Structure of this research paper.
This research paper attempts to demonstrate:
A.
That “repair” has a particular meaning;
B.
That repairs provided to consumers must reach a certain standard;
C.
That consumers have the right to damages if repairs do not reach that standard;
D.
That a term is implied into a franchise agreement, where the franchise is for the
provision of repairs, that the repairs carried out in accordance with the operations manual will
reach the particular standard that, at the very least, will not give consumers rights to damages.
E.
That a breach of the implied term occurs if a product supplied as part of that system
cannot if used in accordance with the franchise manual enable a repairer to reach the particular
standard in providing a repair service that, at the very least, will not give consumers rights to
damages.
It proceeds on the basis of the implicit assumption that there is a product supplied as part of a
franchise system which:
(a)
is the subject of directions given in the franchise manual, which directions if followed are
supposedly sufficient to enable a repairer to reach the particular standard in providing a repair
service that, at the very least, will not give consumers rights to damages.
(b)
cannot if used in accordance with directions given in the franchise manual enable a
repairer to reach the particular standard in providing a repair service that, at the very least, will not
give consumers rights to damages.
It does not matter whether the product can be used in other situations to produce a good, or even
excellent, result.
Meaning of “repair”.
If the paintwork of a car deteriorates due to ordinary use (wear) and the ordinary operation of
natural forces (tear)1, or wilful or accidental damage, it may need repair. A person or entity that
carries out repairs to products is a repairer.2
“Repair” has a simple English meaning. The Oxford English Dictionary definition is:
verb
[with object]
• restore (something damaged, faulty, or worn) to a good condition:faulty electrical appliances should
be repaired by an electrician
• make good (damage): an operation to repair damage to his neck
• put right (an unwelcome situation):the new government moved quickly to repair relations with the
USA
noun
[mass noun] the action of repairing something:the truck was beyond repair
[count noun]:the abandoned house they bought needs repairs
[count noun] a result of repairing something:a coat of French polish was brushed over the repair
1
. Bunyip Buildings Pty Ltd v Gestetner Pty Ltd [1969] SASR 87 . Wilful or accidental damage is not reasonable wear and tear: Julian v
McMurray (1924) 24 SR (NSW) 402 ; 41 WN (NSW) 92
2
. Read v Nerey Nominees Pty Ltd [1979] VR 47, Stennett v Hancock [1939] 2 All ER 578 ; Haseldine v C A Daw and Son Ltd [1941] 2
KB 343 ; [1941] 3 All ER 156 ; Power v Bedford Motor Co Ltd [1959] IR 391 ; Jull v Wilson & Horton [1968] NZLR 88 .
• the relative physical condition of an object:the hospital is in a bad state of repair
It may be relevant that one can repair accidental or wilful damage to a condition where the repaired
item looks as a similar undamaged item might look - still a worn item however, such as replacing
one dented ten year old car boot-lid with another undented one in the same colour. Whether or not
anyone other than an insurance company would pay for such a second-rate repair is relevant to
the price of the repair.
If the market would support a business that did such a repair then such repairs would have a
market value, as with some windscreen repairs - you can see them but they’re neat and cheaper
than a new windscreen, so people pay money for them. “Invisible mending” as once upon a time
common at dry-cleaning shops is another example, of course it wasn’t invisible but it was much
cheaper than replacing the garment. If a repair is of a quality such that people will pay money for
it - an “acceptable quality” - then a system of such repair might be a subject of a franchise.
Where a product is supplied in connection with a person’s supply of services to a consumer,
guarantees arise that the product will be reasonably fit for its purpose and will be of such a nature,
quality, state or condition that it might reasonably achieve a result that the consumer made known
to the supplier. A consumer guarantee is enforceable in accordance with Part 5-4 of the ACL. In
respect of supply of services, the consumer guarantees extend to require the repairer to render the
services with due care and skill,3 so that they are fit for a particular purpose4 - that is, of
ameliorating the deterioration or damage.
So what is the level the repairs must achieve?
