‘Potential’ and ‘anticipated’ are among the most high-risk words that should be avoided by franchisors in their representations on future matters to prospective franchisees.
In a webinar on limiting liability for franchisors in their representations on future matters, Bill Morgan Morgan Mac Lawyers highlighted the importance of knowing what can and cannot be said in negotiations leading up to the signing of a franchise agreement.
He said ‘potential’ and ‘anticipated’ were two key words to avoid during this time when making representations about future financial performance as well as other matters such as site selection.
Mr Morgan told the webinar audience that while the term future matters was not clearly defined in Australian Consumer Law, it had major legal ramifications for franchisors in their representations to franchisees.
In order to minimise future legal risks of misleading conduct, he said franchisors should stick to statements of what is ‘hypothetically possible’ on representations on future matters, rather than specific predictions relating to a particular franchisee or location.
It is very important to make the distinction in your language between what is hypothetically possible as opposed to saying what may occur for that individual franchise, he said.
Mr Morgan also highlighted the importance of the term ‘reasonable grounds’ in the defence of cases of misleading conduct relating to representations on future matters, and he cited a number of landmark franchise sector examples of court rulings in this area.
He said reasonable grounds can provide a concession in the favour of franchisors, as long as they have the documented evidence to support it.
As Mr Morgan explained, if the franchisor had reasonable grounds at the time to make the representation then it can be judged to be not misleading.
However, the ‘evidential burden’ is on franchisors to produce documentation that supports the reasonable grounds on which the representations were made at the time.
Bill Morgan is a partner at Morgan Mac Lawyers. Bill has been involved in complex commercial litigation for over 20 years including numerous proceedings in the Federal Court of Australia and the Supreme Court of Queensland, with particular emphases on consumer protection litigation, franchising disputes, contractual disputes, property disputes and insolvency and bankruptcy proceedings.
In any dispute his focus is to understand each client’s legal and commercial objectives and to implement and efficient and cost effective strategy that maximises a client’s prospects of resolving the dispute and achieving the best outcome in the circumstances. He has enough experience to know that in litigation success in a court hearing cannot be guaranteed but that the application of legal skill will give a client an advantage and the best prospects of obtaining successful judgement from the Cort or achieving a suitable negotiated settlement outside Court.
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