The owner of three Vida e Caffe branches - two in the city centre and one in Table View - is suing the franchise for R3,39-million in the Cape High Court, claiming that its managing director fraudulently induced it to operate the branches.
The three coffee shops fall under the close corporation Sweet Beans Trading, which is managed by Anton Era Marais.
Sweet Beans claims it should have made a total profit of about R1-million from the three coffee shops.
However, its losses amounted to close to R300 000.
The three branches are no longer trading.
According to court papers filed last month, franchise managing director Grant Edward Dutton approached Marais in August 2006, about entering into a franchise agreement to operate the three coffee shops.
According to Marais, Dutton indicated that the coffee shops would be profitable within their second month of trading and that all three would generate a total average net profit of R1,15-million a year.
However, according to Marais, this representation was negligent and fraudulent.
He claims in papers that the representation was made to induce him into entering into a franchise agreement.
Marais entered into a franchise agreement with Vida e Caffe Holdings for the Greenmarket Square branch in November 2006.
The franchise agreements for the branches in Bayside Mall and Parliament Street in the city were entered into in January and October, 2007 respectively.
However, according to Marais, the three branches operated at a loss of more than R290 000.
Between March 1, 2007 and November last year, the Greenmarket Square shop made a loss of R12 992.
The losses for the Bayside store and Parliament Street branch were R197 000 and R81 904 respectively.
Marais said he had spent R513 000 in franchise fees and had also paid professional fees and the cost of construction, equipment, fitting, cutlery and crockery to the value of R2,54-million.
Now he is suing the franchise, alleging that Dutton failed to disclose hidden costs and to conduct proper market research on the feasibility of the chosen locations.
He added that Dutton also failed to disclose that the two branches in the city were situated less than one kilometre from each other, which was contrary to a clause in the franchise agreements.
Marais cancelled the franchise agreements.
In addition, Marais alleges that the franchise appropriated large amounts of money from the coffee shops, including R16 400 in March and R128 78 in February.
The franchise had signing powers over the Sweet Beans Nedbank bank account.
According to Marais, this power was terminated in February and any withdrawals made after this were therefore unlawful.
Marais is therefore claiming the R513 000 franchise fee, the withdrawals made from the Sweet Beans bank account, R126 040 for the Vida e signage as well as R2,6-million in damages.
He is also claiming R128 000 from Nedbank.
The franchise has not yet responded to the allegations.