The 28 August 2025 decision of the Court of Appeal of New South Wales in Netdeen Pty Ltd (t/as GJ Gardner Homes) v Lindfield NSW Pty Ltd[i] highlights important considerations for franchisors when changing a business structure and for franchisees when considering whether to acquire a franchise. It emphasises that all parties need to consider the contractual rights between parties and how they operate when making decisions about their actions.

Franchisors should have consideration to the impact that this may have on their existing contractual obligations. Franchisees need to be aware of whether their existing agreements allow for this possibility and consider this prior to entering into a franchise agreement.

Background

Netdeen Pty Ltd (Netdeen), trading as GJ Gardner Homes is the franchisor of a home building business operating across Australia. Netdeen operated the franchise in a three-layered structure under which there were master franchisees and sub-franchisees.

Lindfield NSW Pty Ltd (Lindfield) was one of the master franchisees pursuant to a Master Franchise Agreement (MFA) executed on 1 July 2014.

In negotiations prior to the signing of the MFA, Mr Matthew Hope of Lindfield insisted on the inclusion of a right for renewal of the agreement, on the basis that a further term would be necessary to gain a profit from the investment.

Ultimately, the MFA included a stipulation that, if Lindfield had complied with its obligations under the agreement, it could renew the MFA for an additional term. Importantly, however, Clause 4.7 provided that Netdeen may ‘refuse to renew the Master Franchise upon ground, honestly and reasonably held, that renewal of the Master Franchise would not be in the best interests of the Franchisor and other… Franchisees and/or Sub-Franchisees.’

The MFA also included a provision that, upon a request for renewal, Netdeen was to provide a current standard form franchise agreement. If the proposed agreement provided was not materially similar to the MFA and rejected by either party, the exercise of the option to renew would be deemed to be withdrawn.

After Netdeen’s growth of market share, profitability, opportunities for franchisees to grow and more franchisees to join the franchise had fallen, Netdeen commissioned expert reports on its business structure. The report recommended that Netdeen exit from the master franchising structure to instead employ a two-layered structure: franchisors and franchisees.

On 3 July 2023, Lindfield gave Netdeen a renewal notice under the MFA.

On 6 July 2023, Netdeen provided Lindfield with a purported current standard form master franchise agreement, as outlined under the MFA. This alleged current agreement was different to its actual standard contract at the time and was markedly different to the MFA and unsatisfactory to Lindfield. Lindfield therefore decided not to respond to the document, which, under the MFA could amount to withdrawal of the renewal option.

However, on 24 July 2023, Netdeen informed Lindfield that they would refuse to renew the MFA ‘in accordance with its rights under part 4’ of the MFA. This decision was premised on the view that it was in the best interests of Netdeen and the sub-franchisees to switch to a two-layered business model.

In November 2023, Mr Hope formed a new, independent building group called Wattle Court with two former sub-franchisees of Netdeen.

On 27 May 2024, Netdeen served a notice of termination of the MFA on Lindfield without notice and, pursuant to the MFA, assigned Lindfield’s rights to itself.

Lindfield subsequently initiated litigation against Netdeen claiming that it had:

breached its obligations under the MFA by failing to consider the best interests of Lindfield; and/or
acted unconscionably, in breach of section 21 of the Australian Consumer Law (ACL), by deceiving Lindfield into believing that there was a real prospect of renewal, when Netdeen actually had no intention to do so.

At first instance in the Supreme Court, it was held that Netdeen had breached its contractual obligations. Specifically, the Court found that Netdeen was in breach of an implied term that clause 4.7 required the consideration of the best interests of Lindfield in rejecting an option to renew.

The Court also deemed that Netdeen had acted unconscionably by deceiving Lindfield into believing that renewal was a real possibility and providing a wholly unsatisfactory proposed franchise agreement.

The matter was then appealed.

