$400k Michel’s Patisserie disaster
A Queensland couple who spent more than $200,000 on a failed Michel's Patisserie store has won a long-running legal battle against franchise giant Retail Food Group.
A Brisbane court on Friday ruled that RFG breached Australian Consumer Law by making misleading representations to Frederick and Karen Guirguis about the quality, range and frequency of delivery of products from Brisbane to Townsville.
It also found RFG engaged in misleading and deceptive conduct by not informing the couple before signing the contract of financial troubles at Brisbane-based bakery supplier Dyson, which went into liquidation shortly before they opened their store in May 2012.
That meant rather than the 1400km journey from Brisbane, the frozen cakes had to be shipped all the way from Sydney by truck - a journey of more than 2000km - often arriving in poor condition.
"If the cakes are going to be just cooked and then put in the plane freezer, I'm not interested at all because that's going to have an after-freezer taste," Mr Guirguis recalled telling the RFG representative.
In his evidence, he claimed he was told: "No, it's snap frozen and when we defrost it, it tastes like it was good that very morning, and they'll be transporting the goods up in freezer trucks as well."
The court heard how within weeks of the Townsville store opening, Mrs Guirguis noticed the cakes were arriving damaged, defrosted and spoiled.
Special order birthday cakes frequently arrived late or not at all.
"So now our large cakes take way too long to get to our store, we can't have icing sugar, cream or photos on the cakes," Ms Guirguis wrote in an email to RFG in July 2012.
"They arrive thawed out and most (I have all the photos to prove this) of the cakes, small and large, arrive in a poor state so bad that most can NOT be sold. Also as I have stated before some of your products are just too dry and we get a lot left on the plate or returned."
The court heard there was "no consistent process" for the delivery of products between Sydney and Townsville and sometimes they were "unloaded and reloaded along the way and there was often more than one transport company involved".
In one case an entire order had to be thrown out after arriving in a fridge, not a freezer truck.
Mr Guirguis emailed RFG in September 2012 indicating they would be "broke by December", and that they had been forced to make sandwiches to fill their display cabinets.
The couple abandoned the store in July 2013 amid trading losses of more than $37,000. Mr Guirguis said he was told a small store could turn over $12,000 per week.
They launched legal proceedings against RFG in September that year and the matter was heard in April 2016 in the Brisbane District Court.
The first judge dismissed their claims, but in 2017 they won the right to an appeal.
The case was retried in May and June last year by Brisbane District Court Judge Jennifer Rosengren, who on Friday found in favour of the Guirguises.
"The plaintiffs' claims have been successful and the defendants are liable," she said.
In total, the couple paid an initial franchise fee of $72,000, fit-out and equipment costs of $142,000 and transaction costs of $3900. They also incurred borrowing costs of $42,000.
Judge Rosengren found Mrs Guirguis would have earned $41,000 including super had she remained in her role as a hairdresser.
Lost wages for Mr Guirguis, who left a $250,000 role at engineering firm Laing O'Rourke to run the patisserie, were calculated at $64,000 including super.
Including the trading losses from the store, that would bring their total losses to about $405,000, not including interest and legal fees.
In its defence, RFG submitted that the representations made to Mr Guirguis "were mere puffery" - a legal term for marketing claims that aren't supposed to be taken seriously.
"I do not accept that any of the established representations can be characterised as mere puffery in the various contexts in which they were made," Judge Rosengren said.
"They were as to the kinds of products to be supplied to a potential franchisee for retail sale by it, the reliability and frequency of that supply from Brisbane and the quality of those products upon their receipt in Townsville. They were significant definitive statements."
Judge Rosengren said at the time of the negotiations, there was no evidence RFG had delivered the promised range of products to locations as remote as Townsville. "This was essentially uncharted territory," she said.
"It follows that RFG did not have reasonable grounds to make the oral representations. I am therefore satisfied that they should be characterised as 'conduct that is misleading or deceptive or likely to mislead or deceive'."
Judge Rosengren dismissed a counterclaim by RFG seeking $651,000 for unpaid franchise fees, marketing contributions and other costs.
Before making formal orders, Judge Rosengren has invited submissions from the parties "as to the form of the orders and the orders that should be made for interest and costs".
A spokeswoman for RFG said the matter "concerns events that occurred in 2012, which we consider are unique to the case".
"It was initially tried in the District Court in 2016, where the franchisor was successful in its defence," she said.
"Given this, we are disappointed with the District Court's most recent decision, and are engaging with our legal advisers regarding those options which may be available to the franchisor."
A lawyer for the Guirguises declined to comment.