Reality test on promises after Billy Baxter’s case

Russell Emmerson
Herald Sun
May 28, 2012

Thomsons Lawyers partner David Gaszner says the Billy Baxter’s franchise case is likely to make franchisors more conservative.

AUSTRALIA’S $202 billion franchising industry must get back to basics and back up its promises when trying to attract new business partners, a court has warned.

A Victorian appeal case has found franchisees establishing a new Billy Baxter’s restaurant were misled by representations over the revenue and profit they could expect in the first year.

The Court of Appeal said the initial figures provided by a representative for the restaurant chain were based on the turnover of a restaurant at a suburb near the new South Australian franchise and the income needed to cover the rent. Although these were accompanied by the required warnings about independent advice, there was “no logical connection” to support the estimates.

Franchise Council of Australia executive director Steve Wright said the decision was likely to boost insurance and research costs and ultimately convince franchisors to help franchisees less.

“If there is to be any negative effect it is most likely to fall on the franchisees and what good will it do for them?” he said.
“A franchisor may be confident about giving that forecast but it can never be sure, so they are reluctant because they don’t want to risk the possibility of misleading potential franchisees.”

The court overturned the original decision, and awarded Ross and Dianne Pollard $1.2 million in damages in a decision likely to throw another challenge to the “relationship of trust” needed between franchisors and their potential business partners.

Thomsons Lawyers partner David Gaszner said the case was likely to make franchisors more conservative. “It may result in more franchisors refusing to make or provide any forecasts, but it must also be remembered that this judgment was, as with all such judgments, one made on the particular facts of the case,” he said.

“Franchisors will already be careful, and will now be even more careful about what representations they make as to potential income, profitability and turnover.”

The case is also likely to increase research costs, he said.

“Projections based on personal experience in the trade, which is what (Billy Baxter representative) Mr Mauviel largely seems to have relied upon, will not suffice,” he said.

“The problem for Billy Baxter’s in this case was the lack of objective supporting evidence or empirical research to back up his projections.

“This does not mean that projections must prove to be entirely correct, they must however be fairly based and this can only be established with reference to objective facts.”