Ketchell case hearing set for next week

The long-awaited hearing date for the landmark Ketchell case has been set for Tuesday, June 10 in the High Court. The case is seen by many as precedent-setting and hinges on a New South Wales Court of Appeal finding that a franchise agreement is deemed to be illegal, where the franchisor (Master Education Services Pty Ltd) had not received a written statement from the franchisee (Ketchell) to state that they had received, read, and had reasonable opportunity to understand the franchisor’s disclosure document and the Franchising Code of Conduct.

The Franchise Council of Australia (FCA) has taken-up the issue of establishing clarity for the sector, one way or another, and has agreed to fund the High Court appeal by up to $200,000. Two recent legal cases involving similar issues to the Ketchell case have resulted in entirely opposing views, the most recent of which is the Allphones case (see separate story below).  Read more 

Franchisor dishonestly withheld income from fraudulent franchisee

A Federal Court case against mobile phone retailer Allphones found that it dishonestly withheld $75,000 of mobile phone plan commissions from one of its franchisees, who in turn defrauded the franchisor of $32,000 in royalties by “unlocking” mobile phones, sold them at a higher price than “locked” phones, and pocketed the difference. The case between Allphones and franchisee Craig Hoy’s company Hoy Mobile Pty Ltd, also has implications for the upcoming hearing of the Ketchell case in the High Court, with Federal Court judge Justice Rares dismissing the precedent set by Ketchell in the New South Wales Court of Appeal that a franchise agreement was invalid if a franchisee did not provide a written statement they had received, read, and had reasonable opportunity to understand the franchisor’s disclosure document and the Franchising Code of Conduct.

Describing the Ketchell decision as “plainly wrong” Justice Rares found that the version of the Code in the Allphones case was different from that which applied in the Ketchell case, and that a subsequent legal case demonstrated an error in the construction of the Code.

The timing and significance of the outcome in the Allphones case will not be lost on those parties involved in the forthcoming Ketchell appeal, while Allphones may face a backlash from franchisees arising from the underpayment of commissions. A separate Federal Court action by the ACCC against  Allphones alleges the company failed to comply with the Code, as well as engaged in misleading, deceptive and unconscionable conduct toward its franchisees.  Read more 1;  Read more 2; Read more 3;  Read more 4

Wizard magic wanes as sale options considered

A sale of mortgage broking franchise Wizard Home Loans is likely following a review by owner GE Money amid increasing criticism by its franchisees. Wizard founder and chairman Mark Bouris is reported to be putting together a bid to buy the franchise back from GE Money after selling it to them four years ago for $500 million. Australia and New Zealand are the only countries in the world where international financial services giant GE Money is involved in franchising. Meetings of franchisees in New South Wales, Queensland and Victoria have indicated that franchisees remain passionate about the Wizard brand, but not about GE’s stewardship of the business.

GE Money insists there will not be a fire sale of the business similar to the RAMS sale to Westpac earlier this year, and has not indicated if it would consider an offer from Bouris to buy back the business. Read more 1;  Read more 2;  Read more 3;  Read more 4;  Read more 5

Possible widening of ACCC powers to impact franchising

A possible widening of Australian Competition and Consumer Commission (ACCC) powers to investigate breaches of the Trade Practices Act (including the Franchising Code of Conduct) will have implications for all businesses, including franchisors. Businesses that fail to comply with a Section 155 (S155) notice from the ACCC requesting documents as part of an investigation will be pursued more vigorously. Individuals who fail to comply with S155 requests may be jailed for up to 12 months. Read more 1,  Read more 2,  Read more 3.

RAMS franchisees to butt heads with Westpac

More than one third of the franchisees of mortgage broker RAMS are reported to be on a collision course with Westpac over representations made to them by the previous owners, as well as allegations of misleading representation and unconscionable conduct by the bank itself. The franchisees are reported to be heading for mediation following the bank’s acquisition of the stricken mortgage broking chain in January for $140 million, a small fraction of the price that RAMS listed at when in floated in July last years. RAMS’ share price was decimated just weeks later as a result of the global credit crunch. Read more 1;  Read more 2

Meanwhile Westpac and St George have announced the two banks will merge within six months notwithstanding any regulatory obstacles, in a deal that would create a $60 billion Australian “superbank”, but which will retain the St George brand. Read more 3

Kleins franchisees consider buying stricken franchisor

Up to 70 franchisees have each contributed $1,000 to finance the initial stages of a bid to buy insolvent retailer Kleins, which entered voluntary administration last month with debts estimated at $20 million. Representing about half of the Kleins franchise network, the franchisee bid reported in the Financial Review recently is understood to be one of at least 26 parties who have expressed interest in buying the chain.

Administrators Ferrier Hodgson are yet to hold a second creditors meeting, subject to the sale of the business as a going concern, and have not yet identified a recommended buyer. It is understood that some bidders may only be interested in the retail locations of the Kleins network, rather than continuing to operate the jewellery business itself. With 150 franchisees and 50 company-owned stores, Kleins is the single-largest retail franchisor insolvency since the collapse of the Cut Price Deli chain in the mid-1990’s.  Read more

Franchise case abandoned at “24^th hour” for lack of funds

The acrimonious break-up of tyre franchisor Bob Jane and his former wife Laree came to a head in the Victorian Supreme Court last week when Mrs Jane abandoned her case, claiming she was no longer able to pay for legal representation.

The case centred on claims by Laree Jane that her two Bob Jane franchises were terminated as punishment for the break-up of the couple’s marriage in 2006. The case involved counter-allegations that Mrs Jane had up to 41 credit cards and was an “extravagant spender” who drained her franchises’ bank accounts because she could not live within an $800,000 per year allowance during her marriage. 

