(ACN 083 629 225) v Lenard's Pty Ltd (ACN 010 711 145) (No 4)
[2004] FCA 1662
•13 DECEMBER 2004
FEDERAL COURT OF AUSTRALIA
The Silver Fox Company Pty Ltd as Trustee for the Baker Family Trust
(ACN 083 629 225) v Lenard’s Pty Ltd (ACN 010 711 145) (No 4)
[2004] FCA 1662PRACTICE AND PROCEDURE – stay of orders pending an appeal – judgment for the payment of money – successful applicant without means to defend appeal – undertaking given by applicant to hold judgment money pending the appeal and only to use such part of it as is reasonably necessary to defend the appeal
THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST (ACN 083 629 225), BRYAN WILLIAM BAKER & BEVERLY ANN BAKER v LENARD’S PTY LTD (ACN 010 711 145), THE POULTRY SHOP LEASING (SA) PTY LTD (ACN 060 052 020), POULET FRAIS PTY LTD (ACN 059 852 265) & RICHARD HAMOOD
No S 70 of 2001
FINN J
ADELAIDE
13 DECEMBER 2004
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
S 70 OF 2001
BETWEEN:
THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST
ACN 083 629 225
FIRST APPLICANTBRYAN WILLIAM BAKER
SECOND APPLICANTBEVERLY ANN BAKER
THIRD APPLICANTAND:
LENARD’S PTY LTD
ACN 010 711 145
FIRST RESPONDENTTHE POULTRY SHOP LEASING (SA) PTY LTD
ACN 060 052 020
SECOND RESPONDENTPOULET FRAIS PTY LTD
ACN 059 852 265
THIRD RESPONDENTRICHARD HAMOOD
FOURTH RESPONDENTJUDGE:
FINN J
DATE OF ORDER:
13 DECEMBER 2004
WHERE MADE:
ADELAIDE
THE COURT ORDERS THAT:
On the applicant’s undertaking that -
(i)they will not seek to enforce the costs order pending the determination of the appeal; and
(ii)they will hold the judgment moneys paid pending the appeal, using only such part of it as is reasonably necessary to defend the appeal.
1.The first respondent’s notice of motion dated 2 December 2004 and the third and fourth respondents’ notice of motion dated 1 December 2003 be dismissed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
S 70 OF 2001
BETWEEN:
THE SILVER FOX COMPANY PTY LTD AS TRUSTEE FOR THE BAKER FAMILY TRUST
ACN 083 629 225
FIRST APPLICANTBRYAN WILLIAM BAKER
SECOND APPLICANTBEVERLY ANN BAKER
THIRD APPLICANTAND:
LENARD’S PTY LTD
ACN 010 711 145
FIRST RESPONDENTTHE POULTRY SHOP LEASING (SA) PTY LTD
ACN 060 052 020
SECOND RESPONDENTPOULET FRAIS PTY LTD
ACN 059 852 265
THIRD RESPONDENTRICHARD HAMOOD
FOURTH RESPONDENT
JUDGE:
FINN J
DATE:
13 DECEMBER 2004
PLACE:
ADELAIDE
REASONS FOR JUDGMENT
The first respondent, Lenard's Pty Ltd, and the third and fourth respondents, Poulet Frais Pty Ltd and Richard Hamood, have filed notices of motion seeking a stay of proceedings under a judgment of Mansfield J in which they were held liable in the sum of $321,084 (including interest) together with costs.
The proceeding giving rise to the appeal was brought by the Silver Fox Company Pty Ltd as the trading entity of Mr and Mrs Baker and by Mr and Mrs Baker in person. Their claim, insofar as presently relevant, was brought under s 52 and s 82 of the Trade Practices Act 1974 (Cth) (as regards the corporate respondents) and under s 75B of that Act (as regards Mr Hamood who is the director of Poulet Frais) in respect of communications made to the Bakers prior to their entry into a franchising agreement with (inter alia) the two corporate respondents. The franchise related to the business of preparing ready to cook gourmet poultry, the individual franchising agreements being in respect of particular leased premises which were made available to a franchisee. Lenard’s has over 175 such outlets in Australia. It operates through a series of master franchisors. Poulet Frais is a master franchisee for South Australia. A Master Licence Agreement governs its relationship with Lenard’s.
The Bakers' agreement was entered into on 4 September 1998 for a shop at Hilton which was part of a new shopping centre. The shop did not achieve the level of weekly sales expected by the Bakers notwithstanding their injection of further capital. They were unable to maintain payments under their franchise agreement. On 12 July 2000 they were given notice of termination of the agreement. Poulet Frais took over the shop on 15 July 2000. Subsequently they were practically compelled to sell their home to discharge their indebtedness to the bank which had provided a financing package for their business. Mansfield J described their present circumstances at the time of his judgment in the following terms:
“I accept the Bakers’ evidence that they have, by their unsuccessful venture into the Hilton shop, ‘lost virtually everything’. They have lost their superannuation and other employment prospects. They have lost most of the equity in their home, and have had to sell their home. They sold the Bugle Ranges house on 31 March 2001. They now live in inferior accommodation at Goolwa and work only part-time in manual employment. Mr Baker is now 65 years of age and Mrs Baker 60 years of age. The business venture which was expected to ‘top off’ their working lives and to set them up for retirement with their existing capital resources failed to do so.”
