Class Action against 7-Eleven and ANZ Bank in the Federal Court
Revised 4 March 2020
If you were a 7-Eleven franchisee anytime between February 2012 and February 2018, you are likely to be a group member in the 7-Eleven Class Actions and may be entitled to compensation. Read this page carefully.
A class action is where one person (otherwise known as the “Lead Applicant”) brings a case in Court on behalf of others (otherwise known as “group members”, here, “franchisees.”)
There are actually two (2) class actions against 7-Eleven, one by the Franchisee companies (current and former franchisees) and the other, by the directors of Franchisee companies who have provided guarantees for Franchisees.
Background to Claim
In 2018, proceedings were commenced in the Federal Court of Australia by a 7-Eleven franchisee, Davaria Pty Ltd, and its director, Paresh Davaria, as the Lead Applicants in two class actions against 7-Eleven on behalf of current and former franchisees. Davaria currently operates two (2) 7-Eleven stores, a convenience store and a fuel store. Recently, further Lead Applicants have been added, JP Singh and Kaizenworld Pty Ltd, to cover the claims of single store franchisees.
What is the Class Action about?
The class actions are claiming compensation from 7-Eleven for (1) misleading or deceptive conduct, (2) breach of contract and (3) unconscionable conduct.
Misleading and Deceptive Conduct
The claim alleges that 7-Eleven misled and deceived franchisees before they entered into franchisee agreements about:
- the business opportunity afforded by operating a 7-Eleven store;
- the profitability of the stores;
- the accuracy of the labour costs as a proportion of overheads as disclosed in the financial records supplied to potential franchisees – this bears upon the average wages that a 7-Eleven Franchisee would have to pay to operate their store in compliance with employment awards;
- the need for franchisees and their family members to work with very little, if any, net income, after making loan repayments, and to often work for an unreasonable and unsociable number of hours per week to try to make ends meet;
- the negotiation of prices of stock and the collection of rebates from vendors and their allocation to the Marketing Fund and whether the surplus has been properly passed on to franchisees;
- the choice available to franchisees of suppliers and merchandise to offer in their stores; and
- the true goodwill value of their stores and how the return on their investment was represented to them before they “bought into the franchise.”
Breach of Contract
The claim also alleges that 7-Eleven breached its contracts (Franchise Agreements) with franchisees, including by only letting franchisees purchase stock from C-Store, run by Metcash. This occurred in circumstances where 7-Eleven had negotiated with Metcash prices higher than either the prices for which franchisees would have been able to buy stock in similar quantities from alternative suppliers, or the lowest prices reasonably obtainable by 7-Eleven had it used its best endeavours.
The claim also alleges that 7-Eleven breached its contracts with franchisees, by having a requirement in its agreement with Metcash that 90% of goods sold by franchisees would be acquired from Metcash and that 50% of all supplier rebates will be kept by Metcash.
The claim alleges that 7-Eleven acted unconscionably towards franchisees, including by enticing franchisees to enter into franchise agreements even though 7-Eleven knew that the degree of profitability of those franchise business was strongly linked to franchisees’ underpaying staff or working unreasonable hours themselves.
The claim had alleged irresponsible lending and breaches of the Code of Banking Practice by ANZ Bank, with respect to 7-Eleven franchisees. However, the case against ANZ has been put “on hold.” The running of limitation periods as against ANZ has been suspended until the 7-Eleven action is completed, but ANZ must still participate in any mediation between the Franchisees and 7-Eleven and all claims are preserved until after the proceedings against 7-Eleven have been resolved. We and the Bank will review the position at the end of the 7-Eleven proceedings.
Am I eligible to participate in the class action?
You are a group member in Class Action VID180/2018 if:
- you are a Franchisee who at any time between 20 February 2012 and 19 February 2018 entered into a standard-form franchise agreement (Franchise Agreement) with 7-Eleven Stores Pty Ltd (7-Eleven); and
- you have not entered into a release of all of your claims against both 7-Eleven and the ANZ arising out of the conduct of 7-Eleven and the ANZ described in the statement of claim.
You are a group member in Class Action VID182/2018 if you are a Nominated Director and/or Guarantor as follows:
- Nominated Directors who were or commenced to be the nominated directors identified in a standard-form franchise agreement (Franchise Agreement) with the first respondent, 7-Eleven Stores Pty Ltd (7-Eleven) at any time between 20 February 2012 and 19 February 2018 (Relevant Period); or
- Guarantors who provided indemnities, guarantees, mortgages or other securities (Guarantees) in respect of a Franchisee’s obligations under a Franchise Agreement or Bank Loan Contract entered into by a Franchisee during the Relevant Period, and who have suffered loss and damage as a result of the conduct of either or both of 7- Eleven or the Bank, alleged in the Statement of Claim.
At a later point, we will revisit the Releases which several of you have signed in favour of 7-Eleven to see whether or not they are binding on you and whether you may, despite them, might still be able to join the Class Action.
On 2 March 2020, with the Court’s leave, the Applicants filed amended pleadings in the Class Actions. The amendments involve:
- adding a 2nd Lead Applicant to the proceedings;
- adding claims alleging that the agreement between 7-Eleven and Metcash, referred to above, is a breach of contract and claims alleging that 7-Eleven mislead franchisees regarding the goodwill value of their stores; and
- adding claims regarding the frustration of the sale of the Lead Applicant’s store; and
- a request for an order that 7-Eleven account for the funds paid by Franchisees into the 7-Eleven Marketing Fund.
