Unlock the Power of Digital Signature Lawfulness for Your Franchise Contract in Australia

How to eSign a document: digital signature lawfulness for Franchise Contract in Australia

hello everybody um and welcome to our webinar on how franchises can avoid misleading intercept conduct obviously a really important topic for franchisors being one of the most litigated provisions in the context of franchise disputes i applaud everybody for coming along today to learn a little bit more about the topic my name's emma jervis i had the franchising and leasing team at legal vision i'm joined today by the lovely beck who heads our dispute resolution practice group now before we begin just a couple of brief housekeeping matters firstly um you'll be emailed a copy of this webinar recording please feel free to share it amongst your friends and colleagues you should see at the bottom of your screen a chat box if you have any questions that arise during the webinar please feel free to pop them in that box and we'll have a q a session at the end you'll also be emailed a survey after completion of the webinar it would be greatly appreciated if you could complete that i'll now hand over to my colleague back to introduce herself and kick off the webinar thanks emma um so my name is rebecca ward and i'm the practice group leader of the disputes and regulatory team here at legal vision um have a lot of experience in dealing with consumer law complaints and so very happy to talk about misleading and deceptive conduct um just as a brief overview of what our presentation is going to involve i'm going to start with a general introduction into misleading and deceptive conduct we'll talk about the consequences of when you may have engaged in misleading or deceptive conduct um and specifically the reasons why misleading and deceptive conduct claims do arise in franchise disputes emma's going to run us through some examples of some interesting case law and then we're going to talk about some practical tips um how how you can run a misleading and deceptive conduct check to make sure that you're not may not be engaging in this sort of conduct and if you do face a claim how you can handle um allegations we're going to follow up with a q a session so that's your opportunity to ask us questions that you might have then we're going to talk about briefly our lv pro membership great so let's just launch straight into it what is speciality in deceptive conduct well section 18 of the australian consumer law says that a person must not in trade or commerce engage in conduct that is likely to be misleading or deceptive or sorry is misleading a deceptive or is likely to mislead or deceive so what does that mean well let's break that down so the elements of a particular claim is that a person has engaged in conduct so in the case of a franchise or just a dispute it's normally the franchisor that's allowed to have engaged in conduct and the conduct in question would be entering into perhaps a franchise agreement with a franchisee what is considered conduct in terms of trade or commerce is quite broad um and in terms of the franchise agreement it could be for example um representations or statements that have been made prior to the entry of a franchise agreement or during the con during the conduct of the agreement acting in a particular way making implied representation so it may be that some sort of outcome or um promise was was indicated by some sort of conduct it's also interesting that silence or remissions can also be misleading in deceptive conduct so it might be not saying something or leaving some key information out in terms of um negotiating a franchise agreement um and in terms of whether or not the conduct is actually misleading or deceptive well it has to be viewed it's generally a case-by-case assessment and it's and it's come to a conclusion looking at all of the circumstances so what you would have to look at is would would a reasonable person in the same position of the franchisee have considered that conduct misleading or deceptive um is generally the test that would be applied so who bears the the um burden of proving a claim well the person that's making a claim that that you or a franchisor has engaged in misleading and deceptive conduct is responsible for providing the evidence to support that claim so that means that they have to demonstrate that the the conduct was misleading or deceptive or likely to mislead and decep deceive and that they've relied on those representations to their own detriment however um if the if the if the claim involves future representation so for example a representation made about a future event so for example in you will have this will happen in the future if you enter into this agreement the burden flips so that means that if that allegation has been made it would be up to the franchisor to demonstrate that at the time that that representation was made it was reasonable at that time period so there can be some um nuances about who has to prove what so it's really important um to get some good legal advice it's also important to note that there are similar misleading and deceptive provisions in other legislation for example this various state by state retail leases act so as by as an example the new south wales retail leasing act specifically sections 62 and 60 62 d 62 d and 62 e provide that a party to a retail shop police must not engage in conduct that is misleading or deceptive to another party to a lease or that is likely to mislead or deceive and a party who suffers due to the latter conduct may recover the amount of loss of damage so it's important to note that there are various types of claims that can be made um now emma's going to i'm just going to hand over to emma now thanks thanks beck i'm just going to explore what the consequences are um if there is the finding of misleading and deceptive conduct the big one people obviously think of is an award of damages now damages um the purpose of damages is to in essence right the wrong or compensate the franchisee for the losses occasion as a result of the conduct now in order to obtain an award of damages arising from misleading and deceptive conduct it's necessary to show that the loss and damage was suffered because of the conduct and that brings into play the legal concept of causation taking that one step further the case of bartlett vs weather rule confirmed that even if you've relied on misleading