They have had part time cleaning work, Mr Baker has done some casual gardening work and Mrs Baker some part-time bookkeeping.
Of the various representations said to have been made to the Bakers, two are of present moment. These were contained in documents provided to them by Poulet Frais, first in 1997 when they expressed interest in a franchise, and then later in 1998 prior to their entry into the agreement. These documents emanated from Lenard’s, though their content was added to in the case of one of the representations by Poulet Frais. The representations have been described as the “site quality representation” and “the sales/profitability representation”.
The former was a representation that the corporate respondents chose franchise shop locations carefully, and in this instance chose the Hilton shop for a Lenard’s franchise carefully. The decision to establish this shop was Mr Hamood's, though Lenard’s provided guidance on finding and assessing the suitability of potential sites.
The substance of this representation was a matter in which there was both lay and expert evidence. It was considered at some length by Mansfield J who concluded that Mr Hamood did not consider carefully the selection of the Hilton site. Poulet was liable for the misrepresentation as was Lenard’s, his Honour finding that the relevant documentation emanated from Lenard’s and that Poulet Frais acted as its agent for the purpose of providing materials to prospective franchisees.
The sales/profitability representation was contained in what are described as disclosure documents provided to the Bakers. They contained (inter alia) a series of sales targets and hypothetical operating profit and loss outcomes if the Hilton shop realised the various targets indicated.
Mansfield J characterised this representation in the following terms:
“I find however that the material to which I have referred did convey to the Bakers the representations that, provided they complied with the Lenard’s system, a representative and reasonable weekly gross sales target was $8,000 per week, and was achievable, and that a representative and reasonable net operating profit was $50,000 per annum and was achievable. I also find that the material to which I have referred did convey to the Bakers the representation that a minimal performing Lenard’s shop selected by Poulet Frais would produce a weekly gross sales figure in the order of $8,000 per week and an annual net operating profit in the order of $50,000, and that a higher performing shop would produce considerably higher outcomes. There was no information represented to the Bakers by reason of which, in my judgment, they could have concluded that the respondents or any of them represented the potential turnover or net profitability of the Hilton shop would be a specific higher figure or in a range of specific higher figures.”
Again, his Honour found in the event that the representation was misleading there being no reasonable grounds for the making of it: s 51A of the Trade Practices Act. He equally accepted that it was relied upon notwithstanding the investigation the Bakers made themselves and the qualifications contained in the disclosure documents. Again, Lenard’s as well as Poulet Frais were found liable in respect of this representation.
The proposed grounds of appeal of the first respondent fall into two categories. The first relates essentially to his Honour's holding that Lenard’s was liable for representations actually made by Poulet Frais and in so doing it contests Mansfield J's agency finding. The second challenges his Honour's fact-finding concerning the two representations leading to his s 51A, s 52 and s 82 findings.
The third and fourth respondents' draft grounds of appeal in large measure mirror those of the second category of the first respondent’s I have just described.
Both appeals are concerned essentially with alleged factual errors made by his Honour, those errors being typically that particular findings were “against the evidence and the weight of the evidence”.
I was taken at some little length to selected excerpts of his Honour's reasons and of the evidence to demonstrate that the appeals were “more than arguable”. The applicants likewise took me on a similar journey so as to demonstrate that the appeals were in fact unarguable. They also emphasised that for them to be deprived of their judgment Mansfield J's findings in respect of both representations would have to be found erroneous.
Turning now to the stay application. First, I should note briefly the principles to be applied in considering the grant of a stay under O 52 r 17 of the Federal Court Rules. They are well accepted:
(i)It is not necessary to the grant of a stay pending appeal that ‘special’ or ‘exceptional’ circumstances be made out but that it is sufficient that the applicant for the stay demonstrates a reason or an appropriate case to warrant the exercise of the discretion in his favour: Powerflex Services Pty Ltd v Data Access Corp (1996) 137 ALR 498; Alexander v Cambridge Credit Corp Ltd (recs apptd) (1985) 2 NSWLR 685; 10 ACLR 42.
(ii)“Prima facie, a successful party is entitled to the benefit of the judgment obtained by him and is entitled to commence with the presumption that the judgment is correct. These are not matters of rigid principle and a court asked to grant a stay will consider each case upon its merits, but where an applicant for a stay has not demonstrated an appropriate case but has left the situation in the state of speculation or of mere argument, weight must be given to the fact that the judgment below has been in favour of the other party”: Re Middle Harbour Investments Ltd (in liq) (CA(NSW), 15 December 1976, unreported).
