Mexican restaurant chain Guzman Y Gomez says any losses incurred by a former Kennington franchisee stem from the franchisee's failure to take reasonable care - not unconscionable conduct and misleading representations on behalf of the company as alleged.
Andrew John Hodgson and his company are suing Guzman Y Gomez in the Supreme Court for damages and losses of almost $1.76 million in relation to the Kennington outlet, which they operated in 2018.
Mr Hodgson's company and Guzman Y Gomez entered into a franchise agreement on January 29 last year, with discussions having begun in April 2017.
Mr Hodgson claimed the Kennington restaurant incurred operating losses of about $530,000 from January 1 to July 26, 2018.
A defence filed this month denied Mr Hodgson's claims Guzman Y Gomez and executive director Robert Hazan pressured him to invest in and operate the Kennington restaurant.
Mr Hodgson alleged Mr Hazan said words to the effect, "If you don't sign up for Kennington, I'll be offering to other approved franchisees and also take it to market", but this too was denied.
Mr Hazan also allegedly told Mr Hodgson that Guzman Y Gomez would cap the building costs at $990,000, and cap start-up costs at $900,000.
The statement of claim said the plaintiffs spent about $1.3 million on building and establishing the store, including more than $1 million on building and fit-out.
The company admitted Mr Hazan said Guzman Y Gomez would cap standard construction costs at $990,000 including GST, but said further costs the plaintiffs incurred were non-standard.
It was denied Mr Hazan said start-up costs would be capped at $900,000.
Mr Hodgson said he told Mr Hazan his primary consideration in running a restaurant was its profitability, and for that reason he was prepared to move to anywhere in Australia.
This too was a claim denied in the defence.
The statement of claim filed on behalf of the plaintiffs said Mr Hazan provided a real estate approval document that forecast sales for the restaurant at $60,000 per week.
A real estate document sent to Mr Hodgson did forecast weekly sales at $60,000, the defence said, but noted the drive-through layout was "not ideal" and sales might be compromised.
The defence claimed it later sent, in response to a letter from Mr Hodgson, a projected profit and loss statement for the site that estimated weekly sales at $60,000, with a 20 per cent range either side.
More court news: Company to stand trial on cartel charges
But it said the plaintiffs were told the historical information on which the projection was based was not verified, and was provided for indicative purposes only.
Guzman Y Gomez claimed it did not represent that the information indicated future turnover or profitability, and Mr Hodgson agreed he would not rely on the statements to make a decision on the Kennington site.
The defence alleged Mr Hodgson later provided Mr Hazan with his business plan, which stated he was the person responsible for completing due diligence, and forecast weekly sales at a low $48,000, medium $60,000 and high $72,000.
Guzman Y Gomez said the franchise agreement entered into in January last year contained clauses in which it was agreed Mr Hodgson's company had independently researched the viability of the Kennington site, had not relied on any statement, representation or warranty, other than those in the agreement and disclosure document, and assumed responsibility for the success or failure of the restaurant.
More business news: Winemakers harvest after summer roasting
The plaintiffs also claimed the drive-through designed, approved and built by Guzman y Gomez was defective, and detrimental to the restaurant's sales and reputation.
They also said works to rectify the drive-through were not effective.
But the defendant said the drive-through was designed and built not by Guzman Y Gomez, but the landlord and their contractors.
Guzman Y Gomez denied the drive-through was defective because it was always possible to use it, and the rectification works addressed the issues observed by the employee who had brought them to Mr Hodgson's attention.
The company also denied it was motivated to urgently find a franchisee to avoid paying rent as under a previous franchise agreement, the franchisee was liable to pay rent at the end of fit-out or commencement or trade, and the fit-out of the store was not finished until February 2018.
More court news: Driver clocked at more than 100 km/h in 60 zone
The defence rejected claims Guzman Y Gomez made representations the Kennington site was the best site in Australia for the plaintiffs; the Kennington restaurant would operate profitably; sales would be no less than $60,000; and the total cost to the plaintiffs of building and establishing the restaurant would be no more than $990,000, with other costs of $110,000.
The plaintiffs said they relied on and were induced by these representations to enter into the franchise agreement, and were it not for these representations, they would not have done so.
They alleged the company contravened the Competition and Consumer Act, having acted in bad faith by pressuring Hodgson to enter into a franchise agreement and not disclosing its wish to find a franchisee to avoid paying rent.
The plaintiffs also claimed Guzman Y Gomez engaged in unconscionable conduct.
They said they were vulnerable to the company in relation to financial information, and the company took advantage of that by supplying inaccurate information.
Guzman Y Gomez rejected these claims, claiming Mr Hodgson was an experienced food service operator with access to legal, business and accounting advice.
At a directions hearing on Friday, Justice Peter Riordan ordered both parties to file their witness statements in May and June.
The matter will return to the Supreme Court in July for another directions hearing.
Have you signed up to the Bendigo Advertiser's daily newsletter and breaking news emails? You can register below and make sure you are up to date with everything that's happening in central Victoria.