Misleading disclosures of financial information to prospective franchisees
A bunch of angry franchisees has lost its fight against the Bank of Queensland (BOQ) over claims they were deceived into buying their BOQ franchises. According to the franchisees (many of whom had failing businesses), BOQ was misleading and deceptive while negotiating their franchise agreements.
The franchisees claimed that, while wooing them, the rep for BOQ made sweeping hypothetical comments about how to make their franchise businesses profitable, but stayed silent on the actual (poor) financial performance of existing franchises.
There is a simple rule when disclosing information, but in particular to prospective franchisees: make sure it's correct. We're sure Sam Frost wishes Blake the Bachelor had let her know he wasn't in love with her before he proposed. It's easy for franchisors to get this right though, thanks to the super prescriptive Franchise Code. But, we get it; franchisors have carefully scripted marketing spiels for their reps to rattle off when luring new franchisees. Despite how awesome this spiel may be franchisors need to make sure that:
- any representation made can also be found in the disclosure document;
- the reps don't start adding extra love to the spiel by including their personal opinion; and
- reps are totally across what they can and can't say to potential franchisees.
The BOQ franchisees lost their case because the Court of Appeal found that BOQ didn't mislead or deceive them. The Court found that the rep's comments weren't actual or reliable figures and BOQ had been very clear about how to get information on the performance of current franchisees. It helped that BOQ constantly reminded the franchisees that it didn't make any predictions about the possible success of their business. Top marks for compliance.
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