representations you won't be entitled to damages unless you can show that you could have and would have done something different had the misleading statements for example not been made how that's commonly played in the context of court proceedings is a franchisee will argue that had their misrepresentations not been made they never would have entered into the franchise agreement it's then up to the court to make an assessment as to the truth of that statement and there are a number of cases that have run all the way to trial where reporters said yes there was a misleading statement but you still would have entered into the franchise agreement and therefore the franchisee is not entitled to an award of damages then looking at the precise dollar figure on that example of i would never have entered into a franchise agreement the award of damages is typically what's called a no transaction award a no transaction case arises when a plaintiff asserts that they wouldn't have entered into a transaction here the franchise agreement but for the acts or admission defendant and the dollars involved will be the sum required to place the misleading party in the position they would have been had they not engaged in the loss-making transaction i.e had never entered into the franchise agreement in the context of franchising where fees can be significant this can result in a very significant award damages that can include for example refund of all franchise fees paid um payment of any loss occasioned in running the franchise business payment of expenses such as fit out for example as well as other ancillary costs incurred by the franchisee um we'll talk uh towards the end about some of the awards of damages that have been awarded in actual case law now looking at another consequence um is that with respect to the atrocity the a triple c is obviously the regulator regulatory body that monitors compliance with the australian consumer or law which includes the code and the misleading and deceptive conduct provisions um the acc has really wide powers it can investigate it can accept court enforceable undertakings it can issue infringement notices and it can even prosecute franchisors through the courts in particular we're seeing a lot of cases prosecuted by the hcc um in the federal court of australia the agency has publicly stated in recent years that the franchise sector is an area of focus and we're actually seeing that in the number of cases being commenced and investigations being undertaken so it's really important that franchisors keep in mind those powers of the acc and comply with any investigation that the hrpc undertakes the final consequence i wanted to talk about was was with respect to disclosure the disclosure document requires um the disclosure of court proceedings and further to the code amendments made last year even now mediations um that disclosure extends beyond the mere existence of the court proceedings but also requires a franchisor to set out the status the nature of the claims and the outcome now obviously franchisors generally want to avoid having to disclose that they were sued for misleading a deceptive conduct by a franchisee or that they were prosecuted by the agency which should provide an extra motivation to for avoiding such claims being made this is particularly the case when franchisors consider the upcoming franchise or disclosure register requirements which will make this information public as i said at the start claims of misleading and deceptive conduct are really really common in the context of franchising and i'm just going to hand over to beck to delve a little bit further into why that might be so thanks emma um so franchise by its nature is very document heavy it's highly regulated and there's a lot of information exchanged in the pre-contractual phase so it's really important to have a look at the documents that you're handing over to potential franchisees the quality of the document documentation that's supplied um it's really important to make sure that there's nothing in the documentation that's incorrect or could be misleading and deceptive um all franchises should be really wary about the content of their disclosure documents it's really important to make sure that it's accurate it's up to date throughout the year where there are material materially relevant facts so keeping an eye on the documents to make sure that they're all relevant and factual is really important it's also really important to consider the way that financial data is being presented we often see a lot of claims arising out of allegations that the financial data was is was presented in a very misleading or deceptive way we often we know that financial data would be presented in such a way that would be aimed to entice potential franchisees into an agreement but it's really important to make sure that it's accurate and for example um not make any guarantees about the potential performance about a franchise news business for example um being selective about particular data um could lead to a to it to a view that the the financial performance of the franchise network is more is profitable than not for example finally we see a lot of claims come under the consumer law because it provides an option or an avenue to make a claim that doesn't necessarily rest on a breach of the particular term of a franchise agreement and it gives the claimant an option to pursue a claim through multiple channels i.e they've got an option to go to court they can follow the dispute resolution process provided by by the franchise code or make a complaint to the hcc the code as we know has a very prescriptive dispute resolution process that's very accessible and relatively cheap franchisees can also collectively agitate a copper dispute so that can give more leverage to the claim and help reducing costs as well also by making a complaint to the a triple c the a c will take over investigative actions um and and it's and it's an obvious benefit to a complaint and because they don't have to expend any costs in pursuing that as an option now emma's going to talk about some cases that have actually made their way to court together with some hcc findings thanks beck um there are a heap of cases available um that demonstrate franchise or misleading and deceptive conduct i've chosen just a few um the first one i'm going to talk about is khazarian versus blow dry bar this was a 2015 decision um here the franchisee in