Cake And Eat It Too

The seriousness of representations made by franchisors to potential franchisees where such representations influence the franchisee’s decision to enter into a franchise agreement has been considered in detail in a recent judgement handed down by the Queensland Court of Appeal in the case of Guirguis Pty Ltd & Anor v Michel’s Patisserie System Pty Ltd & Ors [2017] QCA 83.

The case involved a Michel’s Patisserie franchise and representations made by the franchisor during the initial negotiations of the franchise agreement relating to the delivery and quality of the cake products. Prior to signing the franchise agreement, the franchisee was required to sign a Deed of Prior Representations and questionnaire and list all information provided by the franchisor that influenced the franchisee’s decision to proceed with the franchise and execute the franchise agreement. The franchisee listed representations relating to the terms of the lease and the support to be provided by the franchisor as factors that influenced its decision to enter into the agreement however failed to list any factors relating to the representations the subject of the proceedings.

At first instance, the franchisee applied to the Court for an order that the franchise agreement and other related agreements were void and should be set aside on the grounds that the franchisor had made misrepresentations about the frequency of the deliveries of the cake products and the quality of such products upon delivery and that the franchisor had also failed to disclose to the franchisee that there was a then current lack of suppliers of the cake products. The franchisee alleged that the franchisor’s misrepresentations and non-disclosure breached the Australian Consumer Law and amounted to conduct that was misleading or deceptive, that the franchisee had relied on that misleading conduct when entering into the franchise agreement and that had the franchisee known of these issues beforehand the franchisee would not have entered into the franchise agreement. Nevertheless, the primary judge dismissed the franchisee’s claims and held that the franchisee’s signing of the Deed of Prior Representations and the completion of the questionnaire was sufficient evidence that the franchisee had not relied on the alleged misrepresentations by the franchisor when signing the franchise agreement.

The franchisees appealed the primary judge’s decision in the Queensland Court of Appeal arguing that the primary judge had erred in principle and at law by rejecting their claims that the representations and non-disclosure amounted to misleading or deceptive conduct and that such conduct affected the franchisee’s decision to proceed with the franchise. Ultimately, the Court of Appeal found in favour of the franchisees and followed precedent noting that neither the inclusion of an entire agreement clause in an agreement nor the inclusion of a provision expressly denying reliance by a franchisee upon pre-contractual representations, such as a Deed of Prior Representations, will protect franchisors from claims of misleading or deceptive conduct and such conduct must be determined as a question of fact considering all circumstances, not only the terms of the written agreement.

The Court of Appeal held that the primary judge failed to follow the appropriate test set out in precedent and referred the matter for a retrial. The franchisors were ordered to pay the franchisee’s costs of the appeal, however, unless the parties settle outside of court, both will be required to pay the additional costs of a trial if the matter is to be finalised.

If you have any queries in relation to this case or anything relating to franchises, please contact Renze Verheyen of our office.