Is it enough for franchisors to simply update their
disclosure document at the end of each financial year? A recent
decision of the Full Court of the Federal Court, SPAR Licensing
Pty Ltd v MIS QLD Pty Ltd  FCAFC 50, suggests it might
The case dealt with the extent of a franchisor's obligation
under the Franchising Code of Conduct to provide a franchisee with
a 'current' disclosure document.
SPAR and MIS entered into negotiations for a franchise in
mid-2010. The franchise agreement provided that MIS, the
franchisee, would operate a SPAR branded supermarket in Queensland.
SPAR delivered the disclosure document to MIS in July 2010 but the
franchise agreement was not entered into until February 2011.
The disclosure document included financial statements from the
2009 financial year. However, SPAR's financial position had
changed markedly since the preparation of those statements, having
lost $5.8 million during the financial year ended 30 June 2010.
This information was not disclosed to MIS.
Six months into the operation of the agreement, MIS sought to
terminate the arrangement with SPAR in order to enter into an
alternative arrangement with SPAR's competitor, IGA. MIS cited
representations made by SPAR that it could terminate on the payment
of a 'break fee' however SPAR refused to allow MIS to
Breach of the Code?
One issue was whether an updated disclosure document should have
been provided to MIS closer to February 2011, when the agreement
was actually entered into.
The Code requires franchisors to provide prospective franchises
with a 'current' disclosure document; however this term is
not defined. The Code does not expressly require a franchisor to
provide a 'fresh' disclosure document, except in certain
cases such as a change in ownership of the franchisor.
The Court unanimously agreed that SPAR failed to give MIS a
'current' disclosure document and ordered that the
franchise agreement be set aside.
Justices Buchanan and Foster held that the currency of a
disclosure document is assessed at the time the franchise agreement
is entered into, which in this case was February 2011. The fact
that SPAR had given a disclosure statement at an earlier point in
time did not mean they had already satisfied the obligation. At the
time the agreement was entered into the disclosure was not current
and the franchisor had breached its disclosure obligations under
Under a different line of reasoning, Justice Farrell was not
satisfied that the disclosure document delivered in July 2010 was
current, even at that point in time. The Code requires a disclosure
document to include a solvency statement current to the end of the
last financial year. Her Honour found that the disclosure statement
provided in July 2010 did not comply with the Code as the solvency
statement included in it was one prepared for the year ending June
2009. SPAR should have included a solvency statement for the year
ending June 2010.
The Court also considered whether SPAR's representation
regarding the 'break fee' was misleading or deceptive under
the Trade Practices Act (now Australian Consumer
The Court focused on the accuracy of the representation at the
time it was made. SPAR's termination policy at the time of the
negotiations was consistent with the representation made, and was
therefore not misleading or deceptive. It did not matter that
SPAR's policy had changed since.
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