Travers Beynon aka Candyman last week suffered a major setback to the aggressive expansion of hiscigarette retail outfit after a Federal Court judge in Melbourne ruled the company wrongfully induced competitor outlets to walk out on binding contracts to re-badge under the Freechoice banner.

In April 2014 Candyman’s Freechoice – armed with sales data supplied by a mole in durry giant British American Tobacco – began actively targeting high performing competitor franchisees with offers to pay out their contracts and other benefits.

franchiseThe project was devised on the heels of the rejection of Beynon’s offer to buy out competitor Cignall.

The strategy was to target outlets with high “stick volumes” and less than three years remaining on their franchise terms, in the belief that a franchisee could end existing arrangements by paying forward all entitlements.

Freechoice went on to sign over four Cignall owners who terminated current franchises before that company notified its store owners it would strictly enforce all contracts.

Two high turnover outlets in its sights – both in Armidale NSW – were Tobacco Station shops operated by Cheryl Walters.

Given Freechoice’s insistence that prospective badge swappers negotiate an early end to their contracts, Walters sought and was provided a “payout figure” for her two stores: $11k for the shop with 3 years to run; and $7k for the one with 18 months still to go.

The sums were said to be the “costs that will be due….in the case of a breach of contract resulting in termination”. The email setting out the calculations for both amounts was accompanied by a warning that “the franchisee does not have a right to terminate at will”.

Freechoice signed up Walters without any confirmation that Tobacco Station accepted her notice of termination given ten 10 days before both stores underwent an overnight signage, fit out and uniform transformation to open up the next day under the Freechoice livery.

Just a few weeks later one of Tobacco Station’s highest performing stores – In Frankston Vic – jumped ship by signing up to a new seven-year Freechoice deal.

With a dozen more stores under threat, Tobacco Station was granted a temporary injunction on Christmas Eve to stop what it claimed to be Freechoice’s “tortious interference with the contractual performance of its franchisees”.

The Candyman – contended in defence of the case for a permanent embargo against further poaching – that any fair reading of its Armidale “payout” email implied Tobacco Station would consent to an early end to the contracts on receipt of the specified sums.

Thus – so ran the argument – Freechoice had reasonable grounds for believing that what they were inducing the franchisees to do, would not amount to a breach of their contracts.

General Manager Andrew Whelan conceded in cross-examination he knew his former BAT colleague was not authorised to release sales data and that there was no industry practice of allowing franchisees to terminate early to join a competitor group.

He swore he had not seen the Tobacco Station caveat, warning of the absence of any termination right nor had he examined Walters’ franchise agreement.

Justice Jennifer Davies was unimpressed.

“I find it implausible that Mr Whelan did not know Tobacco Station would not release Walters from her contracts,” she last week ruled. “His conduct, that may also be imputed to Mr Beynon, reflects adversely on his integrity and shows a contumelious disregard for the law in the pursuit of commercial advantage”.

Her 30 page judgement reasoned Freechoice had demonstrated “a persistent, deliberate and intentional disregard of the contractual obligations of TSG franchisees” and thus a permanent injunction was called for.

She also declared that Freechoice’s representations to prospective turncoats about its capacity to offer preferential supplier deals, were misleading and deceptive.

All three former Tobacco Station outlets continue to trade as Freechoice operations.

Freechoice’s own contracts – according to the judgment – are for fixed terms with no early termination rights.

TSG Franchise Management Pty Ltd v Cigarette & Gift Warehouse (Franchising) Pty Ltd (No 2) [2016] FCA 674, Davies J, 08/06/2016


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