pre-contract discussions was assured by the franchisor that it had by 2012 already established 16 profitable niche cash flow positive salons now that statement's obviously quite general in nature an overarching statement if you will but the court still deemed it misleading where the franchisor knew at the time of making that statement that some of its salons were actually really struggling and not breaking even the lesson here is that even high level and broad statements can be deemed misleading and should be avoided in your sales pitch another lesson perhaps is the ultimate outcome um here the franchise all went broke they went into liquidation and they could not afford to pay the damages award which was around 700 grand this is something we see a lot franchisors are subject to significant damages awards but can't pay them in fact because it's more than they can afford the next case i'm going to talk about is that of gerges versus michelle's patisserie michelle's patisserie sorry um this was where representations were made not about the financial aspect of the business but about the product quality and the franchisor made assurances that the product quality would be maintained whether they were going to be shipped snapped frozen um from brisbane to townsville and arrive in a saleable state the franchisor it was found on appeal had no reasonable basis to make those claims about the products where they had concerns about the ability of a specific bakery to supply future goods in the future now importantly in that case the franchisor's defense rested very heavily on the fact that the franchisee had signed a deed of prior representations and a questionnaire by which they um basically signed off on the fact that they were not relying on any statements external to the franchise agreement i.e they didn't include in the data for prior rents which is now a common document in the context of franchising anything about these statements about the product quality notwithstanding that they had failed to include this the report found that in this leading deceptive conduct having occurred in fact been relied upon and caused damage the lesson here is that franchise laws should be wary that including warranties including disclaimers and entire agreement courses and having these deeds of prior reps in place while a wonderful step and something else lawyers love it's not conclusive it doesn't mean a claim of misleading and deceptive conduct can't be successful it's just one piece of evidence that the court's going to look at in assessing the entirety of the claim um the next one i'm going to talk about is rfg group for obvious reasons it would be remiss of me to discuss misleading deceptive conduct in the context of franchising without talking about rng our rfg group one of the largest franchise all groups in australia they own michelle's patisserie capers pizzeria my favorite donut king a raft of other brands the case that's currently before the federal court follows pretty scathing findings against rfg in the parliamentary committee report fairness in franchising it's an ongoing case so it doesn't have a conclusion yet but in essence it's the response if you will of the acc two findings in that report in that report there was actually an entire chapter dedicated to a case study that was rfg in circumstances where the committee found the operations of rfg illuminated many of the issues identified in franchising relevant to misleading and deceptive conduct the report found that rfg had a practice of what's called churning this is where a franchisee fails the site is then operated for a brief period as a corporate store then sold to a new franchisee until they too fail and the cycle continues um the benefit to the franchisee law here is obvious that they get numerous initial franchise fees for the same site um the hcc has initiated as i said this action in the federal court concerning the sale of 42 corporate um corporately operated businesses which was sold to franchises the abc commencing those proceedings in its media release has said that we allege that retail food group without critical profit and loss information about these corporate stores from incoming franchisees and falsely represented that these loss-making stock stores were viable or profitable given the number of franchises given the size of rfg this will likely if there is a finding of misleading accepted conduct be a record-breaking case with respect to penalties so we will be watching that one very very closely now talking of penalties i think it's important for franchisors to be aware of the dollars that can be involved um where there is a penalty issued against them following a finding of this interception fund just going to run through a couple very quickly um firstly with respect to the geo-wash franchise here the franchisor made misleading statements about how franchise fees were applied but also the existence of relationships with third parties like car manufacturers for example following a finding of misleading and deceptive conduct a penalty of 4.2 million dollars was handed down but importantly of that over one million dollars was a penalty issued against an individual director i think what that really shows is that directors should not assume that their corporate franchise structure protects them from vulnerability for a claim of misleading and deceptive conduct the next case i want to talk about briefly is mega save where there was a 1.9 million dollar penalty issued where the franchise or misled perspective franchisees as to weekly minimum incomes guaranteed annual incomes things like that where there was just no reasonable basis for saying what they said to me the interesting part of the decision here was that the court ordered that the franchisor restrained for a period of five years from entering into another franchise agreement unless megasave actually provided a copy of the court judgment to the prospective franchisee at least 14 days before they entered into the franchise agreement obviously something that would dissuade a lot of people from entering into a franchise agreement and just an interesting example of the sort of orders that can be made talking about big bucks we had last year the decision against jump swim school called swim loops where the penalty was 23 million dollars um that followed the franchise or falsely represented to 174 franchisees that they would have an operational swim school within 