Ali v Australian Competition and Consumer Commission
[2021] FCAFC 109
•22 June 2021
FEDERAL COURT OF AUSTRALIA
Ali v Australian Competition and Consumer Commission [2021] FCAFC 109
Appeal from: Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3) [2019] FCA 72
Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 4) [2020] FCA 23
Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 5) [2020] FCA 440
File number: WAD 35 of 2020 Judgment of: ALLSOP CJ, BESANKO AND PERRAM JJ Date of judgment: 22 June 2021 Catchwords: CONSUMER LAW – appeal from a decision of the primary judge that the appellants were knowingly concerned in contraventions of s 18 of the Australian Consumer Law – where representations made to prospective franchisees created the overall impression that franchisor intended to charge in a particular way – where overall impression was false and misleading as to the franchisor’s intentions as to the way it would charge –whether evidence of six franchisees could be extrapolated so as to find that representation was made to all prospective franchisees – appeal dismissed
CONSUMER LAW – appeal from a decision of the primary judge that the appellants were knowingly concerned in contraventions of s 21 of the Australian Consumer Law and contraventions of cl 6 of the Franchising Code of Conduct – where appellants were director and national franchising manager of company – whether company engaged in unconscionable conduct and did not act in good faith by its charging practices – where franchisees were charged in staged payments and told these payments would be for the set-up and fit-out of franchise – where payments were instead applied to meet general expenses of the company and pay commissions – whether evidence of six franchisees could be extrapolated to all prospective franchisees – whether primary judge could make findings of fact relied upon to find unconscionable conduct – whether a system of systematic dishonest conduct sufficient to establish unconscionability – whether finding of unconscionable conduct illogical – appeal dismissed
CONSUMER LAW – appeal from a decision of the primary judge that the appellants were liable to pecuniary penalties, injunctions, disqualification and redress – where penalties imposed exceeded single statutory maximum – whether appellants engaged in one system of conduct or a series of dealings with consumers – whether penalties were manifestly excessive – where primary judge ordered that a trust fund be created for consumer redress to be administered by an accountant under Court supervision – whether redress orders beyond power – whether quantum of funds to be contributed to redress fund arbitrary, inappropriate or manifestly excessive – whether disqualification orders were manifestly excessive – appeal dismissed
Legislation: Competition and Consumer Act 2010 (Cth) ss 51ACB, 51ADB, 51AE
Competition and Consumer Act 2010 (Cth) Schedule 2 (Australian Consumer Law) ss 20–22, 29, 37, 224, 239–241, 243
Competition and Consumer (Industry Codes - Franchising) Regulation 2014 (Cth) Schedule 1 (Franchising Code of Conduct) cl 6
Cases cited: Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353
Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd (No 2) [2019] FCA 1739
Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (in liq) (No 3) [2019] FCA 1982
Australian Competition and Consumer Commission v EDirect Pty Ltd [2012] FCA 1045
Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd trading as Bet365 (No 2) [2016] FCA 698
Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (No 2) [2020] FCA 802
Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40; 388 ALR 577
Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25
Australian Securities and Investments Commission v Adler [2002] NSWSC 483; 42 ACSR 80
Australian Securities and Investments Commission v Kobelt [2017] FCA 387
Australian Securities and Investments Commission v Kobelt [2019] HCA 18; 267 CLR 1
Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482
Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 269 ALR 1
Director of Consumer Affairs Victoria v Domain Register Pty Ltd (No 2) [2018] FCA 2008
Fox v Percy [2003] HCA 22; 214 CLR 118
Harris v Caladine [1991] HCA 9; 172 CLR 84
Jenyns v Public Curator (Qld) [1953] HCA 2; 90 CLR 113
Kobelt v Australian Securities and Investments Commission [2018] FCAFC 18; 352 ALR 689
Lee v Lee [2019] HCA 28; 266 CLR 129
Markarian v The Queen [2005] HCA 25; 228 CLR 357
Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50; 236 FCR 199
Rich v Australian Securities and Investments Commission [2004] HCA 42; 220 CLR 129
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; 160 ALR 588
Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; 217 CLR 315
The Juliana (1822) 2 Dods 504; 165 ER 1560
Unique International College Pty Ltd v Australian Competition and Consumer Commission [2018] FCAFC 155; 266 FCR 631
Vella v Commissioner of Police (NSW) [2019] HCA 38; 374 ALR 1
Division: General Division Registry: Western Australia National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Number of paragraphs: 397 Date of hearing: 23–24 November 2020 Counsel for the Appellants: Ms K C Morgan SC with Mr M Rennie Solicitor for the Appellants: Roderick Storie Solicitors Counsel for the Respondent: Mr J K Kirk SC with Mr A J C Mossop Solicitor for the Respondent: Norton Rose Fulbright Australia ORDERS
WAD 35 of 2020 BETWEEN: SANAM ALI
First Appellant
CHARLES CAMERON
Second Appellant
AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Respondent
ORDER MADE BY:
ALLSOP CJ, BESANKO AND PERRAM JJ
DATE OF ORDER:
22 JUNE 2021
THE COURT ORDERS THAT:
1.The appeal of each appellant be dismissed with costs.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THE COURT:
Introduction
This is an appeal from proceedings in which the applicant (the ACCC) sought and was awarded relief against the first respondent at first instance (Geowash Pty Ltd, now subject to a deed of company arrangement), the second respondent (Ms Ali) who was the sole shareholder, director and guiding corporate mind of Geowash, and the third respondent (Mr Cameron) who was Geowash’s national franchising manager. Geowash offered car wash franchises to interested parties in Australia. The complaints of the ACCC related to various contraventions of the Competition and Consumer Act 2010 (Cth) Schedule 2 (Australian Consumer Law) (the ACL) being various alleged misrepresentations and alleged unconscionable conduct, and alleged breach of the obligation of good faith in the Competition and Consumer (Industry Codes - Franchising) Regulation 2014 (Cth) Schedule 1 (Franchising Code of Conduct) made under s 51AE of the Competition and Consumer Act 2010 (Cth) (CC Act).
