A franchising joint venture gone wrong: key takeaways from SHRL Ventures Pty Ltd v Pedro-X Pty Ltd
The Supreme Court of Queensland recently handed down its decision in SHRL Ventures Pty Ltd v Pedro-X Pty Ltd [2026] QCA 119. The decision provides useful guidance on several areas of law, including the interaction between joint venture agreements and franchise agreements, and when duress and unconscionable conduct will void an agreement. The case also provides a clear example of oppressive conduct. For franchisees and franchisors, the decision acts as a clear reminder of the need to conduct business affairs in an appropriate manner.
Background
The dispute follows Tweed Head Logistics Pty Ltd (Logistics), a company jointly formed by SHRL Ventures Pty Ltd (SHRL) and Pedro-X Pty Ltd (Pedro-X) pursuant to a joint venture agreement (JVA), to acquire and conduct a Pack & Send franchise in Tweed Heads.
Pedro-X was controlled by Gus and Parvine Augustine and SHRL was controlled by Havin Grewal and Sarjbit Singh. Each company had a 50% shareholding in Logistics.
The joint venture was short lived, with the parties operating the franchise from around 2 July 2022 to 18 August 2022.
During that time, it was alleged that Mr Grewal routinely bullied Mr Augustine and failed to attend to the affairs of the business with sufficient diligence.
On 18 August 2022, Mr Augustine met with Mr Singh to convey his dissatisfaction with Mr Grewal’s performance. During that meeting on oral agreement was reached under which Pedro-X would sell its interests in Logistics to SHRL in return for its investments and its share of the profits made to date (Buy Out Agreement).
A further meeting occurred on 27 August 2022 for Mr and Mrs Augustine to sign the necessary transfer documents to give effect to the Buy Out Agreement. However, during the meeting Mr and Mrs Augustine declined to sign the transfer documents. Notwithstanding that the transfer documents had not been signed, Mr Singh contacted the franchisor to inform them that the JVA had been terminated and that SHRL had assumed full control of the store to the exclusion of Pedro-X.
Pedro-X brought a claim arguing breach of contract, duress, unconscionable conduct and oppression.
At first instance, the Court held in favour of Pedro-X in relation to each argument, however SHRL appealed on several grounds.
Issues
The Court considered each argument in turn, namely whether:
SHRL breached the JVA through Mr Grewal bullying Mr Augustine and not attending to the business of Logistics;
SHRL acted unconscionably by unconscientiously taking advantage of Pedro-X;
the Buy Out Agreement was induced by duress; and
SHRL acted in an oppressive manner towards Pedro-X as shareholder.
The Court also considered the appropriate remedy for each issue.
Decision
The Court ultimately dismissed all the points of appeal with costs, finding in favour of Pedro-X on each issue.
Breach of Contract
Mr Grewal’s bullying was found to breach various provisions of the JVA, including a requirement that the parties conduct themselves ‘in accordance with sound and good business practice and the highest ethical standards’ and an implied obligation of good faith.
It also constituted a breach of a clause in the franchise agreement requiring the franchisee to ‘exercise its best endeavours in the conduct of the Business to promote the business interests of the Franchisor and the Franchisee’.
SHRL argued that it was not a contracting party to the franchise agreement and therefore could not be held in breach of that agreement. However, the Court rejected this argument on the basis that it was a term of the JVA that where a party fails ‘to adhere to the core business or fails to promote the core business or fails to adhere to the standards as set out by the Franchisor Venture [it] shall be deemed to be in default of [the JVA]’.
In effect, the JVA incorporated compliance with the franchise agreement as a term of the JVA itself, meaning that SHRL breached its contractual obligations.
SHRL also argued that the actions of Mr Grewal were his personal acts or undertaken in his capacity as an employee of Logistics and were not attributable to SHRL.
The Court again rejected this argument on the basis that the JVA required SHRL to take positive steps to achieve various objectives; the means by which SHRL sought to perform those objectives was through Mr Grewal. Accordingly, Mr Grewal’s bullying and non-attendance to the business of Logistics were not merely personal acts, but acts attributable to SHRL.
A final issue to be determined in relation to the breach of contract allegation was whether those breaches gave rise to a right to terminate the contract, including as a result of it constituting repudiation.
In this regard, the Court outlined that a right to terminate arises if a party’s conduct ‘amounts to a renunciation of the bargain, in the sense of conduct which evinces an unwillingness or an inability to render substantial performance of it’.
The Court acknowledged that the short duration of the breach, the lack of financial detriment suffered by Logistics or Pedro-X and the fact that a manager was subsequently appointed all cast doubt on whether the conduct was a renunciation of the contract. However, on balance, the Court determined the conduct to be repudiatory as the systemic breach undermined the necessary cooperation central to the agreement.