12 months of signing the franchise agreement which statement they were found to have no reasonable basis for making where in fact only a very small percentage of their franchisees ever actually had a pool built um there were some pretty damning comments in the decision which would likely justify why those big bigger the 23 million penalty was imposed just to quote justice o'brien while jump loop's conduct cannot be described as fraudulent it was deliberate in the sense that jump loops was aware that it could not deliver on its promises but continued to entice persons to enter into franchise agreements and take payments from them so yeah some just some quick examples of the nature of misleading and deceptive conduct claims and also the penalties that can be issued um so how can you avoid being faced with an allegation i'll hand over to beck for some practical tips thanks emma so we've put together a checklist of some things that franchises can do to helping to help avoid engaging in misleading and deceptive conduct so manage your teams train your team members on what is misleading and deceptive conduct make sure all teams your team members are aware of the consequences of engaging and misleading and deceptive conduct consider providing your team members with a sales script or some other directions on how to respond to questions from prospective franchisees that could give rise to misleading and deceptive conduct claims and and prepare file notes or keep records of conversations with franchisees and review or audit these records regularly these could be really important evidentiary documents in the event that a claim is made consider your website social media a lot of claims come out of misleading and deceptive advertising so regularly audit your website social media channels to ensure that all information is accurate and up-to-date ensure that it can your website contains terms and conditions and appropriate disclaimers where necessary have a lawyer review your website and social media channel to ensure that they're compliant and raise no legal issues and perhaps consider ensuring that a lawyer reviews all of your promotional material consider your sales tools review all sales material and ensure that it does not contain any misleading or deceptive representations consider getting a lawyer to review the sales material that you provide don't just assume that bold or grandiose statements will be deemed puffery get advice only make promises that in in your sales material that you're in a position to fulfill if you are providing financial information in relation to profitability revenue or otherwise ensure that those figures are regularly audited and up-to-date provide appropriate disclaimers of sales and figures ensure the information is attached to the disclosure document in ance with the code and if you provide information from other sources make sure that there are appropriate disclaimers and finally consider your disclosure documents and other ancillary documents regularly review your disclosure document to ensure it's up-to-date and correct you should do this annually update your disclosure documents as changes occur in the system keep an ongoing ledger of the changes that have been implemented from year to year again this can be really important information if a claim is made ensure all information relevant to the franchisees running is in your disclosure document ensure all figures in the disclosure document are accurate exhaustive and up-to-date audit these figures against bookkeeping data and use ranges for certain expenditures or costs where the amount may not be fixed put in place the proper documentation to exclude pre-contractual warranties make sure that this is signed concurrently with the franchise agreement and if the finance financial information or disclosure is provided use appropriate disclaimers so what happens if you actually get a claim well emma is going to talk to you about how to deal with the claim of out misleading a deceptive conduct thanks bec um so if you are faced with the claim and typically that will be expressed either in a formal notice of dispute issued in ance with the code or it can even just be a general letter of demand the first thing to do is to understand what is being alleged us lawyers will never respond to a vague allegation and you should neither get what we call the particulars of the claim the who the what the when the where and the how of exactly what was alleged to have been said or done and how it was deemed to be misleading once you have that information you should then make an assessment of the validity of the claim this is both a factual and a legal exercise and can involve for example talking to persons from relevant departments in your team um reviewing all of the pre-contract conversations with the specific franchisee looking at what your franchise agreement says about a specific topic and basically looking at everything and talking to everybody involved you should also at this stage be looking for anything which may contradict what is being claimed for example an email from the franchisee expressing their unequivocal attention to enter into the franchise agreement made after the relevant steps um then you should revisit revisit the code and your documents to make sure that you're complying with both your legislative obligations i.e those in the code um and your contractual obligations i.e those in your franchise agreement you should also make sure everything's signed there's no point for example having a date of prior reps if it hasn't been signed by a franchisee next obviously obtain legal advice and i'm not just saying this because i'm a lawyer a lawyer worth their paycheck once you've given them all of the relevant information we'll be able to provide you with advice as to your vulnerability under the claim and help determine a strategy to best deal with the claim you should be communicating with the franchisee that has advanced disclaimer the worst thing you can do is stick your head in the sand if you're investigating the claim let them know that but just make sure any written communications on the subject matter are legally vetted for example certain things may want to be expressed without prejudice you should of course adhere to the dispute resolution process in the code even if you think the claim has no merit this is a prescriptive dispute resolution process so refusing to go ahead with it is a breach of the