The buyer of a Kingscliff restaurant franchise who relied on what he thought was a projection of weekly sales has sued PizzaCapers for a $300k financial loss said to have resulted from the enterprise.
William Kluska put together the final pieces to enter into the arrangement in January 2011 and began trading the following month.
After two years of disappointing returns and having stopped trading in November 2013, he defended the gourmet pizza chain’s fee recovery lawsuit on the grounds that financial data emailed to him in the weeks prior to the franchise start date and in the franchise Disclosure Statement, were misleading.
The so called “financial model” – the neutral term adopted by the court – was said to be a heavily qualified illustration of potential financial returns.
Referred to only as “hypothetical” and “historical”, it recorded the sales performance of corporate stores but warned the document “should not be relied upon” as anything more than an indication of “what you might expect” assuming the franchisee “worked full time (45 hours plus)” within the store.
Such a statement was, according to Brisbane district court judge Kieran Dorney QC, nevertheless a “representation as to future matters” – being with regard to the “future materialisation of what is presently thought to be possible” – within the scope of Australian Consumer Law s 4.
The representor – in this case, Pizza Capers – could still be liable for Kluska’s financial loss as a result of his store never reaching the historically based weekly sales expectations of $4.3k at an average labour cost of 31%.
To succeed on that ground, Kluska had to convince the court that Pizza Capers lacked sufficient grounds for making the pitch at the time the figures were provided to him.
Forensic evidence from Vincents’ accountant Paul Green on the one hand, attested to the “battle data” having referenced labour costs at the lower end of actuals hence producing returns at the higher end, suggestive of unrealistic scenarios.
On the other hand, David Williams of SV Partners swore the data in the Financial Model “battle data” was in his opinion, reasonable and typical.
The judge found neither expert to be of any particular assistance to the exercise he had to consider: whether or not the franchisor had reasonable grounds in making the representations in the Financial Model at the time they were made.
Considering the figures in the model with actual performance, the court accepted “the general accuracy of the master battle data” and found that that there was a reasonable basis for publishing the performance data.
Kluska also claimed that while conducting Capers’ co-founder Anthony Russo and his franchisee manager Damien Davies on a tour of the seaside locale, Russo said words to the effect that “a store in Kingscliff could expect a weekly turnover of around $10k”.
But according to judge Dorney, it was more likely the $10k figure was expressed as the target for all group stores in the context of a statement that the highest grossing store was reaping $12.5k weekly.
Kluska’s evidence had, according to the judge, “all the hallmarks of a reconstructed recollection”.
He had after all made no earlier mention of the statement either in the “Deed of Prior Representations” or even in the Notice of Dispute under the Franchising Code of Conduct when the disputation between the parties began.
Russo’s evidence was that it was not his practice to give such an estimate and that he did not have enough information at that point to even estimate what a Kingscliff franchise might take.
The franchisee was defeated in his claims and Pizza Capers succeeded in recovering $80k in outstanding franchise fees.