In a long and careful judgment on liability (the LJ: Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 3) [2019] FCA 72) the primary judge concluded that the respondents engaged in a dishonest system of business conduct in the way that they represented the business opportunity that they made available and in the way that they extracted money from prospective franchisees.
In a subsequent judgment, on questions concerning relief (the RJ: Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 4) [2020] FCA 23), declarations were made accordingly, penalties were imposed and a scheme for remedying third party loss was set up under s 239 of the ACL.
Ms Ali and Mr Cameron (but not Geowash) appeal from the declarations and orders concerned with the findings of unconscionable conduct, of the closely related misrepresentation, and of the breaches of the duty of good faith.
We will refer to the conduct of Ms Ali and Mr Cameron. This was at all times the conduct of Geowash, in which they were knowingly concerned. There was no appeal against the findings that they were knowingly concerned in Geowash’s contraventions.
The submissions of the appellants were lengthy and detailed and traversed a wide range of complaints about the approach of the primary judge. At the risk of over-simplification, the submissions over-complicate the controversy which can be appreciated as concerned with a system or way of doing business which was dishonest and directed to a group or class of persons which was likely to contain moderately unsophisticated people looking to advance their own lives by owning their own businesses.
The system can be simply described. Geowash advertised the opportunity to start one’s own business of running a carwash business for sums between $89,000 and $250,000, plus GST, depending upon the location of the site and the fit-out of the business. A prospective franchisee was provided with a standard form franchise agreement and a disclosure document that explained that Geowash would charge the franchisee for the costs and expenses of establishing the site. This was referred to in the case as the “Charging Representation”: that franchisees would be charged in accordance with these documents. The found dishonesty from the beginning was that Geowash, principally through Ms Ali and Mr Cameron, intended to demand, soon after the franchisee had entered the contract and paid around $35,000 in an upfront establishment fee, up to half of a total sum that had been discussed in negotiations and discussed as the limit that the prospective franchisee was willing to invest in the business. The sum charged was not calculated by reference to any part of the contractual documents that had been provided or to the cost of constructing the site; but instead by reference to half of what the franchisee was willing to invest. If any objection to, or questioning of, the demand for the large lump sum was made or occurred the demand or charge was justified by reference to generalised assertions about the necessary cost of arranging for, and the construction of, the site. Not only through the Charging Representation, but also through the engagement with the franchisees, before and after the signing of franchise agreements, Ms Ali and Mr Cameron justified the demand for money on the dishonest and false basis that it was calculated by reference to, and was to be used for, the actual cost of developing the site for the franchisee. This was false and dishonest. The money was appropriated in significant part by Ms Ali and Mr Cameron paying themselves (in Mr Cameron’s case, to his wife) so-called commissions. Some of the sites were built; some were not. No accounting or reconciliation of costs of providing the sites was ever made. The case was propounded by the ACCC alleging that a majority of the sites were not built. That was not proved. Nevertheless, the primary judge concluded that the Charging Representation was made, that it was dishonest, that the generalised justificatory assertions based on the cost of developing the site were dishonestly made, and that the pattern or system of extracting large sums of money from franchisees for use by Geowash, Ms Ali and Mr Cameron for personal purposes other than the cost to fit-out and set-up the sites was dishonest, unconscionable and in bad faith.