code and this is a much better way to resolve the claim than ended ending up as the name defendant in for proceedings and finally once it's all done and dusted and the claim has been resolved learn from it review your documents and processes and update your system as necessary and okay i'll head back over to back back we can't hear you sorry about that um i've been sneezing so much i muted myself um our handy checklist that we ran through earlier and a lot of this information is available in our guide the franchise's guide to avoiding misleading and deceptive conduct so please download a copy um which is available to download in the handout section of your webinar panel and for those of you that might be interested we have these webinars quite frequently our next word coming up is called new kid on the blog on the blockchain understanding the proposed laws for crypto nft and blockchain projects very topical at the moment recommend it it's on wednesday the 25th at 10 am and you can register online using the link um there so it's just legalvision.com.eu events okay now's the opportunity for you to ask us questions so please submit your your questions into the chat box in the in the panel and and we'll do our best to answer them um we've got one question that we can we can just get started with so the question that's come through was to do with the powers of the hcc to force franchises to provide proper software emma you happy just to give an answer to this question yeah there's no specific legislative provision for example by which franchisors are obliged to provide specific software but often the provision of proper software or specific software is incorporated in for example the undertakings or an agreement entered into with a c as a way to resolve an issue that they've identified this is getting off misleading and deceptive conduct but i know in the 7-eleven scandal part of the resolution to that scandal was an agreement international between the adjective and the franchise of the 711 franchise system where they put in place proper software um to monitor employee payments and compliance with processes and systems so there is no specific power but it's and often relied upon provision of an agreement or an undertaking entered into as a way of resolving an issue that the acc has identified any other questions guys well let's while we're waiting for some questions to roll in perhaps am i can you talk about some of the things that come out like what are the most frequent types of disputes that arise in terms of french in misleading and deceptive conduct like do you have some examples of some good um issues that have arisen like lately yeah yeah heaps so franchisor would be aware that the code updates last year included provisions whereby franchisees as a group agitate disputes or grievances and and that seems to have resulted in a bit of a barrier franchise disputes are rising where franchisees have been given a common sales pitch for example or given bundles of documents pre-contract that the franchisees allege contain misleading and deceptive statements those sorts of statements i have seen recently include statements by a franchisor with respect to the costings of a specific type of business those costings however excluded basically members of this particular business cancelling memberships or not paying i.e bad debt um and the franchisees alleged as the franchise or had operated corporate sites um they knew or ought to have known that excluding that statement meant that the bottom line was misleading so that's just a practical example of one little omission on a document ultimately resulting in a pretty substantial claim being made against a franchisor okay interesting okay we've got a question can we talk about rebate disclosure requirements and where is that something that you're happy to cover um look it is it's got not much to do with misleading and deceptive conduct i guess failure to disclose a rebate would be misleading so the code updates last year included provisions concern requiring franchisors to disclose the existence of any rebates that they receive for example from third party suppliers or introducers and also the aggregate percentage of the money that or the quantum that they receive as a total of the sales or or revenue generated by that third party in the context of misleading and deceptive conduct it could be misleading if that's not disclosed at all um and for example it was later found that the motivator for the franchisor entering into the franchise agreement was the receipt of this rebate and not some other reason um yeah so it's a specific requirement in the disclosure document that should be addressed completely great thanks emma look we've got no other questions at the moment but that doesn't mean that you can't bring up some questions later and i'll talk about strategy sessions at the end so just moving on to our next slide let's talk about um potentially becoming an lv member oh legal vision has a great membership scheme it's called lv pro um it's quite unique in the market and what it is is a membership where you pay a fixed fee on a monthly basis um and as a and you get access to our membership benefits which is um unlimited document drafting and review um legal advice consultations um quick turnarounds for legal work um and basically a full service offering the benefit of legal of lv pro is that it gives you really good cost certainty so know how much you're going to be spending um per month so it really helps with budgeting and you get all of the legal advice that you need to help run your business um members can book in for unlimited consultations um thanks requesting you can request a complimentary consultation today so webinar attendees are eligible to get a complimentary consultation to discuss how we can help with your franchise legal needs um if you've got a question that's arisen out of the presentation that you'd like some more information on also a good opportunity to ask that question so what you can do is book a complimentary consultation it's an offer that's available to our webinar attendees um leave your contact details in the survey um that will appear after this webinar ends and we can reach out to you to arrange that consultation you can also email us at reply at legalvision.com.edu and mention that you watched this webinar great well that brings us to the end of our presentation thanks so much for joining us thanks guys you