Richmond Hell Pizza shop closed due to franchise dispute

Sunday, 19 December 2021

Richmond’s Hell Pizza is closed after the owners failed in a legal bid to stop their franchise contract being terminated.

The move follows a dispute over the manipulation of pizza delivery promise time data.

Hell Pizza chief executive Ben Cumming told Stuff that Hell Richmond would be closed for the foreseeable future

“We know this will be disappointing to Hell customers in the Nelson region, and we are looking to re-establish Hell in the area as soon as possible,” Cumming said.

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“This isn’t a decision we have made lightly, particularly as the brand is trading extremely well, but it is paramount that each and every Hell franchise adheres to our high standards in all aspects of the business. During routine checks we uncovered administrative practices within the Richmond store that were not aligned with Hell’s values and needed to take decisive action to address them.”

DEVGNZ Ltd and its directors Ajit Kaur and Seerat Singh, who owned and operated the Richmond Hell Pizza franchise, had sought an urgent court interim injunction to suspend termination of their contract. However, High Court Judge Andru Isac​ declined it.

The matter came before the High Court at Nelson this month. In his judgment, Justice Isac said DEVGNZ Ltd (DEV) bought the Richmond Hell Pizza business on January 16, 2019 for $330,000 under a franchise agreement from The Depths LP, which trades as Hell Pizza.

The franchise was renewed on June 2, 2020 until May 2025, with the payment of a $20,000 renewal fee.

At the centre of the dispute was a “delivery promise time” that Hell Pizza store operators provide to their customers, in which a store promises delivery within a specified time when pizzas are ordered online, Justice Isac said.

DEV contended The Depths had fraudulently manipulated data about home deliveries in the Hell Pizza online portal – known as MyHellHole – as part of The Depths’ efforts to terminate the franchise agreement, he said.

However, The Depths’ response was that an extensive investigation into data irregularities at the Richmond Hell Pizza shop led to the conclusion it was Seerat Singh (also known as Sam Singh) who had altered delivery data over an extended period of time, and that he had likely done so because there was a financial rebate payable to a franchisee who met certain key performance indicators, including delivery time, the judge said.

In detailing the background to the matter, Justice Isac said that by September 2020 DEV began raising a number of complaints and allegations about The Depths’ conduct, which seemed to involve concerns about bullying or sinister behaviour. That led to a series of mediations.

Justice Isac said Singh and his co-plaintiffs accused The Depths of fraudulently manipulating the online data in order to provide false grounds to justify its termination of the franchise agreement, and claimed The Depths orchestrated “offenders” to go to the Richmond shop to intimidate them.

“It goes without saying that these allegations are serious. If true, they would likely amount to a crime,” Justice Isac said.

“The Depths denies all of this. It says, essentially, that the defendants are using attack as the best form of defence.”

A forensic review of data for the Richmond store between April 1 and August 10 this year showed 335 orders were manually altered from a point of service device assigned to the Richmond store which had the effect of classifying late deliveries as being on time, the judge said. While evidence indicated there could be some legitimate changes to online orders, the Richmond store was modifying orders at a rate at least 17 times higher than the Hell Pizza group average.

DEV, Kaur and Singh had denied any suggestion that they had manipulated the data.

On November 22 The Depths issued the plaintiffs with a notice of contract termination, after earlier advising it intended to do so on the basis that, among other things, the data manipulation was “fraudulent and dishonest”.

Justice Isac said DEV, Kaur and Singh provided no meaningful evidence to support their claims against The Depths.

“An underlying difficulty with these serious allegations by the plaintiffs is the lack of a rational motivation for The Depths in making them. It would seem an extreme and inherently unlikely reaction to go to such lengths, including apparently committing criminal offences, simply because a franchisee had made complaints about head-office staff treatment of the franchisee,” the judge said.

Justice Isac said both sides alleged the other was acting fraudulently, but the case of DEV, Kaur and Singh was weak compared to The Depths’ case.

The plaintiffs had argued that four employees were likely to be laid off if the franchise agreement was terminated.

The Depths argued the relationship between the parties was beyond repair.

In declining the interim injunction, Justice Isac said the loss of jobs, while serious, did not outweigh other factors.

“Overall, the strength of the defendant’s (The Depths) case, the adequacy of damages to address the plaintiffs’ losses if successful at trial, and the inadequacy of damages for the defendant, all strongly tell against an interim injunction.”