Repair when applied to real estate means a state of repair which, taking into account the age,
character, and locality of the leased premises, would make the premises reasonably fit for
occupation by a reasonably minded tenant of the class likely to rent them:5 It is synonymous with
good repair and habitable repair:6 With respect to repairs to a car it means, by analogy, given the
price of the repair, and the age and character of the vehicle, what a reasonable person would
expect in quality. We can draw a further analogy from the condition of being fit for the purpose or
purposes for which goods or services are commonly bought, having regard to their price, any
description applied to them by the seller and any other relevant circumstance7 The nature, kind, or
character of a thing, (or a service) includes its attributes, properties and special features. The term
does not merely refer to the degree or grade of excellence that a thing can be said to possess
upon physical examination in comparison with others of a similar kind. 8
Further guidance comes from New Zealand: Our Consumer Guarantees in the Australian
Consumer Law9 are based on the ‘guarantee of acceptable quality’ used in s 7 of the Consumer
Guarantees Act 1993 (NZ). This states that goods are of acceptable quality if they are fit for the
purposes for which goods of the type are commonly supplied, and are acceptable in appearance
and finish, free from minor defects, safe and durable as a reasonable consumer would regard as
acceptable, having reference to the nature of the goods, their price, statements and
3
. Australian Consumer Law s 60
. Australian Consumer Law s 61.
5
. Proudfoot v Hart (1890) 25 QBD 42 ; [1886-90] All ER Rep 782 . Luxmore v Robson (1818) 1 B & Ald 584 ; 106 ER 215
6
. Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716 ; [1923] All ER Rep 198
7
. Rasell v Cavalier Marketing (Aust) Pty Ltd [1991] 2 Qd R 323
8
. Ducret v Chaudhary’s Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562 ; 76 ALR 183
9
. The Australian Consumer Law is contained in the Competition and Consumer Act 2010 Schedule 2.(CTH)
4
representations by the supplier or manufacturer and all other relevant circumstances.
What is the appropriate level of the consumer guarantee?
We’ve followed the NZ definition so I’ve looked at NZ cases. There are no reported Australian
cases as yet although the ACCC has launched proceedings against both Harvey Norman and
Hewlett Packard: these are yet to be determined.
10
In Cairney v Ellis Utting Motors Limited the defendant sold an 8 year old BMW with mileage of
85,000 km. The vehicle had suffered numerous problems including a defect with its transmission.
The court found that the defective transmission was a failure of a substantial character as the
vehicle would not have been purchased by a reasonable consumer fully acquainted with the nature
and extent of the defect.
Section 36 of the CGA provides that a failure of a substantial character occurs in relation to
services where:
(a) the services would not have been acquired by a reasonable consumer fully acquainted with the
nature and extent of the failure;
(b) the product of the service is substantially unfit for a purpose for which services of the type in question
are commonly supplied and the product cannot easily and within a reasonable time be remedied to
make it fit for the purpose; or
(c) the product of the service is unfit for a particular purpose, or is of such a nature and quality that the
product of the service cannot be expected to achieve any particular result, made known to the supplier
and the product cannot easily and within a reasonable time be remedied to make it fit for the particular
purpose or to achieve the particular result; or
(d) the product of the service is unsafe.
11
In Cooper v Ashley & Johnson Motors Limited the Court held that the accumulation of more
minor defects which in themselves could not be described as “substantial” could together be a
failure of a substantial character. The Court noted that these defects could accumulate over a
period of months, although it would be unlikely that a Court would allow defects accumulating over
a period of years to be regarded as a failure of a substantial character.
In Nesbit v Porter12, the court determined that goods are of merchantable quality if they are “of use
for any purpose for which goods which complied with the description under which they were sold
would normally be used.” This effectively means that goods are of merchantable quality if they are
“saleable”. This is a lower standard than the “acceptable quality” standard imposed by the CGA.
Accordingly an application of a product as part of a “repair” which:
• does not produce a saleable service; or
• when properly used produces a service with a failure of a substantial character such as
allowing stone chips or scratches under a layer of paint to be clearly visible; or
• produces a service so poor or with a substantial defect, or so many minor defects, that a
consumer would be entitled to damages,
would produce a service which was at least unmerchantable and depending on the number and
quality of the defects, unacceptable.
As I explain below, a franchisor should know that a system it sold could not produce a
merchantable repair. I explain the consequences of this.
10
(DC Auckland, NP 2828-99, 3 Oct 2000, Barber J)
[1997] DCR 170
12
[2000] NZCA 288
11
Implied term in the franchise agreement that the business system works?
