RAMS franchise ruling puts good faith in termination spotlight

The Federal Court has found that RAMS Financial Group breached its contractual and Franchising Code obligations to act in good faith when ending a Sydney mortgage broking franchise. The ruling puts the termination process in focus, while also showing that a successful liability claim does not necessarily lead to recovery of all claimed losses.

What happened at the Fairfield franchise

According to a case analysis published by Sladen Legal on 27 October, Justice Lee delivered the finding on 6 October 2026. The dispute concerned Sech Finance, operated by principal Daniel Lubarda, which ran the RAMS franchise in Fairfield.

Sech Finance signed a new five-year franchise agreement in late 2021. Both that agreement and the Franchising Code required the parties to act in good faith.

RAMS, wholly owned by Westpac, operated a network of franchised mortgage brokers selling RAMS-branded home loans. Westpac was the lender and made the final lending decisions. Franchisees also needed RAMS to authorise them as credit representatives under its credit licence to carry out their work.

That arrangement meant the credit authorisations were central to the franchise’s ability to trade. RAMS revoked the authorisations on 31 October 2022 and gave notice the following day that it would terminate the franchise.

Why the decision-making process mattered

Westpac’s concerns included suspected inflated income, false payslips and misstated living arrangements in loan applications. These were concerns about possible irregularities, not findings that the broker had committed wrongdoing. The Court identified that an anomaly did not, by itself, prove wrongdoing by a broker.

On 30 September 2022, Westpac recommended that RAMS remove Sech Finance and Mr Lubarda from its licence and end the franchise.

RAMS’s then managing director, Jake Bromwich, initially sought more detailed information. However, the Court found that RAMS ultimately proceeded without resolving a gap between Westpac’s concerns and the supporting evidence that its own decision-maker had considered material.

Before the decision, Sech Finance and Mr Lubarda were not told about, or given an opportunity to answer, the combined case being relied upon against them.

The Court did not find that RAMS had acted dishonestly. It also accepted that RAMS was entitled to rely heavily on Westpac’s serious concerns. The breach instead lay in completing the decision-making process while a material issue remained unresolved.

Good faith required RAMS to exercise its own powers

Sladen Legal’s account explains that the Court treated good faith as being rooted in the parties’ bargain. RAMS had to genuinely exercise its own powers for purposes consistent with the franchise agreement.

The distinction is important for Australia’s franchise community. The finding was not that a franchisor must disregard serious concerns raised by a parent company or lender. Rather, RAMS’s reliance on those concerns did not remove its responsibility for the way it exercised its own contractual powers.

In this case, the unresolved evidential gap and the absence of an opportunity for the franchisee to answer the accumulated concerns were central to the finding. The Court concluded that the process lacked the fidelity to the bargain demanded by good faith.

Why compensation was limited

Although the franchisee succeeded on liability, the Court did not accept that the business would otherwise have continued trading for the remainder of its agreement.

Westpac remained entitled to scrutinise the franchise’s loan applications, and only a few applications were getting through. RAMS also stopped accepting new home loan applications in August 2024. Claims relating to lost renewal opportunities and alternative products were rejected.

Instead, the Court assessed the lost chance that a proper process might have produced a better outcome. Possibilities included conditions, training or a period of continued trading. It valued the chance of keeping the business operating for a commercially useful period at 12.5%, limiting the franchisee’s entitlement accordingly.

At the time of Sladen Legal’s account, the dollar amount remained to be determined. The Court strongly encouraged mediation, noting that the lost amount was likely to be modest compared with legal costs already incurred.

Practical takeaway: Franchisors considering termination should seek advice on both the grounds and the decision-making process. Franchisees assessing a claim should separately examine whether there was a breach and what financial loss that breach actually caused.