Straining basic tenets of contract law, Justice Gault accepted variations to a Gloria Jean’s Coffee franchise were enforceable despite operating to the overwhelming benefit of the franchisee.
In March 2012, Darina Borisova moved to New Zealand from Russia to study English. Within twelve months she was negotiating the purchase of a Gloria Jean franchise in Auckland’s central business district. What exactly were terms of this franchise agreement came to trouble the High Court seven years later. An initial franchise agreement dated April 2013 was markedly different from a replacement franchise agreement agreed one month later: May 2013. The first had the Gloria Jean franchise expire in October 2022; the second an April 2018 expiry date. Ms Borisova’s announcement in 2018 that she was no longer paying franchise fees came as a surprise to Gloria Jean. The master franchise’s new owner had not been aware of any negotiated variation. It claimed the May 2013 replacement agreement was a sham. All signatories to the second agreement agreed in court to circumstances of its signature; new owners of the Gloria Jean master franchise had no knowledge of events in 2013.
Justice Gault accepted the second franchise agreement, expiring in April 2018, was the operative agreement. He questioned whether this second agreement was enforceable; for lack of consideration. General rules in contract law require each side provide a benefit to the other before promises are enforced. In legal jargon, ‘consideration’ is required.
The second franchise agreement promised a benefit to Ms Borisova (a quicker exit from the franchise); there was no apparent benefit to Gloria Jean. Justice Gault ruled Gloria Jean enjoyed a ‘benefit in practice.’ There was evidence Ms Borisova’s husband, then still in Russia, was refusing to remit funds to New Zealand unless the franchise term was reduced. Following agreement to a shorter franchise period, money was sent to complete the purchase.
The court ordered payment to Gloria Jean: franchise fees totalling $56,500 unpaid up to the April 2018 expiry date; plus interest for late payment.
Gloria Jean’s Coffees International Pty Ltd v. Daboko Ltd – High Court (28.01.20)
20.022