Pedro-X was found to be entitled to terminate the contract and claim loss of bargain damages, being those assessed to put Pedro-X in the same position it would have been in had the JVA been performed.
Unconscionable Conduct
Section 20 of the Australian Consumer Law prohibits a person from engaging, in trade or commerce, in conduct that is unconscionable within the meaning of the unwritten law.
This section codifies the equitable test for unconscionable conduct. Equity prohibits a party from engaging in conduct that involves the unconscientious taking advantage of some disabling condition or circumstances of another which so seriously affects the ability of the disadvantaged party to make a rational judgement as to its own best interests.
At first instance the court held that SHRL breached section 20 during the 18 August 2022 meeting, during the life of the JVA and after the meeting.
On appeal, the Supreme Court held that SHRL’s conduct prior to 18 August 2022 was not in breach of section 20 as Pedro-X had no disability or circumstances seriously affecting their ability to make a rational judgement as to its own best interests.
The Court upheld the finding that the conduct occurring on 18 August 2022 was unconscionable.
The reasons for that included that during that meeting:
Mr Augustine had suggested split management of Logistics or Pedro-X buying out SHRL;
in response, Mr Singh, a lawyer, aggressively outlined that a buy-out was the only option and that the franchisor would not let Mr Augustine run the franchise. He threatened to meticulously look for things that Mr Augustine had done wrong and ruin his reputation, including to the franchisor, unless Pedro-X accepted the Buy Out Agreement.
The Court held that Mr Singh’s threats to destroy Mr Augustine’s reputation were of a ‘predatory and unconscionable quality’. Additionally, Mr Augustine was at a special disadvantage during the meeting, including because:
he was outnumbered on Logistics’ board;
he had been bullied for much of the preceding 6 weeks;
the unequal bargaining position of Mr Singh as a lawyer and because of Mr Singh’s aggressive and threatening behaviour.
The natural flow on effect of the finding of unconscionability on 18 August 2022 was that the exclusionary behaviour undertaken thereafter was also unconscionable.
The remedy for unconscionable conduct was assimilated into the remedy for breach of contract, being loss of bargain damages.
Duress
The Augustines argued that they agreed to the Buy Out Agreement on the basis of duress which was induced through illegitimate pressure on the part of Mr Singh.
The Court held that ‘not all pressure amounts to duress, and importantly commercial, even robust commercial, pressure is not sufficient’.
Illegitimate pressure is required for economic duress, however the specific degree of illegitimacy is unclear. One view is that the conduct must be unlawful (though not necessarily illegal), whereas another view is that lawful behaviour may constitute duress if what was engaged in was morally reprehensible and unconscionable.
In any case, the Court held the Buy Out Agreement to have been entered in as a result of duress ‘at least as far as it comprised actual or threatened unconscionable conduct’ on 18 August 2022. Consequently, the Court set aside the Buy Out Agreement.
Oppression
The Court also upheld the first instance judge’s finding that SHRL engaged in oppressive conduct within the meaning of section 232 of the Corporations Act 2001 (Cth), primarily as a result of the exclusion of Pedro-X after 18 August 2022.
The first instance judge had effectively ordered for the compulsory transfer of Pedro-X’s shares in Logistics to SHRL in return for payment of the judgement sum to Pedro-X.
On appeal the Court acknowledged that the order was ‘unusual’ but upheld it on the basis that the Court has broad discretion regarding remedies for oppression.
Take Aways
This case highlights a number of issues:
Who does a franchisor deal with when there are multiple interest holders in a franchise – what is the protocol in place to follow to ensure internal franchisee disputes do enot spill over into the franchisee / franchisor relationship;
When entering into a business arrangement ensure there is a clear process for exit that all parties agree to so that there is no need to go to courts of appeal to identify how to separate business interests;
Know who you are going into business with and how they operate – if there is a sense at the start or disagreement which leaves a bad feeling perhaps this is not the right business partner for you;
Are documents you sign inter-connected with each other – if so what does that mean for you if someone else does the wrong thing under one of the agreements
while agreements entered into as a result of undue influence, unconscionable conduct or duress may be voidable, seeking legal advice at the time of entering the agreement is the most efficient and cost effective method of seeking protection than having to rely on courts to find in your favour.
If you have any queries or concerns in relation to this decision, please contact:
Alicia Hill
Principal
T: +61 3 9611 0180 | M: +61 484 313 865
E: ahill@sladen.com.au
Jake Cole
Special Counsel
T: +61 3 9611 0112 | M:+ 61 413 557 157
E: jcole@sladen.com.au
Amy Green
Senior Associate
T: +61 3 9611 0175 | M +61 439 835 480
E: agreen@sladen.com.au
This article was prepared with the assistance of Charlie Cooper, Law Clerk.