An implied term in any franchise agreement would be that the business system sold would if
properly operated allow a repairer to deliver a service of acceptable quality or at least one which
does not breach consumer guarantees. Terms implied by law do not depend on the intentions of
the parties and are implied on more general considerations.13
In BP Refinery (Westernport) Pty Ltd v Shire of Hastings14, the Privy Council listed the five
requirements necessary to be satisfied as follows:
Their Lordships do not think it necessary to review exhaustively the authorities on the
implication of a term in a contract which the parties have not thought fit to express. In their view,
for a term to be implied the following conditions (which may overlap) must be satisfied: (1) it
must be reasonable and equitable; (2) it must be necessary to give business efficacy to the
contract, so that no term will be implied if the contract is effective without it; (3) it must be so
obvious that ‘it goes without saying;’ (4) it must be capable of clear expression; (5) it must not
contradict any express term of the contract.
This statement has been approved by the High Court many times.15
The court needs to be satisfied that implication of the term is necessary in the sense that if the
term is not implied ‘the enjoyment of the rights conferred by the contract would be or could be
rendered nugatory, worthless, or, perhaps, be seriously undermined’.16
Implied Term of Good Faith
A more controversial issue in implied terms is whether there is an implied term in commercial
contracts that parties will act reasonably and in good faith. A majority of the Court of Appeal in New
South Wales held such a term arose in the context of a franchising contract in Burger King
Corporation v Hungry Jack’s Pty Ltd17. The implication of such a term was supported in Victoria in
the context of a franchise agreement in Far Horizons Pty Ltd v McDonalds Australia Ltd18 and by
the Western Australian Supreme Court in the context of a process contract in Dockpride Pty Ltd v
Subiaco Redevelopment Authority19. Doubts as to the existence of such an implied term are voiced
in the Federal Court decision of Service Station Association Ltd v Berg Bennett & Associates Pty
Ltd20, the Western Australian Full Court decision in Central Exchange Ltd v Anaconda Nickel Ltd21,
and in Esso Australian Resources Pty Ltd v Southern Pacific Petroleum NL22, where Buchanan JA,
speaking for the Victorian Court of Appeal, said:
I am reluctant to conclude that commercial contracts are a class of contracts carrying an implied
term of good faith as a legal incident, so that an obligation of good faith applies indiscriminately
to all the rights and power conferred by a commercial contract. It may, however, be appropriate
in a particular case to import such an obligation to protect a vulnerable party from exploitive
13
. Lister v Romford Ice and Cold Storage Co Ltd [1957] AC 555 at 576.
. (1977) 180 CLR 266 at 282-3
15
. For example in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 442; State of New South Wales v Banabelle Electrical Pty
Limited (2002) 54 NSWLR 503 at 521-2 and The Moorcock (1889) 14 PD 64.
16
. Byrne v Australian Airlines, at 450. See Liverpool City Council v Irwin [1977] AC 239
17
. [2001] NSWCA 187
18
. [2000] VSC 310
19
. [2005] WASC 211
20
. (1993) 45 FCR 84 at 95-8; 117 ALR 393 at 404-07
21
. (2002) 26 WAR 33 at 5
22
. [2005] VSCA 228 at [25]
14
conduct which subverts the original purpose for which the contract was made. Implication in this
fashion is perhaps ad hoc implication meeting the tests laid down in BP Refinery v. Shire of
Hastings, rather than implication as a matter of law creating a legal incident of contracts of a
certain type.
In a number of first instance decisions in New South Wales, Barrett J has stated that an implied
term of good faith is included in all commercial contracts.23 As to the meaning of the implied term
of acting in good faith, in Burger King, the Court of Appeal adopted a statement made by Sir
Anthony Mason in which Mason said that the implied term of good faith embraced the following
three related notions:
(1)
(2)
(3)
an obligation on the parties to co-operate in achieving the contractual objects
(loyalty to the promise itself);
compliance with honest standards of conduct; and
compliance with standards of conduct which are reasonable having regard to
the interests of the parties.24
The implied term is more likely to arise where one party is under a special disadvantage.
Generally, conduct that is unfair, unjust, unscrupulous, unreasonable, harsh or oppressive is
capable of being construed as 'unconscionable conduct'. Conduct is deemed to be unconscionable
where it can be seen in accordance with the ordinary concepts of humanity to be so unfair and
against conscience that a court would intervene25 or so unreasonable and oppressive so as to
affront minimum standards of fair dealing26.
A party to a contract cannot act unconscionably. This concept looks at the act, and the
position, of the stronger party.
