RFG class action dropped but new controversy emerges

Inside Franchise Business: Retail Food Group's fast growth through acquisition was highlighted in the franchising report
Inside Franchise Business: Retail Food Group’s fast growth through acquisition was highlighted in the franchising report

The class action against embattled Gold-Coast based franchisor, Retail Food Group (RFG) has been controversially dropped after the law firm representing the franchisees failed to secure litigation funding.

Bannister Law said in a statement that was released earlier this week, that after reviewing documentation, and based on the merits of the case, it had been unable to secure funding and decided not to pursue the case on the franchisees’ behalf.

While the news has been positive for RFG investors, with shares up 5% in intraday trading to 51c, new controversy has been sparked by franchising consulting company, Franchise Redress.

Michael Fraser, spokesperson for Franchise Redress, who were publicly affiliated with Bannister Law in their RFG investigations, said that the law firm was unresponsive to both Franchise Redress and the franchisees it represented.

“On a number of occasions, RFG franchisees informed us they attempted to make contact with Bannister Law to pass on evidence that would assist investigations. These franchisees said they never received a response from Bannister Law.”

Fraser then likened the lack of response to Franchise Redress’ own dealings with the firm.

“Their experience is consistent with our own attempts to set meetings with Bannister Law to put them in front of key people who could provide crucial evidence, to which we received no response.”

Bannister Law’s decision to drop the class action was initially seen as a win for RFG, however the statement from Franchise Redress suggests that many franchisees are dissatisfied with Bannister Law’s handling of the case.

“A number of franchisees have expressed concern that Bannister Law came to a conclusion without viewing much of the evidence.”

In a submission published by former RFG franchisee, Baden Burke, Burke accuses RFG’s former CEO and senior management team of coercing him into taking several loss-making corporate stores off the franchisor’s books.

Burke alleges he received financial incentive from RFG until the franchisor’s Gloria Jeans acquisition was complete.

“I recall conversations with the CEO where he was telling me that he was having trouble getting finance for the Gloria Jeans acquisition and I later realised that setting me up with a Management Agreement was a calculated plan engineered to shift the loss-making stores off book,” Burke said.

The submission details how RFG, who had not acquired any brands for over two years, rapidly ramped up their acquisition efforts immediately following the commencement of Burke’s agreement.

Maddison Johnstone, Franchise Redress investigator said submissions like Burke’s could have been pivotal to the class action.

“We attempted to put Bannister Law in touch with franchisees who were in possession of key evidence, but our communication was often ignored,” Johnstone said.

Charles Bannister, principle of Bannister Law said in a letter to franchisees seen by Inside Franchise Business, “If you feel you are affected and wish to continue pursuing an action retail Food Group, we suggest contacting your state tribunal”.

Ian Neil, Director of Litigation at McCarthy Durie Lawyers, says the ball is now in the franchisees court.

“The franchisees have the entitlement to take their own legal actions,” Neil said.

“They can also consider requesting the ASIC (Australian Securities and Investments Commission) to take a representative action on their behalf.”

Despite Bannister Law’s decision to drop the class action, Johnstone said Franchise Redress would continue their investigation.

“Our investigation into Retail Food Group has been ongoing since October 2017,” Johnstone said.

“Franchisees are contacting us with concerns around behaviour of current RFG representatives, financial hardship from running their stores, and food quality, among others. While franchisees continue to contact us with problems, our own investigations into RFG will continue.”

RFG, whose portfolio of franchises include Gloria Jeans, Michel’s Patisserie and Donut King are also currently facing scrutiny at the Parliamentary Inquiry into the Franchising Code of Conduct.

A spokesperson for RFG was contacted but declined to comment.