You can read the pleadings here:
After receiving numerous complaints from franchisees about 7-Eleven’s conduct and communications towards them, the Applicants applied to the Court to order a protocol restraining 7-Eleven from communicating with franchisees about the Class Actions, about releases in which Franchisees would have to give up their claims in the Class Actions and about opting out, during the Opt Out Period (21 February to 20 March 2020). On 11 December 2019, the Honourable Justice Middleton accepted 7-Eleven’s undertaking to send a standard-form letter to any Franchisee from whom it wishes to seek a release, at least 14 days before the release is to be signed. Read the orders of the Honourable Justice Middleton made 11 December 2019 (VID180 and VID182) and 31 January 2020 (VID180 and VID182) hereof.
Because we have been concerned that 7-Eleven’s undertaking did not adequately address 7-Eleven’s conduct, the Applicants have sought leave (permission) to appeal the orders of the Honourable Justice Middleton. A hearing is listed before the Honourable Justice Beach on 16 March 2020.
What do I have to pay to participate in the Class Action?
You do not have to pay any upfront costs of the Class Action.
The Class Action is funded by a litigation funder, who covers the upfront costs of the Class Action, including the payment of $5 million into Court as security for costs. This means that you will not be required to contribute any of the upfront costs for the Class Action.
The Funder is advancing funds to cover the cost of the Class Action and will only be reimbursed if the Class Action succeeds or if there is a settlement with 7-Eleven. The Funder assumes all the risk and pays all the costs upfront.
Have you signed a release with 7-Eleven or has your company become deregistered?
You should contact Levitt Robinson Solicitors so that we can properly advise you on the best course of action and whether you are a Group Member in the Class Action.
The Lead Applicants
The financials of Mr Davaria’s first store (Campbelltown convenience store) tell his story well. We believe that it is representative. Mr Davaria took on his first store in September 2013, which is why we only have two-thirds of the financial year ending on 30 June 2014, so the 2011 and 2012 figures relate to the previous franchisee.
(2/3 of the year)
|Total Retail Sales||1,387,258||1,298,039||1,325,952||919,344|
|Net Income before tax and Bank repayments of interest and principal||102,823||56,821||94,281||34,754|
|Total Retail Sales||1,814,691||1,942,128||1,995,301||2,002,462||1,858,704|
|Net Income before tax and Bank repayments of interest and principal||57,935||84,360||59,470||45,551||76,898|
Before he took over, sales were around the $1.3 million mark. Mr Davaria increased the store’s sales by 50% to over $2 million.
Why is the top line up and the bottom line down?
Since late 2015, full award wages and add-ons have been paid (inclusive of overtime and penalty rates) to 7-Eleven workers by Franchisees, following the Four Corners Exposé, “The Price of Convenience” screened on 30 August 2015.
On 9 April 2016, the Fair Work Ombudsman (FWO) released a Report of the FWO’s Inquiry into the systematic underpayment rife in “the 7-Eleven culture”.
According to the FWO:
“7-Eleven gets a percentage of each store’s gross profit and so there is a direct financial benefit to the franchisor when stores are successful.
Wages impact on store net profits, so systemic and substantial non-compliance with minimum wages has created a false account of store viability.”
The FWO continued:
“The level of control exerted over franchisees by 7-Eleven gives them little scope to impact their profitability within the franchise model.”
“7-Eleven had information that some stores within its network had engaged in deliberate attempts to underpay workers, including relying on inaccurate records and/or inputting false information about working hours into the head office payroll system.
Despite these signs, 7-Eleven did not appear to have made major changes to either its payroll system or store review process to target the risk of false record-keeping.”
In its report, the FWO found that:
“7-Eleven had a reasonable basis on which to inquire and to act. Head office controlled the settings of the system in which the franchisee employers operated. Moreover, it had the resources and tools to inquire into and attempt to direct the behaviour of franchisees – but did not do so in any significant way until exposed to public scrutiny.”
You can access the full Fair Work Statement, Proactive Compliance Deed between the Fair Work Ombudsman and 7-Eleven and the Report of the Fair Work Ombudsman’s Inquiry into 7-Eleven here.
The legal team
The team at Levitt Robinson Solicitors running the Class Action is led by Senior Partner, Stewart Levitt, and includes Brett Imlay (Special Counsel), Atanaan Ilango (Senior Associate), Jem Punthakey (Associate) and Georgina Hatch (Solicitor).
Mr David Pritchard SC (3 St James Hall, Sydney) has agreed to lead barristers Philip Tucker (Northbank Chambers, Brisbane) and Gerald Ng (7 Wentworth Selborne Chambers, Sydney) – for the Applicants and Group Members. We also have access to the resources of other eminent Counsel in Sydney and Melbourne, to consult on specific matters arising in the proceedings.
Get in touch
Are you a potential group member (i.e. were you a Franchisee of 7-Eleven at any point between 20 February 2012 and 19 February 2018)? To find out more, contact Levitt Robinson solicitors on (02) 9286 3133 or firstname.lastname@example.org
The Group Member definition changed on 3 August 2018; read more here: Group Member Definition Notice.
Please email email@example.com if you wish to receive a Funding Agreement, to sign and return.
- Bulletin No 4 with media release of 15 February 2018
- Bulletin No 5 with Originating Application and Statement of Claim filed in the Federal Court on 20 February 2018
- Bulletin No 6
- Bulletin No 8 and correspondence enclosed
- Earlier versions of the pleadings sealed by the Court on 7 December 2018 (please note that the versions sealed by the Court on 3 March 2020 are linked above): VID180 Further Amended Originating Application, VID180 Further Amended Statement of Claim, VID182 Further Amended Originating Application and VID182 Amended Statement of Claim
You can also register your interest in the Class Action by filling out the below form, and one of our team members will contact you shortly.
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Stewart Levitt featured in Jan/Feb 2018 Business First Magazine