Unconscionable conduct arguably is a separate ground of relief and is usually taken to refer to the
class of case in which a party makes unconscientious use of his superior position or bargaining power
to the detriment of a party who suffers from some special disability or is placed in some special
situation of disadvantage. In Commercial Bank of Australia Ltd v Amadio Mason J stated that the word
"disadvantage" is qualified by the adjective "special" in order to:
“disavow any suggestion that the principle applies whenever there is some difference in the bargaining
power of the parties and in order to emphasize that the disabling condition or circumstance is one
which seriously affects the ability of the innocent party to make a judgment as to his own best
interests, when the other party knows or ought to know of the existence of that condition or
circumstance and of its effect on the innocent party.” 27
In Blomley v Ryan28, which dealt with diminished capacity through alcohol and age. Kitto J
suggested that equity would intervene:
23
. : Overlook v Foxtel [2002] NSWSC 17 at [62]; Softplay Pty Ltd v Perpetual Trustees (WA) Pty Ltd [2002] NSWSC 1059 at [9]. In
Commonwealth Development Bank of Australia Ltd v Cassegrain [2002] NSWSC 965 at [210], Einfeld J was less dogmatic when he
suggested that such a term ‘will usually be implied by law into commercial contracts made between parties at arms length’.
24
. at [171]
25
Zoneff v Elcom Credit Union Ltd (1990) 94 ALR 445; ATPR 41-058]
26
Commonwealth v Verwayen (1990) 170 CLR 394; 95 ALR 321
27
Peter Strickland Rethinking unconscionable conduct under the Trade Practices Act (2009) 37 ABLR 19 at 20-21. Emphasis in
original
28
(1954-1955) 99 CLR 362
``whenever one party to a transaction is at a special disadvantage in dealing with the other party
because of ... circumstances affecting his ability to serve his own interests, and the other party
unconscientiously takes advantage of the opportunity thus placed in his hands.'' 29
There is no magic in there being a special disadvantage as long as no-one with superior
bargaining power takes advantage of it. A party’s conduct does not become unconscionable until,
knowing that it has a superior bargaining position (and in the case of a franchisor it would be hard
for this not to be the case) and any particular reason why the other party’s position is especially
weak, it takes advantage of the special disability of the other.
The expression “especially weak” does not occur in any judgment, but to the writer it appears that
most people dealing with franchisors are in weaker bargaining positions.
The disability must be sufficiently evident to the other party. The court is looking for actual or
constructive knowledge . The defendant must show that the bargain is fair, just and reasonable to
overcome the onus and uphold a transaction, for example because of the adequacy of
consideration or because there was sufficient independent advice.
In Commercial Bank of Australia v Amadio
30
Mason J stated that:
``... if A having actual knowledge that B occupies a situation of special disadvantage in relation to
an intended transaction, so that B cannot make a judgment as to what is in his own interest, takes
unfair advantage of his (A's) superior bargaining power or position by entering into that transaction,
his conduct in doing so is unconscionable. And if, instead of having actual knowledge of that
situation, A is aware of the possibility that that situation may exist or is aware of facts that would
raise that possibility in the mind of any reasonable person, the result will be the same.''
De Jeannie Patterson writes:
The special disadvantage must seriously affect the ability of a party to protect his or her own
interests. Mere inequality of bargaining power does not constitute a "special disadvantage" in
the requisite sense.31
So, she continues, in Vital Finance Corp Pty Ltd v Taylor 32the borrowers were found to be in a
position of special disadvantage on the grounds that they were impecunious and had general
commercial inexperience and limited understanding.
That “limited understanding” may arise from an imbalance of information.
In National Commercial Banking Corporation of Australia Ltd v Roberts33, a mother and daughter
signed a guarantee and the daughter signed a mortgage over her property to secure borrowings of
a company with which the mother had a business relationship and which the mother was anxious
to ensure would trade out of its difficulties. The bank's primary objective was to discharge the
company's existing debt, not to provide any additional working capital. The Court set the guarantee
and mortgage aside on the basis of unconscionable conduct. Here the special disadvantage
appears to have been the imbalance of information: there was a special and unusual relationship
29
ibid, at 415
30
(1983) 151 CLR 447 at 467; followed, National Australia Bank v Garcia (1996) ASC ¶56-354
31
J.M Patterson, Knowledge and neglect in asset-based lending: When is it unconscionable or unjust to lend to a borrower who cannot
repay? (2009) 20 JBFLP 18
32
[1991] ASC 56-099
33
(1985) NSW ConvR 55-232
between the company and the bank arising from the extraordinary measures the bank took in order
to keep a facade of solvency over the company. Unknown to the mother and daughter, the
company owed a large debt to the bank in respect of which the bank had inadequate security.