(iii)“[W]here the judgment sought to be stayed is for payment of a money sum and costs as is the case here, the appellant will often be concerned with the prospect that without a stay the proceeds of the judgment may be dissipated or seized by other creditors or for some other reason is impossible or very difficult to recover. In such a case the appellant has to show there would be no reasonable probability of getting back moneys paid under the judgment if the appeal succeeds: see Andrews v John Fairfax & Sons Ltd [1979] 2 NSWLR 184 at 189 …”: Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66 at 69.
(iv)“Although courts approaching applications for a stay will not generally speculate about the appellant’s prospects of success, given that argument concerning the substance of the appeal is typically and necessarily attenuated, this does not prevent them considering the specific terms of a stay that will be appropriate fairly to adjust the interest of the parties, from making some preliminary assessment about whether the appellant has an arguable case”: Alexander v Cambridge Credit Corp Ltd (recs apptd) (1985) 2 NSWLR 685 at 695.
The grounds for the stay, put shortly, are that on Mansfield J's findings, the applicants are relatively speaking without means; they have provided no evidence that they could repay the sums in question if the appeals were successful; and the respondents' respective appeals are more than arguable.
The applicants in effect concede that they need access to the judgment moneys for the purpose of conducting their defence of the appeal. They point to their financial plight which was a consequence of their having had the dealings they had with the respondents and to the fact that they have a costs order in their favour. They are prima facie entitled to the benefit of their judgment and if the stay is granted the appeal itself they contend will be rendered unfair as they will not be able to prosecute a proper defence of it. They have already been put to great expense in prosecuting their claim. This involved (i) a number of interlocutory hearings; (ii) a 13 day trial at which they were represented by a silk and a junior; (iii) expert evidence having to be secured; and (iv) several consequential hearings since Mansfield J's reasons were delivered. They put a figure on the costs order that mirrors that of the judgment itself.
In my view, it would be quite inappropriate for a stay to be granted in the terms sought. The applicants, though of limited means, have been able to prosecute successfully a long and expensive litigation against parties whose conduct has been found to be a cause of their present financial plight. Basic fairness dictates that the respondents not be permitted to compromise the proper defence of the appeals by the simple expedient of a stay though I do not imply that such is the actual inspiration of the present motions. This said, neither should the respondents be obliged to hazard potentially $650,000 plus, or a significant part thereof, when it seems clear that the applicants are without means to repay this sum if the appeals are successful but the moneys have been used in part at least to discharge the applicants' present creditors. In saying this, I infer from the material before me, and in light of the submissions made to me, that the litigation to date has not left them without substantial creditors.
I accept that, while I need to be satisfied that the respondents have arguable cases, I need not ordinarily speculate about their prospects of success. All that I will say on this matter is that in light of the material to which I have been taken, the respondents have set themselves a formidable challenge. It appears that they seek to do little beyond agitating matters which Mansfield J considered and rejected.
While it may be the case that the first respondent's appeal may be successful to the extent of casting the burden of the judgment on the third and fourth respondents, I do not consider that it would be appropriate for me on the material I have been taken to, to differentiate between the respondents in relation to the present motions.
Both the third and the fourth respondents have proffered undertakings to the Court in aid of the position that they have been agitating. The two respondents are willing to undertake to provide security for costs of the appeal in the sum of $20,000; the applicants are willing to undertake that (i) they will not seek to enforce the costs order pending the determination of the appeal and (ii) in consequence of a query I made, they will hold the judgment moneys paid pending the appeal using only such part of it as is reasonably necessary to defend the appeal.
I am conscious that the issue of impecuniosity of a party to an appeal most commonly arises in relation to applications for security for costs against an appellant, rather, than as here with a respondent to an appeal who is seeking to maintain a judgment in his or her favour. Nonetheless, I consider that in circumstances where, as here, the respondent appellants have been found to be a cause of the situation in which the applicants find themselves, it would be quite inappropriate for me to make orders that could compromise the proper and reasonable defence of the judgment they have obtained. This consideration, in particular, has led me to conclude that, subject to the undertakings being given that have been proffered by the applicants, I should refuse the two motions before me.
I will order accordingly.
I certify that the preceding twenty-three[23] numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate:
Dated: 15 December 2004
Counsel for the Applicants: PA Heywood-Smith QC with JTW Birchall Solicitor for the Applicants: Lisacek & Co Counsel for the First & Second Respondents: A Lyons and JP DeRuvo Solicitor for the First & Second Respondents: Phillips Fox Counsel for the Third & Fourth Respondents: SH Milazzo Solicitor for the Third & Fourth Respondents: DMAW Lawyers Date of Hearing: 13 December 2004 Date of Judgment: 13 December 2004
0
5
0