The case at first instance also included three other representations made on Geowash’s website. These three representations (sometimes referred to as the website representations) were also demonstrably false. Though they were not the subject of an appeal, these three aspects of falsity take their place in the context and background to the whole episode that was replete with exaggeration and falsity.
The three other representations concerned likely revenue to be earned: that prospective franchisees could make gross revenues of $70,216 and gross profits of $30,439 in an average 28 day period based on actual monthly revenue of a leading franchise; and that Geowash had a commercial relationship or affiliation with each of ten well-known companies: Nissan, Kia, Renault, Audi, Emirates, Shell, Hertz, Holden, Ikea and Thrifty. The primary judge described the conduct as to financial misrepresentations as blatant. The affiliation misrepresentation was plainly designed to engender trust in Geowash and was also described by the primary judge as blatant.
Before examining how the case was presented by the ACCC and defended by Geowash, Ms Ali and Mr Cameron, and how his Honour dealt with the evidence, it is helpful to remind oneself of the proper approach to the ascertainment of unconscionable conduct, whether in equity or the “unwritten law” for s 20 of the ACL, or, relevantly here, statutory unconscionability for s 21 of the ACL: the technique of equity was described by Dixon CJ, McTiernan and Kitto JJ in Jenyns v Public Curator (Qld) [1953] HCA 2; 90 CLR 113 at 118–119, both in their own words and by use of those of Lord Stowell in The Juliana (1822) 2 Dods 504 at 521; 165 ER 1560 at 1567:
The jurisdiction of a court of equity [to give relief from] … circumstances affecting the conscience … is governed by principles the application of which calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties … Such cases do not depend on legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine [the matter] … [As Lord Stowell said:] “A Court of Law works its way to short issues, and confines its views to them. A Court of Equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case.”
The importance of the application of this technique in a case such as the present is that the task is not one to be approached as requiring conclusions only logically derived from the presence or absence of defined necessary categorised facts or elements. The question is the proper consideration of all attendant circumstances to characterise the relevant conduct against the statutory standard of unconscionability in s 21.
The approach of the primary judge was in 12 sections (one Roman numeral (VIII) was omitted) in sections I–XIII. It is helpful to maintain this structure not only because of its clarity, but also because it helpfully focuses the issues raised on appeal and aids in their resolution.
I The claim, defence and issues for determination ([17]–[57])
The claims made against the respondents at first instance were set out in a concise statement that was not amended. Reference was made in argument that this was a pleading. It was not. Its nature as a convenient and effective way of supporting the commencement of a proceeding by identifying anticipated issues is set out in the Central Practice Note. It forms the foundation for later case management and the delineation of issues. Here, no pleading was filed. Affidavit evidence was read and cross-examined upon and documents were tendered. The reasons of the primary judge can be taken to reflect the development and resolution of the issues. At LJ [50], the primary judge referred to the breadth of the evidence and, implicitly, the difficulties in delimitation of the case thereby. In these circumstances he took the ACCC as confined to the concise statement.
The Charging Representation
In the introduction to Part I, after briefly describing the three website representations, the primary judge described the Charging Representation at LJ [20] as follows:
The ACCC also claims that, as to the costs and expenses of establishing an operating franchise site, Geowash represented to prospective franchisees that it would charge franchisees in accordance with the terms of a standard form franchise agreement and a disclosure document. It says that the representation was made by the provision of the franchise agreement and disclosure document (in various versions) to franchisees. This is referred to as the Charging Representation.
At LJ [26], the primary judge described the claim as to the falsity of the Charging Representation:
As to the Charging Representation, the ACCC claims that a disclosure document and a draft standard form franchise agreement were provided by Ms Ali and Mr Cameron to potential franchisees. The documents had specific provisions about charging. None of them allowed for an up front capital sum to be charged. Rather, they allowed for recoupment of actual costs of fitting out premises and costs of set‑up that were incurred by Geowash. It is alleged that the presentation to prospective franchisees of the franchise agreements and disclosure documents in that form represented that charging for fit‑out and set‑up would occur in the manner expressed in those documents.
There are two aspects of this representation to be borne in mind: First, it was part of the ACCC’s case that an up-front capital sum could not be demanded under the terms of the contract. Secondly, the contract permitted the recoupment of actual costs of fit-out and set-up incurred by Geowash.