Given the facts, the bank owed the guarantors a duty to the guarantors to disclose the information
before taking the guarantees.
A similar imbalance in information was evident in Le Maistre.34 The bank took a third mortgage
over the home of an invalid pensioner and his wife to secure a commercial advance to be applied
in reduction of his mother's business overdraft. The bank commended entry into the transaction to
the son as a good business opportunity, and therein arose the unconscionability: the bank
regarded the mother as impetuous and uncontrollable and knew that she had drawn greatly in
excess of her overdraft limit. The Court held that the bank had acted unconscionably in
recommending the transaction to the son and his wife as to the mother’s extreme unreliability in
financial matters.
Lack of benefit passing to a person whose property is sought to be charged by the Bank under a
security document appears to be the main indication of unconscionability, and the special
disadvantage appears to be implicit in the knowledge of the Bank that a person would not in the
absence of being under such a disadvantage enter into what is clearly such a commercially
improvident transaction, at least in the absence of legal advice. The substance of the judgment in
Spina 35 was that in a dispute between a Bank and a guarantor, if the guarantor knew what the
Bank knew there would be no special disadvantage, and whilst the Bank ought not breach
another’s privacy, that is no excuse for not informing a prospective guarantor when there is a clear
imbalance of information that what looks prudent might not in fact be so.36 Where there is no
imbalance of information the situation is reversed: In Australian and New Zealand Banking Group
Ltd v Karam. 37The bank had lent money to the respondents. Subsequently, the company was in
financial difficulties and further finance was sought. This was granted on condition that the
respondents became personally liable for the company’s debts. Held, the Bank was not acting
unconscionably. Its knowledge of the borrower’s financial difficulties and the extraction of unusual
terms of guarantee was not enough to establish unconscionability in circumstances where the
borrowers were clearly aware of their own mess.
What’s all this banking stuff got to do with a franchise agreement?
This is a simple proposition. The franchisor appears to have been in one of two situations (but this
will have to be proven by the evidence).
The franchisor sells a system incorporating a product which is claimed, if used according to the
operations manual, to produce a merchantable or acceptable result. However, the product does
not work to produce acceptable repairs if used according to the operations manual, although it
may work perfectly well in other circumstances. Some perfectly good glues won’t stick some
items, some perfectly good paints won’t adhere to some surfaces and some perfectly good dyes
won’t work on certain fabrics.
34
National Australia Bank Ltd v. J.P. Le Maistre (1988) NSW Supreme Court 25 March 1988
35
Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326. In similar vein and again where the
improper use of a powerof attorney was involved, see Tyson v Commonwealth Bank of Australia, Supreme Court of New South Wales,
unreported, Giles J, 13 December 1989, BC8901343 at BC page 40.
36
See also Anil HARGOVAN, A lender may wear both belt and braces : Brighten case illuminates law on equitable appointment of
receiver. (2010) 150 10 INSLB 150
37
(2006) ATPR ¶42-089.
It might be that the franchisee is making a mistake and not following the manual… If the product
did work, the franchisor could show the franchisee how it worked and what the franchisee were
doing wrong. For example, the the franchisee is heating the product to 50 degrees Celsius
instead of 50 degrees Fahrenheit, or the franchisee didn’t filter the water and the pH has upset
the mix, or a tool only works if the user holds it in her right hand and the franchisee is left handed.
So we assume that the franchisor can’t get the product to work.