News that the case would not proceed despite the two parties coming close to reaching a settlement was broken by Mrs Jane’s brother in-law, who was also a partner in the franchises, after Mrs Jane’s barrister announced to the court her services had been terminated. Security guards were reported to be preparing to repossess the two franchises following the announcement. Read more 1;  Read more 2;  Read more 3;  Read more 4.

Buyers line up for Dairy Farmers

The list of potential buyers for milk franchisor Dairy Farmers continues to grow with the announcement that Japanese-owned National Foods may partner with a local cheese manufacturer to buy the cheese division of the business. Meanwhile other potential buyers include New Zealand-based Fronterra, Italian-based Parmalat, Singaporean-owend Olam International and Canadian-based Saputo. Read more

Murder charges upgraded against master franchisee

A West Australian master franchisee accused of murdering his business partner and gay lover earlier this year has had charges against him upgraded to willful murder. Gerrit Heijne, 44, appeared in court last week via video link from Hakea Prison and pleaded not guilty to the willful murder of his business and life parter Frank Cianciosi, aged 51. Cianosi was found dead in the couple’s apartment on January 4 and Heijne presented himself to police later the same day. The pair were the WA master franchisees for retail poultry system Lenards.  Read more 1;  Read more 2;  Read more 3.

Royalty Reticence: Why franchisees question the payment of royalties

“What am I getting for my royalties?” is a question no franchisor likes to hear, and one which is usually met with a response that involves referring to the franchise agreement.

When established franchisees start to question what they are getting for the royalties they pay, it may indicate a source of potential future conflict with the franchisor based on two possible scenarios:

1. The franchisee is not making money and therefore becomes fixated on reducing expenses to create profit.
2. The franchisee is making money, but of all their expenses, sees royalties as the one which contributes the least to the success of their business.

Click here to read more about how to deal with franchisee reluctance to pay royalties.

Video Ezy Christmas sale humbugged by price guarantee

A 2007 Christmas promotion guaranteeing the cheapest price in Australia on five popular DVD titles was humbug, according to an ACCC investigation which found that the titles could actually be bought elsewhere at an even lower price. Video Ezy has apologized to customers and offered partial refunds of the price difference on the DVD’s. The company has also made court-enforceable undertakings that it will review and update its Trade Practices compliance program, ensure that all future national advertising is checked by a compliance officer, include an appropriate qualification on future price guarantee offers, and include corrective notices in its marketing materials, including 100,000 corrective text messages to customers. Read more 1;  Read more 2

National business name registration announced

Following a meeting of state business ministers last month, the Federal Government has announced in-principle approval to introduce a national business name register that will facilitate the registration of  business names in every state simultaneously. The initiative will also provide for the registration of Australian Business Numbers (ABN’s) at the same time, potentially saving time and money for growing and start-up businesses. Read more

Giant retail landlord acknowledges tenant stress

Retail landlord giant Westfield has acknowledged that some of its tenants are stressed, noting an increase in arrears among some of its 23,000 worldwide tenants at its recent annual general meeting.  Read more

Other franchise news:

- Hungry Jack presses for goodwill to be paid at end of franchise agreements;

- Another bank reduces commissions to mortgage brokers;

- Real estate franchisor equity not enough to save myhome.com.au;

- Borders Australia still for sale; US parent sacks 1% of workforce;

- Fisher & Paykel hit by high steel prices;

- Major changes for FANZ with new board and search for new CEO;

- Sales slump brings mid-year gloom to retailers;

- Pizza Hut celebrates 50 years;

- KFC menu change to introduce grilled, not fried chicken;

- Health Information Pharmacy applies for worldwide pharmacy patent;

- Left-of-centre marketing strategies built Boost Juice;

- Australian eyewear franchisor expands into Thailand;

- Introducing a new product or menu item? Read a McDonalds case study;

Franchise Appointments & Departures:

The Franchise Council of Australia has announced the resignation of Chris Lowe as chief operating officer.

– Made a new staff appointment recently? details to Franchise News & Events (Free service).

Last issue now online:

Missed the last issue? Catch up with recent news from the previous issue of Franchise News & Events, now available online, by clicking here.

Franchise news wanted:

Add Franchise News & Events to your media release distribution list for news about your system. Click here for details of our news requirements. Send all releases to: (Free service).

Subscribe a friend:

Know someone who should also be reading Franchise News & Events? Subscription is free. Just , add their contact details and they’ll be added to the distribution list for future issues.

FRANCHISE JOBS

Positions Vacant:

Franchise Business Executive – Optus World

Do you have an excellent track record in developing & managing franchisees or dealers?  If yes, then Optus wants to hear from you!  Optus is currently seeking an energetic Franchise Business Executive (FBE) to join our dynamic team. As FBE your primary focus will be to manage and develop a select number Optus World Franchises. Developing the strategic direction as well as managing the day-to-day dealings with the franchisees will be a core responsibility.  To be successful you will have solid experience in the following areas: a sales or account management role, building successful multi-level relationships within a sales environment, people management, finance or business planning and exposure to a direct sales environment. 

For more information on these two roles, please contact Karina Ghozali on 02 8082 4043 or send an email to

_______________________________________

Do you have a job vacancy in your system and need to get word to potential candidates already working in the franchise sector? details to Franchise News & Events for inclusion in our fortnightly e-bulletin. (Cost applies – Contact us for details).

Franchise News & Events

An initiative of the Franchise Advisory Centre

Publisher & Editor: Jason Gehrke

For editorial or advertising enquiries, contact:

PO Box 15304

BRISBANE  QLD  4002

Ph: +61 (0) 7 3716 0400

Fx: +61 (0) 7 3716 0300

www.franchiseadvice.com.au

All content copyright 2008, Franchise Advisory Centre.