What happened in the Billy Baxters’ case which ended with the franchisees concerned awarded $1.22 million?

The story 

The case involves the Billy Baxters franchisor and its former Glenelg franchisees, Ross and Sue Pollard, who terminated their franchise agreement after the business made losses and they were unable to pay the franchise fees.

The franchisor took the pair to court, seeking recovery of unpaid royalties and advertising levies under the franchise agreement.

At the trial in the Supreme Court of Victoria the Pollards admitted that $250,000 worth of fees were unpaid. They defended the claim and issued a counterclaim; they were seeking compensation for their losses and suggested that Billy Baxters’ South Australian representative, Philip Mauviel [pictured below], had made misleading and deceptive statements to them prior to them signing up to a lease and franchise agreement. 

The case hinged on whether statements of projected turnover and reasonableness of rent were misleading or deceptive under the Trade Practices Act 1974.

These representations during the course of negotiations for a greenfield site at Glenelg included anticipating turnover and drawing comparisons with an existing Billy Baxters outlet at Norwood.

The Pollards indicated Mauviel anticipated a turnover for the business of $1.3 million and suggested this would allow the business to pay the rent and return a profit.

In May 2009 the Supreme Court upheld Billy Baxters’ claim and dismissed the counterclaim of the franchisee and guarantors. The judgement highlighted that Mauviel had in fact provided a spreadsheet template for the Pollards; and that the Pollards (who were themselves experienced franchisees with a previous Boost Juice outlet) ignored the advice to enter their own information into the spreadsheet and to seek independent legal, business and accounting advice.

While the Court did find that the $1.3 million turnover claim was false, it also found it was a prediction made on reasonable grounds, so there was no liability to Billy Baxters.

As a result the Supreme Court ordered that the franchisee and guarantors pay the outstanding fees, interest and Billy Baxters’ legal costs. 

The franchisee and guarantors appealed.

The appeal

A critical consideration was the rent of the premises, $160,000 per annum, a figure previously agreed between the franchisor and the landlord.

Both courts accepted that the franchisees expressed immediate concerns to Philip Mauviel regarding the proposed rental costs.

The Court of Appeal referred to Mauviel’s evidence that he would have told the franchisee that the ideal or maximum benchmark for rental was 15 percent of turnover for a rent of that magnitude.

However, it found the figure of $1.3 million was given without reasonable grounds, and that the only connection between the rent and the projected turnover was that the outlet would need such a figure as a minimum to make the rent affordable.

The Court of Appeal said this had no logical connection to any representation as to what the turnover would actually be and there was no evidence of any analysis that could back up Mauviel’s projection.

In a unanimous decision, the Court of Appeal agreed that Philip Mauviel’s comments were not made on reasonable grounds; it overturned the Supreme Court’s decision and ordered the franchisor to pay the franchisee damages of $1.22 million.

Find out how this judgement affects you

Images: adonline.id.au/ resources2.news.com.au/ economyage.com