At LJ [27], the primary judge set out the case advanced by the ACCC as to the falsity of the Charging Representation:
The case advanced for the ACCC as to the falsity of the Charging Representation is that the dealings by Ms Ali and Mr Cameron with franchisees concerning payments to be made did not reflect the terms of the franchise agreements and disclosure documents provided to prospective franchisees. Instead, Ms Ali and Mr Cameron dealt with franchisees in the following way:
(1)Ms Ali or Mr Cameron or both of them would ascertain the maximum budget of the prospective franchisee;
(2)negotiations with the franchisee would be undertaken on the basis that a franchise could be acquired for a lump sum which was discussed and agreed being typically the maximum budget of the prospective franchisee;
(3)shortly after a franchise agreement was entered into, Ms Ali or Mr Cameron or both of them would demand on behalf of Geowash the payment of a lump sum;
(4)the demand for the lump sum amount was made without reference to the actual costs of fit‑out or set-up of the franchise site; and
(5)it was the business model or practice of Geowash to make a demand for a lump sum payment shortly after a franchise agreement was entered into by the franchisee.
Within this description of the case advanced, one can see elements of the unconscionability case (to which we will come): the way the “budget” was framed divorced from actual cost (of fit-out and set-up), and its demand in two lump sums.
The case was put on the ground of deliberate falsity as was explained by the primary judge at LJ [28]:
… The case alleged is that because of the evidence of the actual dealings with franchisees as to payments to Geowash, the matters stated in the disclosure documents and the franchise agreements as to the manner in which franchisees would be charged were not true. It is said that the matters stated in those documents conveyed a representation as to what Geowash intended to charge when the intention of Geowash, through Ms Ali and Mr Cameron was to act in the way that they did. They were not intending to recover actual costs. Rather, it was always their intention to charge lump sums by reference to amounts established by reference to an assessment of the capacity of the individual franchisee to pay and then apply significant parts of those monies for their own benefit.
The nature of the defence to the Charging Representation case (taken from the concise response and the process of pre-trial case management) was described (without any submitted inaccuracy) by the primary judge at LJ [35]–[36], [38] and [40] as follows:
[35] As to the Charging Representation claim, Ms Ali and Mr Cameron say that there was nothing in the disclosure documents or the franchise agreements about how the franchisees would be invoiced. They say that in their dealings with the franchisees they asked for a budget in order to ascertain how much the franchisee wanted to spend, to avoid exploring inappropriately cheaper options and to act in the franchisee's interest to pursue the best opportunity available. Further, they say that the way in which Geowash charged its franchisees was explained in plain English documents given to all prospective franchisees. It was those documents that franchisees relied upon when entering into the franchise agreements and it was not misleading in any way to deal with franchisees in relation to charges for fit‑out and set‑up costs in a way that reflected those documents.
[36] Ms Ali and Mr Cameron also say that franchisees were charged in accordance with the terms of the franchise agreements or at least their understanding of how those documents operated which understanding was based on legal advice received by Geowash.
…
[38] They accept that monies received from franchisees were used to pay amounts to each of them that were calculated based upon a percentage of those amounts, but they say that Geowash was entitled to pay those amounts from the monies received from the franchisees. They say that the percentage based amounts were to remunerate Ms Ali and Mr Cameron for the work that they did to negotiate lease terms, establish the franchise premises and arrange the fit‑out, permits and other matters required for each site. On that basis, they were part of the costs that Geowash was entitled to charge franchisees.
…
[40] They also say that by reason of the legal advice given to Geowash, they believed that the charging conformed to the requirements of the franchise agreement and, on that basis, they could not be knowingly concerned in or party to any misrepresentation about price by Geowash.
Thus the primary judge was clear in his recognition that the case of all three respondents was that nothing in the franchise agreement or disclosure document prevented the charging of two lump sum payments, that the budget was innocently ascertained to assist the franchisees, that the surrounding plain English documents explained what they were doing, that what was done accorded with those documents, that moneys accepted to be paid to them were legitimate remuneration by Geowash for work they did as to amount to costs, and that they believed on legal advice that the charging (and implicitly treating remuneration by commission as costs) conformed with the franchise agreement.
It can be seen from these descriptions of the defence concerning the Charging Representation that a central issue was the honesty of both Ms Ali and Mr Cameron and, implicit within that, whether they understood that how they were behaving was contrary to the franchising documents and whether they were consciously misleading the franchisees.
Unconscionability and lack of good faith
At LJ [41], the primary judge set out the ACCC’s claims on unconscionability (and lack of good faith), setting the claim out in nine propositions:
(1)negotiating the sale of franchises to prospective franchisees who were typically unsophisticated when it came to owning and operating a business;
(2)ascertaining from the prospective franchisees their maximum budget;
(3)negotiating with prospective franchisees as if a franchise could be acquired for a lump sum, being typically the maximum budget;
(4)engaging in the above conduct despite it being inconsistent with the terms of the franchise agreement and disclosure document;
(5)representing that the prospective franchisee would be able to acquire an operating Geowash franchise within the discussed budget;
(6)invoicing for lump sums under franchise agreements when there was no right to do so;
(7)demanding and pressing for urgent payment of lump sums that were usually more than the budget that had been discussed;
(8)failing to deliver an operating car wash to the majority of its franchisees; and
(9)spending a significant portion of the funds received from franchisees for purposes that were not permitted under the franchise agreements, including payment of general operating expenses of Geowash, the payment of commissions to Ms Ali and Mr Cameron and transferring funds into assets directly or indirectly controlled by Ms Ali or Mr Cameron.
