Shares in Retail Food Group hit 28 cents after court decides company mislead Michel’s Patisserie franchisees

GOLD Coast franchisor Retail Food Group has lost a five-year legal battle against a Townsville couple who spent more than $200,000 on a failed Michel’s Patisserie store. The timing couldn’t be worse for the struggling Southport company.

Michel’s Patisserie & Café.

GOLD Coast franchisor Retail Food Group has lost a five-year legal battle against a Townsville couple who spent more than $200,000 on a failed Michel’s Patisserie store.

The decision comes just days before the release of RFG’s half-yearly results, which are expected next Thursday.

Shares in the company dipped 6.67 per cent to a new low this afternoon, touching 28 cents by 2pm.

In a 71-page judgment, District Court Judge Jennifer Rosengren found the Southport company had made misleading claims to Frederick and Karen Guirguis about the quality, range and frequency of delivery of products from Brisbane to their Townsville store.

She also found RFG engaged in misleading and deceptive conduct by not informing the couple its Brisbane-based bakery supplier was in financial difficulty.

The supplier went into liquidation just before their store opened in May 2012, meaning the frozen Michel’s cakes had to travel 2000km from Sydney, often leaving them in poor condition.

Michel's Patisserie is one of RFG’s brand systems.

RFG LOGS $306.7 MILLION FULL-YEAR LOSS

Court documents said one entire shipment of cakes had to be thrown out after inconsistent transport methods left them unsellable, with Mr Guirguis warning RFG his store would be “broke by December” if the issue wasn’t sorted.

The couple were forced to cease trading in July 2013 after copping losses of more than $37,000, and they first launched court action the same year.

The first judge dismissed their claims, but the couple won an appeal in 2017 and it was retried.

Judge Rosengren upheld the couples’ claims, finding Ms Guirguis would have earned $41,000 including super if she had stayed in her role as a hairdresser.

Lost wages for Mr Guirguis, who left a $250,000 role at construction company 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.

There has been speculation RFG is attempting to sell its Pizza Capers brand.

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In defending the claim, RFG said its representations about the potential of the store and effectiveness of the supply chain “were mere puffery” and were not supposed to be taken literally.

But Judge Rosengren disagreed, saying she did “not accept that any of the established representations can be characterised as mere puffery in the various contexts in which they were made.”

“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 and other costs.

Before making formal orders, Judge Rosengren invited submissions from the parties “as to the form of the orders and the orders that should be made for interest and costs”.

A statement from RFG said the 2012 matter concerned events that were “unique to the case” and that they were considering their legal options.

“It was initially tried in the District Court in 2016, where (RFG) was successful in its defence,” it said.

“Given this, we are disappointed with the District Court’s most recent decision, and are engaging with our legal advisors regarding those options which may be available.”