Background
Sech Finance Pty Limited, as trustee for the Sech Finance Trust, operated a RAMS mortgage-broking franchise at Fairfield under a five-year agreement with RAMS Financial Group Pty Limited. Daniel Lubarda was its principal. The business depended on authorised credit representative arrangements that allowed Sech, Lubarda and relevant loan writers to provide credit assistance through the RAMS network. Westpac Banking Corporation, RAMS’ parent company and the lender for RAMS-branded home loans, subjected Fairfield applications to heightened review after identifying concerns involving supporting information, responsible lending, referrers and regulatory risk.
Westpac recommended action against Fairfield, and RAMS revoked the relevant credit representative authorisations before taking steps toward terminating the franchise. The applicants alleged that RAMS breached the franchise agreement and the Franchising Code’s obligations of good faith by acting without genuinely exercising its own judgment and without giving them a meaningful opportunity to answer the accumulated case against the franchise. This initial trial addressed liability and causation, but not the monetary amount of any damages.
The Court’s Holding
Justice Lee held that RAMS breached its obligation of good faith. RAMS was entitled to give substantial weight to Westpac’s genuine regulatory and commercial concerns, but it had to exercise its own contractual powers in good faith. Its decision-maker had identified a material deficiency in the information supporting Westpac’s recommendation, was told that Westpac had supplied everything it could disclose, and nevertheless completed the evaluative process without resolving that deficiency or giving the applicants a meaningful opportunity to address the substance of the accumulated concerns.
The Court rejected the separate unconscionable-conduct claim and found no additional basis for relief under an implied obligation of cooperation. It also rejected the applicants’ contention that, absent the breach, Fairfield probably would have operated normally for the balance of its term or secured a renewal. Instead, the breach caused the loss of a real but limited commercial opportunity for the franchise to continue for a useful period under heightened scrutiny. The Court assessed the probability of that outcome at 12.5%, leaving monetary quantification and several issues concerning termination and relief for later determination.
Key Takeaways
- A franchisor exercising contractual powers that can end a fixed-term franchise must comply with applicable express and statutory duties of good faith.
- Reliance on a related lender’s recommendation was permissible, but RAMS still had to exercise its own power genuinely and address a material information gap in its decision-making.
- The compensable loss was a 12.5% chance of commercially useful continuation under heightened scrutiny, not the value of an ordinary franchise continuing through the full term or beyond it.
Why It Matters
The decision illustrates that good faith does not authorize a general merits review or invariably require a formal hearing. In context, however, a decision-maker’s unresolved concern about the evidentiary basis for drastic action—and the absence of a meaningful chance to answer the accumulated case—can make the exercise of contractual powers improper.
It also demonstrates the restrained valuation of lost commercial opportunities. Even after establishing breach and causation, a claimant may recover only the probability-adjusted value of the limited outcome that a proper process realistically could have produced.