It is to be noted that direct evidence was given in relation to seven (7) franchisees. The case made, however, concerned 30 franchisees who had signed the franchise agreements and paid some fees, of whom 18 had proceeded to make lump sum payments to Geowash to secure and develop a franchise site. Part of the dispute on appeal is the legitimacy of the conclusions that the primary judge drew about all franchisees from the evidence led in respect of the seven, in particular in the context of the applicability of s 21(4)(b) of the ACL about system or pattern of conduct. Section 21(4)(b) was and is in the following terms:
21 Unconscionable conduct in connection with goods or services
…
(4) It is the intention of the Parliament that:
…
(b) this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and …
In the following paragraph (LJ [42]) the primary judge expressed more broadly and more summarily the nature of the claims of unconscionability and lack of good faith:
As to the unconscionable conduct, in broad terms the ACCC says that Geowash dealt with prospective franchisees by agreeing a lump sum amount to be paid for a franchise that reflected the budget of the franchisee. Those agreements were reached with franchisees at a time when there had been no fit‑out. The ACCC claims that although Geowash was entitled to undertake the fit‑out as agent for the franchisee and charge for the fit‑out costs and certain other specific charges, what occurred was that Geowash, without regard to actual fit‑out costs or charges that could be made by Geowash under the franchise agreement, invoiced franchisees for two instalments of the lump sum amount. It says that when the instalments were paid, a considerable proportion was used to pay amounts to Ms Ali and Mr Cameron based upon a percentage when the franchise agreement did not allow Geowash to charge franchisees for such commissions. It also says that the instalment amounts were applied to meet general operating costs of Geowash rather than to meet the cost to fit‑out the premises for the particular franchise. Ultimately, it is claimed that Geowash failed to deliver an operating car wash franchise to the majority of its franchisees.
At LJ [44]–[48], the primary judge set out the elements of the defence to these claims. These included that the franchisees did not lack sophistication; that the representations to the franchisees about charging and their dealings with all franchisees were consistent; that the franchisees committed to their franchises on the basis of the communications with Ms Ali and Mr Cameron, not on the basis of a close reading of the contractual documentation; and in these circumstances there was and could be no exploitation or taking advantage of franchisees by Geowash acting consistently with information given to the franchisees. As to the charges, one way that was sought to justify them was described by the primary judge at LJ [45]: that all the deductions and payments were in a sense costs of the projects, saying:
As to the charges that were made, Ms Ali and Mr Cameron say that Ms Ali developed an estimate as to what the development cost would be for a particular site based on a business model that involved Ms Ali and Mr Cameron doing work 'in‑house'. This enabled them, it was said, to keep costs to franchisees at a competitive level. By invoicing franchisees in lump sum 'staged payments' they say that they were acting in accordance with legal advice to Geowash. They also say that the advice was to the effect that Geowash could include the percentage based payments made to Ms Ali and Mr Cameron as part of the staged payments.
It was also submitted that operating businesses were delivered and that the unconscionability and lack of good faith cases could not extend beyond the franchisees who gave evidence: LJ [48].
The distillation of the issues for determination
The primary judge was presented with a great deal of evidence: oral, written and documentary. The case was broad and to a degree fluid, especially because of the inconsistency in the self-justificatory evidence of the appellants, especially Ms Ali’s which was found to be exaggerated and dishonest.
In dealing with the submissions, the primary judge made this comment at LJ [51] about the submissions, especially those of the appellants:
I directed that the parties file closing submissions in which the findings that the Court was invited to make were stated. Much of the evidence was not addressed in those submissions. In particular, submissions advanced for Ms Ali and Mr Cameron were not constrained by the discipline of a close consideration of the documents, affidavits and oral evidence. Instead, the submissions were constructed at a level of generality that failed to engage with the detail. The Court was not taken to many of the documents that were received into evidence whether by way of references to support submissions or findings the Court was asked to make or otherwise. These reasons reflect the way matters were addressed by way of closing submissions and the findings that the Court was invited to make.
Similar comments could be made about the approach to the appeal.
