Australia: Franchisee unsuccessful in suing franchisor for failed business

Litigation and Dispute Resolution
Last Updated: 4 November 2010
Article by Liam Prescott

A recent decision of Justice Buchanan of the Federal Court has highlighted the risks franchisees take when suing franchisors for losses arising from failed business enterprises. The case also serves to outline the inherent risks involved in starting a franchise with limited knowledge or experience in a specific industry, in spite of the statutory measures designed to protect franchisees when doing so.

Relevant conclusions

This case should serve as a timely reminder to franchisees that:

  • entry into a franchise is, like any small business, a risk for the franchisee and it needs to protect itself from the possibility of genuine misrepresentations and unconscionable conduct on the part of the franchisor;
  • a prospective franchisee cannot simply rely on the statutory framework as the ultimate protection against an unscrupulous franchisor; and
  • they must ensure that they take care in their negotiations with franchisors, obtain independent financial and legal advice on their business plan and that any representations upon which they have relied to enter into the franchise are adequately recorded in their franchise agreement.

Equally, a franchisor needs to protect itself from the inevitability that some franchisees will fail and will seek to pass the blame for that failure onto the franchisor. To protect itself, the franchisor should:

  • seek to enhance its protection by relying upon statements in letters to the franchisee of the kind the Bank used in this case; and
  • rely upon the actions of the franchisee in preparing a business plan and obtaining independent advice on the viability of their business.


The recent case of Astram Financial Services Pty Ltd v Bank of Queensland Ltd has indicated that the relevant facts of a franchise, when read as a whole, are most likely to determine its outcome, not the legislation relied upon by the franchisee.

In this case, a former franchisee of the Bank of Queensland, known as Astram Financial Services Pty Ltd, and the director of the franchisee, Leicester Ramsey, sought relief for alleged breaches of sections 52 and section 51AC of the Trade Practices Act.

Allegations of misleading and deceptive conduct

Mr Ramsey alleged that representatives of the Bank had made a number of misrepresentations to him (and to his former business partner) relating to:

  • the expected turnover for the prospective franchise;
  • the ability to achieve the expected turnover;
  • the belief that the expected turnover would be sufficient for the prospective franchise to break even;
  • the amount of working capital that would be required by the prospective franchise; and
  • corporate and local area marketing to be undertaken.

Mr Ramsey alleged each of these misrepresentations was made during introductory meetings between various representatives of the Bank and Mr Ramsey (and in some cases, Mr Ramsey and his former business partner). Mr Ramsey also alleged that the misrepresentations were made with respect to future matters and that the Bank had no reasonable grounds for making these representations within the meaning of section 51A of the Trade Practices Act.

Mr Ramsey alleged that he (and Astram) relied on each of these misrepresentations for the purposes of entering into a franchise agreement with the Bank and to enter into other ancillary documents relating to the franchise.

Mr Ramsey later incorporated Astram as the vehicle to operate his franchise and opened a franchise of the Bank at Campbelltown in New South Wales in August 2005. Astram's business subsequently failed in August 2006.

Misleading and deceptive conduct: conduct of the franchisor as a whole

Astram's and Mr Ramsey's case sought to have the Court focus on the alleged misrepresentations made at introductory meetings and attempted to give those alleged misrepresentations prominence over all other commercially significant events which transpired.

In his judgment, Justice Buchanan rejected this approach on the basis that it was "seriously flawed", "uncommercial" and "contrary to principle". His Honour held that "It [was] well established, for the purpose of the operation of section 52 of the Trade Practices Act, that the conduct of a party must be assessed as a whole."

In particular, His Honour referred to letters provided to Mr Ramsey and/or Astram in which the Bank disclaimed liability for predictions about matters like costs, revenue and future profitability of the franchise. Relevantly, the Bank disclaimed liability in these letters by repeatedly stating that it could not give "assurances", "make predictions" or "make representations" regarding each of these matters.

His Honour also referred to statements in those letters where the Bank encouraged the prospective franchisee to obtain independent financial and legal advice and to prepare their own business plan so that they could satisfy themselves as to the financial viability of the business.

Justice Buchanan held that because Mr Ramsey had then prepared his own business plan, obtained independent financial and legal advice on that plan and had the benefit of reading each of the letters prior to entry into the franchise agreement, he (or through him, Astram) was not misled by the Bank.

Alternative claim for unconscionable conduct

In addition to rejecting the claim for relief for misleading and deceptive conduct against the Bank, Justice Buchanan also rejected Mr Ramsey's and Astram's alternative claim for relief for unconscionable conduct. His Honour determined that Mr Ramsey and Astram had failed to establish that the Bank's conduct involved a "high level of moral obloquy" or was "highly unethical".

His Honour held that there was no basis for him to conclude that the Bank was responsible for the business decisions made by Mr Ramsey and that, while the Bank was astute enough to protect its own interests in the transaction, the fact that "things proved to be more difficult than [Mr Ramsey] assumed does not suggest that there was any unconscionable conduct on the part of the Bank".

As demonstrated by this decision, inherent tension between the rights and interests of franchisors and franchisees mean there will nearly always be two sides to every story in a franchise dispute, and while the statutory protection in place for franchisees will provide some assistance, it will not overcome facts which, as a whole, do not support the claims made. As at the date of publication of this article, the Federal Court website records that Astram and Mr Ramsey are appealing this decision.

For more information, please contact HopgoodGanim's Litigation and Dispute Resolution team.

© HopgoodGanim Lawyers

Gold Employer of Choice - ALB magazine, April 2010
Finalist, Brisbane Law Firm of the Year, ALB Australasian Law Awards 2010

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.