Issues

The relevant issues before the Court were:

whether Clause 4.7, properly construed, required Netdeen to consider the best interests of Lindfield;
whether Netdeen acted unconscionably, in breach of section 21 of the ACL;
whether Lindfield had repudiated the contract by establishing Wattle Court.

Court Findings

Whether Netdeen was in breach of the MFA.

Lindfield argued that Netdeen had breached its implied obligation to consider Lindfield’s best interests when exercising its right to refusal renewal. In this instance, moving to a two-layered business model was directly contrary to the interests of Lindfield as a master franchisee.

Netdeen argued that clause 4.7 only required the consideration of either, or both its master franchisees or sub-franchisees, and was thus compliant with its obligations by acting in the interests of sub-franchsiees.

Ultimately, on its interpretation of the MFA, the Court of Appeal held that clause 4.7 has three requirements:

Netdeen must have believed renewal would not be in its own interests as franchisor and must not have been in the interests of its franchisees and/or sub-franchisees;
that belief must have been honestly and reasonably held; and
the belief must have been a substantial reason for the refusal to renew.

The pre-contractual negotiations regarding the importance of the renewal term were not relevant to the construction of the Clause.

The Court of Appeal did not decide on whether Netdeen was in breach of the agreement on its proper construction, instead remitting this issue to be heard at a re-trial.

Whether Netdeen acted unconscionably.

Given that the current standard form franchising agreement presented by Netdeen was substantially different to the MFA, Lindfield argued that Netdeen had acted unconscionably, by misrepresenting its intentions to consider renewal. It argued that, although Netdeen was contractually permitted to provide a materially different proposed agreement, it could nevertheless be unconscionable. Importantly, this claim relied upon a finding that Netdeen had decided upon its refusal prior to providing the proposed agreement.

The Court of Appeal refused to consider the pre-contractual negotiations regarding the importance of the renewal option. The relevant intentions were those displayed in the contract, which included the substantial restriction to this option in cl 4.7.

The Court of Appeal ultimately found that Netdeen had not acted unconscionably. Of particular importance was its determination that Netdeen had not already concluded to reject the renewal option prior to providing the proposed agreement. Additionally, the Court held that providing a proposed agreement that was not its current standard form franchising agreement was itself insufficient to amount to unconscionability, and the Court instead needed to consider the actions of the parties holistically.

It was additionally held that Netdeen could not reasonably have acted in bad faith, given that it made its decision to refuse renewal with respect to the best interests of the parties specified in Cl 4.7.

Whether Lindfield repudiated the MFA.

Netdeen argued that Lindfield, by establishing Wattle Court as a competing construction franchise, repudiated the MFA by indicating an intention no longer to be bound. Netdeen alleged that this repudiation justified its termination of the MFA. Netdeen emphasised that the MFA obliged Lindfield to act in good faith and not to act in a way likely to assist a competitor.

Lindfield contrastingly argued that Netdeen repudiated the contract by purporting to terminate the contract on 27 May 2024 without having followed the requisite notice procedure prescribed by the MFA. As such, Lindfield’s establishment of Wattle Court was not repudiation but instead acceptance of the repudiation undertaken by Netdeen.

The Court of Appeal found in favour of Lindfield on the basis that Netdeen had refused the renewal request on 24 July 2023, prior to the establishment of Wattle Court. It also accepted that, had the establishment of Wattle Court been in breach of the contract, the termination by Netdeen was still invalid due the lack of notice provided.

Significance

The outcome of this litigation stands as a stark reminder of the need for clear drafting in contracts.

The decision also reaffirms the need for franchisors to consider the impacts of a business structure and how to implement desired changes consistent with existing liabilities and obligations.

Moreover, when seeking to end a contract, it is imperative that parties comply with prescribed processes, to protect against any potential counterclaims of wrongful termination or repudiation.

If you wish to discuss this further, please contact:

Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au

Charlie Cooper
Law Clerk
E: ccooper@sladen.com.au