At LJ [52]–[56], the primary judge sought to distil the case into manageable conceptual form. The broadest distillation was expressed at LJ [52]:
… [T]he main case advanced by the ACCC focussed upon the way Geowash charged franchisees who entered into a franchise agreement and what it did with the money. Although a lot of evidence was led to place those dealings in context, ultimately, the case concerned only the dealings by Geowash (through Ms Ali and Mr Cameron) in relation to those charges. Speaking broadly, the case alleged by the ACCC as to what franchisees were charged reduced to two main parts.
The two parts were elaborated upon at LJ [53] and [54]. The first part of the case advanced was the representation that Geowash would charge for actual costs of the fit-out and set-up when the intention was to charge for what each franchisee was willing to pay and to use this money to pay commissions and to meet Geowash’s general operating costs and expenses (which latter costs included, but were not confined to, fit-out and set-up of each outlet): see LJ [53]. Though in this expression of the matter the primary judge did not use the words “intentionally mislead the franchisees”, it was clearly wide enough to encompass such a case of dishonest representation. Key to the first part of the case was the commission payments, the primary judge saying at LJ [53]:
… Ms Ali and Mr Cameron maintained that the commissions were actually payments for work done to establish and set‑up each franchise. The ACCC maintained that they were payments made for securing the 'sale' of a franchise. Linked to this part of the case was the claim that charges were rendered by Geowash to franchisees on the basis of what they were willing to pay. It was this manner of charging that provided the means by which Geowash could plan to pay the commission payments and then use the balance of the amounts received from franchisees to meet actual fit‑out and set‑up costs.
These matters were central to his Honour’s later findings of dishonesty.
The second part of the case advanced concerned with charging was the unconscionability and lack of good faith described in LJ [54] as follows:
… Essentially, franchisees were told they could acquire a franchise within a budget, they were then invoiced lump sum amounts that Geowash was not entitled to charge that were often more than the budget and a considerable part of those amounts was applied to pay commissions to Ms Ali and Mr Cameron and to meet general operating costs of Geowash rather than to meet the costs of establishing the franchise. Ultimately, Geowash failed to deliver an operating car wash to a number of franchisees. The franchisees were relatively unsophisticated when it came to setting up a franchise business.
The evidence did not establish with any precision how much money was spent on each franchise from the moneys paid, despite attempts by both sides: see LJ [55].
II Overview of course of dealings between Geowash and franchisees ([58]–[81])
The overview, though in a sense introductory, dealt with some evidence common to all franchisees. At LJ [58], the primary judge concluded “that, for the most part, dealings by prospective franchisees followed a similar course”. Importantly, this was based in part on Ms Ali’s and Mr Cameron’s evidence.
An email would be sent after an enquiry with a “Franchise Overview”. This was described by the primary judge at LJ [61]–[64], of which no complaint was made. The ACCC emphasised that to the extent the document spoke of use of funds, it referred to costs and variability of set-up depending on design and fit-out. No statement was made about commissions or appropriation of funds to the general revenue of Geowash.
Geowash also provided a document entitled “Franchise FAQs”. At LJ [65], the primary judge referred to the part of the document dealing with the two 50% payments “of your purchase price”. The appellants emphasised this in their submissions below and on appeal: That the true character of what happened was not a dishonest and deceptive series of courses of dealing of saying one thing (in writing and orally) to franchisees, and intentionally doing another, but was a commercial negotiation of a purchase price of a franchise. The ACCC submitted that this type of reference to “purchase price” was consistent with their case because it should be seen as used in the context of discussion of costs of fit-out and set-up.
At LJ [66], the primary judge dealt with the third explanatory document entitled “Your Next Step” which had five steps from application to commencement of business:
Stage 1
Complete the details at the back of this profile and E‑mail them back to [email protected]. Please also include the signed copy of the Confidential Non‑Disclosure Agreement.
Your application will be reviewed where we will hope to ensure you have the ideal characteristics for the business structure. If your application is successful, you will be invited to proceed to the Second Stage.
Stage 2
At the Second Stage, Geowash will make an offer to purchase the rights for your selected region, territory, state or country.
Stage 3
Once the offer is accepted, you will be asked at this point to sign the Franchise agreement and pay the Franchise Fees for the purchase of your Geowash Franchise.
Stage 4
Once you have purchased the Geowash Franchise, we will provide you with further information required for the establishment of your outlet. You will be trained under our comprehensive training program.
Stage 5 (Final Stage)
With our personal assistance you will commence your business.
A deposit of $4,000 or $5,000 would entitle a prospective franchisee to receive a draft franchise agreement and a disclosure document. Whilst the primary judge dealt with the terms of these agreements in some detail, his Honour’s general conclusion can be seen at LJ [75], a follows:
At this stage I note that neither the Disclosure Document nor the franchise agreement provided expressly for the payment of a purchase price or for payment of fit‑out and other set‑up costs in two instalments. Rather, the documents referred to the payment of a franchise establishment fee and the actual costs associated with the fit‑out of the site.
