Federal Court: Sech Finance v RAMS Good Faith Breach Found in Franchise Termination

• The Federal Court found RAMS Financial Group breached good-faith obligations by terminating a franchise without allowing the franchisee to respond to the accumulated case.
• RAMS acted on Westpac's recommendation, which flagged concerns in 45 loan applications, despite RAMS's managing director acknowledging a lack of direct supporting evidence.
• The breach was deemed narrow, specifically concerning the franchisee's lack of opportunity to respond, with no finding of dishonesty or unconscionable conduct against RAMS.
• The court estimated only a 12.5 percent chance the franchise would have continued with a proper process, anticipating "very modest" damages.
• The ruling highlights the importance of procedural fairness in Australian franchise termination obligations, even when relying on third-party information.

The court found that while individual loan writers were questioned about specific applications, the franchisee, Sech Finance, was never given an opportunity to respond to the cumulative case built against it.

The Federal Court has determined that RAMS Financial Group failed to uphold its good-faith obligations when it terminated a mortgage-broking franchise agreement. In the case of Sech Finance Pty Limited v RAMS Financial Group Pty Limited (Initial Trial) [2026] FCA 1458, handed down on October 6, 2026, the court found that RAMS acted on a recommendation from Westpac, which was its parent company until the RAMS mortgage portfolio was sold in August 2026 and the RAMS franchise network for new business closed in August 2024, despite an internal acknowledgment that crucial evidentiary gaps remained unresolved. This decision underscores the importance of procedural fairness in Australian franchise termination obligations, even when relying on third-party assessments.

Sech Finance operated a RAMS franchise in Fairfield under a five-year agreement that explicitly mandated both parties to deal with each other in good faith. This contractual requirement was reinforced by a similar obligation imposed by the Franchising Code of Conduct (a new version of which commenced on April 1, 2025, though transitional rules may apply to agreements predating this date). The court's finding of a Sech Finance v RAMS good faith breach highlights a specific failure in RAMS's process leading to the termination, rather than a broad condemnation of its overall conduct.

The dispute originated from a review conducted by Westpac, which served as RAMS's parent company and the credit provider for its home loans. In August and September 2022, Westpac examined 51 loan applications processed by the Fairfield franchise. This review identified concerns or potential anomalies in 45 of these applications, including suspicions of false payslips and possible deposit staging. It is crucial to note that the court emphasized these were merely concerns raised by Westpac, not definitive findings of misconduct.

Following its review, Westpac recommended that RAMS consider ending its relationship with the Fairfield franchisee. However, RAMS's internal decision-making process revealed a significant point of contention. On October 5, 2022, RAMS's managing director expressed difficulty in connecting Westpac's concerns with supporting evidence. Westpac responded by stating it had disclosed all it could and that the ultimate decision rested with RAMS. Despite this acknowledged lack of direct evidence, the managing director decided to proceed with termination on October 14, noting the "unfortunate" inability of investigators to provide "the evidence or details." Subsequently, RAMS revoked the credit authorisations essential for Sech Finance and its principal to arrange loans and issued a notice of proposed termination.

The Federal Court accepted that RAMS Financial Group was entitled to rely substantially on Westpac's recommendation without conducting an independent, duplicate investigation. Furthermore, the court acknowledged that anti-money laundering laws restricted the information Westpac could disclose to RAMS. However, the core of the RAMS Financial Group good faith Federal Court finding rested on the fact that RAMS finalized its decision to terminate while the managing director's identified gap regarding supporting evidence remained unresolved.

The court found that while individual loan writers were questioned about specific applications, the franchisee, Sech Finance, was never given an opportunity to respond to the cumulative case built against it. The court clarified that RAMS could have, at a minimum, informed the franchisee that revocation was under consideration and invited a response, without necessarily revealing any protected information. The court stressed that this breach was "narrow" in scope. It explicitly stated that there was no finding of dishonesty or ulterior motive on the part of the managing director. Additionally, the court dismissed the franchisee's claim of unconscionable conduct, describing it as having no merit.

Regarding potential damages, the court adopted a conservative view. It estimated that the probability of the franchise continuing for a commercially viable period, had a proper process been followed, was only 12.5 percent. This low probability significantly impacts the potential financial recovery for Sech Finance. The court also noted that RAMS ceased accepting new home loan applications in August 2024, leading it to reject a claim for a lost renewal opportunity as "misconceived."

The court indicated that any recoverable amount would likely be "very modest" when compared to the legal costs already incurred by the parties. To facilitate a resolution, the court proposed mediation before proceeding to any formal hearing on damages. This suggests a desire to avoid further protracted litigation over what is anticipated to be a limited financial outcome, despite the finding of a Sech Finance v RAMS good faith breach.

This ruling clarifies the narrow scope of good faith obligations in franchise termination, emphasizing the need for franchisors to provide franchisees with an opportunity to respond to allegations, even when acting on third-party recommendations and without disclosing protected information. Lawyers advising franchisors or franchisees should review their termination processes to ensure procedural fairness is maintained, particularly regarding the right to respond to an accumulated case.

Source: Original reporting via legal news outlet