HUMAN RESOURCES | Staff Reporter, Australia

Retail Food Group breached Australian Consumer Law, court rules

Former Michel’s Patisserie franchisees claimed RFG representatives misled them about a supply line.

A Queensland court has ruled that Retail Food Group (RFG) breached Australian Consumer Law by "misleading" two Michel’s Patisserie franchisees about a Townsville outlet in 2012.

Former franchisees Frederick and Karen Guirguis claimed RFG representatives misled them about a supply line to a Townsville outlet from Brisbane prior to their signing of a franchise agreement in 2012.

In a complaint sent to RFG via email in July 2012, Mrs. Guirguis said products were arriving in such bad condition they could not be sold.

“Our large cakes take way too long to get to our store, we can’t have icing sugar, cream or photos on the cakes,” she explained in the email. “They arrive thawed out and most (I have all the photos to prove this) of the cakes small and large arrive in a poor state so bad that most can NOT be sold. Also as I have stated before some of your products are just too dry and we get a lot left on the plate or returned.”

The Guirguis’ sent more complaints to RFG via email over the proceeding months about poor stock quality, and were trying to sell the business by August 2012. They eventually stopped paying franchise service fees and marketing levies to RFG in October 2012 due to frustration with the ongoing supply and quality issues.

The couple abandoned the outlet midway through 2013, having racked up $37,631 in trading losses.

In its defence, RFG argued that representations made to the franchisees before they signed on were “mere puffery” but Brisbane District Court judge Rosengren did not agree that it applied.

“I do not accept that any of the established representations can be characterised as mere puffery in the various contexts in which they were made,” she said. “They were as to the kinds of products to be supplied to a potential franchisee for retail sale by it, the reliability and frequency of that supply from Brisbane and the quality of those products upon their receipt in Townsville. They were significant definitive statements.”

In a counterclaim, RFG attempted to recover $650,552 from the couple, saying it had suffered a loss as a result of unpaid franchise fees and other costs associated with the store being abandoned. This was also dismissed by Rosengren.

“The plaintiffs’ claims have been successful and the defendants are liable. RFG cannot recover damages or other relief for loss and damage caused by misleading and deceptive conduct of the plaintiffs, where the loss or damage is liability in damages to the plaintiffs for misleading or deceptive conduct under the ACL,” she said. 

In a statement sent to QSR Media, an RFG spokesperson said the following: “The matter concerns events that occurred in 2012, which we consider are unique to the case. It was initially tried in the District Court in 2016, where the Franchisor was successful in its defence. We are disappointed with the District Court’s most recent decision, and are engaging with our legal advisors regarding those options which may be available to the Franchisor.”

The ruling was preceded by RFG's implementation of  "a number of structural changes" to the business, flagged by their chairman Peter George during their annual general meeting.

"A number of roles were affected within the marketing department, with the changes designed to place resources closer to our franchisees. A robust customer-focused marketing department certainly remains, including continuing and dedicated resources under each of our brands,” an RFG spokesperson said.

RFG previously flagged a decentralisation of their resources for their franchisees last December, which also saw the resignation of Richard Hinson as their CEO, with the newly-installed George assuming the former's responsibilities.

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