The establishment fee was $35,000 or thereabouts, including any deposit already paid. It was payable upon signing of the franchise agreement. Ms Ali or Mr Cameron was entitled to a 40% commission of this sum, depending on who introduced the franchisee. No complaint about that payment was made by the ACCC.
After the franchise agreement was signed discussions took place about a site. Once the site was selected Geowash invoiced the franchisee for the first instalment of the “Purchase Price”, “usually being 50% of the balance of a specified amount that had been raised in discussions between the parties before the franchisee committed to signing the documents”: LJ [71]. These discussions (both before and after signing) lay at the heart of the case, and lie at the heart of the appeal.
At LJ [78] and [79], the primary judge adverted to a central group of issues: first, at LJ [78], the evidence of Ms Ali and Mr Cameron that:
… Ms Ali estimated the costs of fit‑out and that an amount of up to 20% of the purchase price or staged payments was due as 'commission' when those payments were received by Geowash.
This can be seen as part of one strand of the appellants’ defence at first instance that the commission (on the two instalment payments) was a legitimate cost of fit-out and set-up.
At LJ [79], the primary judge posited the ways the two instalments should be viewed:
… [W]hether the instalments were based upon a price that was an agreed purchase price for a Geowash franchise or whether they reflected an estimate of likely fit‑out costs undertaken by Ms Ali or whether the instalments were, in substance, a demand for payment of the maximum amount that the franchisee was willing to pay irrespective of the actual costs that might be incurred in establishing the particular franchise. …
III The franchise agreement ([82]–[93])
Before turning to the franchise agreements, in the overview at LJ [76], the primary judge referred to the disclosure document that accompanied each draft franchise agreement:
The Disclosure Document typically stated that costs of 'Fit‑out of kiosk and storage including plans, signage connection of water and power' being 'Approximate cost $35,000‑$400,000 (exclusive of GST) depending on the type of site' were to be paid, in the case of new businesses, 'to the franchisor or direct to contractor or supplier' and to be due 'as required by the franchisor or supplier/contractor preforming [sic] work'.
The franchise agreements were in relevantly similar terms. “Initial Payments” were dealt with in cl 2.1 and those payments were to be made before Ongoing Payments of licence fees and marketing contributions referable to an ongoing business were payable. The fees in cl 2.1 were:
2.1 Initial Payments
The Franchisee must make the following initial payments to Geowash (and/or suppliers) in the manner provided for in this Franchise Agreement:
(a) Establishment Fee;
(b) Initial Training Fee;
(c) Documentation Fee;
(d) payment for Equipment;
(e) Site selection and lease costs (clause 4.4) as may be applicable;
(f) Fit Out Costs as may be applicable; and
(g) Security Deposit (if required).
The phrase “Fit Out Costs” was dealt with by the primary judge at LJ [87]–[89], as follows:
[87] Fifth, where fit‑out was required by Geowash, the franchisee was responsible for payment of the 'Fit Out Cost': cl 4.7(a). The term Fit Out Costs was defined to mean:
Such amount as may be necessary to cover the costs of the Fit‑Out including architect costs, fit‑out management costs, lessor approval costs, permit costs, building contractor's costs, pre‑fabricated kiosk, materials, equipment and installation costs.
[88] In later versions of the franchise agreement the definition was changed to add after 'management costs' the words '(including any Geowash management fees for managing the process of design and Fit Out)'. It may be accepted that these additional words allowed Geowash to render an account to franchisees for fair and reasonable costs of managing the design and fit‑out of a franchise site. I note that there is no evidence that Geowash rendered any accounts for management fees or took steps to assess a fair and reasonable fee for any such fees.
[89] Significantly, the obligation was to pay actual fit‑out costs. The agreement did not contemplate the payment of an agreed price to Geowash for arranging the fit‑out that was set by reference to some measure other than cost (such as the budget as to the amount that the franchisee was willing to pay). Nor did it refer to the payment of sales commissions to Geowash staff or a master franchisee. Further, by specifying particular costs it was evidently not a means by which Geowash could request franchisees to pay monies to be applied by Geowash in meeting its general operating costs and expenses.
The later version of the definition of “Fit Out Costs” was as follows:
Fit Out Costs means such amount as may be necessary to cover the costs of the Fit Out including (without limitation) design costs, architect costs, fit out management costs (including any Geowash management fees for managing the process of design and Fit Out), lessor approval costs, permit costs, planning advice costs, building contractor's costs, pre-fabricated kiosk, materials, equipment and installation costs.