Given that the product does not work to produce acceptable repairs, the franchisor either KNEW
that it wouldn’t work or HAD FAILED TO WORK OUT that it didn’t work. In either case he sold it
representing (telling the franchisee or giving the franchisee to believe) that it did work but without
any good reason to believe himself that what he was saying (or letting the franchisee believe) was
true. That imbalance of information likely puts the franchisee at a special disadvantage (I
haven’t seen the manual or the franchise agreement so I can’t say for sure). Had the franchisee
known that the franchisor had no good reason for saying that a product worked the way the
manual said it did (regardless of how it works in other circumstances) the franchisee would not
have bought a franchise - because doing so would be imprudent. In the absence of such
knowledge, buying obviously appeared prudent because the franchisee bought it. The special
disadvantage arises where the franchisor, here under a duty to reveal that the product does not
work if used as directed, conceals or fails to reveal the fact.38
The actions of the franchisor are also likely to be unconscionable.39
However we may not need to show that a franchisee is in a a category of special disadvantage
when there is an implied duty to act in good faith, as I have discussed above. Good faith is a
relatively new court legal principle in Australia, which has established a firm grip in the state of
New South Wales according to other decisions such as Hughes Bros Pty Ltd v Trustees of the
Roman Catholic Church for the Archdiocese of Sydney40. In some judges' opinion good faith
must be considered as a matter of law. As Finkelstein J said: “recent cases make it clear that in
appropriate contracts, perhaps even all commercial contracts, such a term will ordinarily be
implied; not as an ad hoc term (based on the intention of the parties) but as a legal incident of the
relationship’41
Non-consumer transactions are not precluded from being the subject of special disadvantage.
Owen, J said in Bell v Westpac.
… a corporation (admittedly a small family trustee company) may suffer from a 'special disadvantage'
[and] a desperate financial situation from which the company was attempting to escape might, in some
circumstances, constitute special disadvantage. But it will still be necessary for the plaintiffs to
demonstrate the existence of special disadvantage. 42
Should you have tested before you bought?
In Myers v. Trans Pacific Pastoral Co. Pty Ltd43 the vendor, through oral and written statements,
created the impression that certain land was suitable for growing flowers and vegetables
38
. HARGOVAN, (2010) op cit.
39
. It may also be a misrepresentation- Jennings v Zilahi-Kiss (1972) 2 SASR 493, depending on what the franchisee were told and
what the manual says. Because of the strength of my findings on special disadvantage, lack of good faith and unconscionability I have
not researched this further.
40
. (1993) 31 NSWLR 91
41
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41‐ 703, 43‐ 014
42
The Bell Group Ltd (In Liq) -V- Westpac Banking Corporation [No 9] [2008] WASC 239 at 1281
43
. Myers v Trans Pacific Pastoral Co Pty Ltd (1986) ATPR 40-672
commercially and this was found to have induced the purchasers to sign a contract. The land was
totally unsuitable for this purpose and any physical inspection would have revealed this fact.
The purchasers lived at Gosford in New South Wales. They had written to the agent in Queensland
and agreed to buy the land without having inspected it. Pincus J. held that the agent in fact made
statements, and that although they were misleading, they did not amount to fraud. His Honour took
into account the "irrational enthusiasm" of the purchasers in entering a contract without physically
inspecting the land. However, His Honour came to the view that the misleading statements were a
substantial factor in inducing the purchasers to contract, that they had placed reliance upon the
statements as to the quality of the land without their own inspection, so were still entitled to relief.
There has to be some conduct on the part of the vendor which positively asserts to an obviously
ignorant purchaser that a certain state of facts exists when it is plainly untrue.44
Whilst things change according to the facts of individual cases, the general rule therefor is that the
harder it is for you to carry out your own tests, and the greater the franchisor’s conduct and
representations, the less responsibility to check for yourself.
Accordingly it is likely that a court would imply an obligation of good faith in respect of the
incorporation of a licence of a repair system into a franchise agreement, that the repair system
would if used or implemented as described in the franchise manual produce a repair of a quality
which would not breach a consumer guarantee. The franchisor cannot avoid this by saying, “Well,
if you had tried the system yourself before buying you would have discovered its limitations.”
Conclusion
(1) There is an implied term in most franchise agreements requiring at least honesty and
possibly as much as good faith.
(2) The implied term in most franchise agreements requiring at least honesty and possibly as
much as good faith requires that the product being sold as part of the repair system will achieve
the results specified in the operations manual if applied in accordance with the manual, so as to
produce a service which is of at least merchantable quality and if for sale to consumers of
acceptable quality so as not to breach a consumer guarantee.
(3) It follows that if the product being sold as part of the repair system does not, if applied in
accordance with the manual, produce a service which is of at least merchantable quality and if for
sale to consumers of acceptable quality so as not to breach a consumer guarantee (which is
presumably less than the results specified in the operations manual, because who would pay
money for a system which produced only a minimal result?) then the franchisor is in breach of the
franchise agreement.
44
. Laurence v. Lexcourt Holdings Ltd,[1986] ATPR 40-672.