The primary judge summarised his views of the franchise agreement at LJ [93], as follows:
So, although the terms of the franchise agreement may have justified requests for substantial staged payments on account of expected Fit Out Costs, it defined those costs. There was no power to make a general request for payment of amounts as part of an assessment as to what the 'purchase price' might be for a franchise. Further, any such amount that was paid in advance would have to be accounted for by Geowash. It could only be retained if indeed Fit Out Costs in that amount were incurred.
Criticism was made of the primary judge’s interpretation of the franchise agreements as too narrow. We will come to these submissions, but as a preliminary comment it is difficult to interpret or construe with any degree of business honesty or reasonableness provisions such as cl 2.1 (Initial Payments), 2.5 (application of moneys), 4.4 (costs), 4.7 (Fit Out) and the definitions in cl 46 of “Costs & Expenses”, “Fit Out”, “Fit Out Costs”, as directed other than to the payment by the franchisee of reasonable costs including a justifiable and reasonable management fee of Geowash for undertaking site selection, fit-out and set-up. The conclusions in LJ [89] and [93] are difficult to escape after any honest and reasonable reading of a not particularly complex legal agreement drafted in readily accessible English.
IV Dealings with individual franchisees ([94]–[457])
This long section of the primary judge’s reasons (65 pages and 363 paragraphs) recites his Honour’s findings about the dealings of seven (7) individual franchisees with Geowash, through Ms Ali and Mr Cameron. The appellants criticise any extrapolation from these franchisees to make broader conclusions as to a system or pattern of behaviour as urged by the ACCC, and as found by the primary judge. But it should be said at the outset that his Honour’s conclusions (to which we will later come) were based not only upon the evidence of the seven individuals, but also upon the evidence of Ms Ali and Mr Cameron themselves, and the documents in evidence.
It is unnecessary to traverse this section of the liability judgment in comprehensive detail. In Part VI of the liability judgment (LJ [558]–[584]) after not only this review of the seven franchisees’ evidence, but also after a review of the evidence of Ms Ali and Mr Cameron, the primary judge set out his general findings concerning the dealings of Geowash with its franchisees. Nevertheless, some remarks are appropriate.
The first franchisee: Mr Rajvinder Singh (The Domain Car Park Site)
Mr Singh took up (through a company) a franchise at the Domain Car Park. His background reveals the limitations of such expressions as “unsophisticated” or “sophisticated”. He held a Bachelor of Commerce from an Indian University. His first language was Punjabi. He migrated to Australia in 1999. In Australia, he had run a small two person security guard service with a friend. He had driven taxis. He had been a part-time nursing assistant. When cross-examined about these activities as not unsophisticated business arrangements, he did not understand what was meant by the phrase “not unsophisticated”. The money that he had to invest in the business ($230,000) came from selling his home.
This kind of background can be seen in other franchisees: a modest fund of money; a desire to commence a small independent business; little or no long or deep experience in commerce; but a degree of intelligence, combined with a desire to build a business life and a living from a small business enterprise.
Mr Singh read the documents. He understood them as requiring him to pay costs: see LJ [107]:
Mr Singh was cross‑examined at some length about what he understood from those documents. His responses were to the effect that the amount to be paid was dependent on the particular site and how much it was going to cost. He understood that once there was a fixed site he needed to pay the balance of the purchase price which 'was going to be on the basis of what your site would be'. He was asked about his understanding of a statement in the Franchise Overview to the effect that after seven days of signing a franchise agreement the franchisee may now proceed and pay the balance of the Franchise Purchase Price. He said his understanding was that the payment 'will be … based on what your site is going to cost because you wouldn't make the payment without knowing what your site is and how much it is going to cost'.
Mr Singh told Ms Ali and Mr Cameron at the first meeting of his budget. He expressed his need to stay within his budget. The emails he received from Ms Ali (see LJ [112] and [115]–[118]) were reassuring and referable to costs, not commission or any overall purchase price. At LJ [122], the primary judge concluded the following about Mr Singh’s dealings with Ms Ali and Mr Cameron before signing the franchise agreement:
The clear impression created for a person in the position of Mr Singh by these dealings is that he will be able to secure an individual car wash franchise site with a café for an amount that would not exceed $230,000 and the final amount would reflect the actual cost of establishing the site. He would have to pay an amount that depended upon those costs and that would be the purchase price for his franchise.
After signing the agreement Mr Singh received the invoice for 50% of the “Part Payment for the Purchase”. He later (after changing sites) received another like invoice. We pass over the detail of the communications about these in which Mr Singh expressed his concerns: LJ [128]–[132] and [138]–[143]. It is relevant, however, to understand the primary judge’s conclusion as to how Ms Ali justified the invoices: see LJ [144]:
Apart from the clear concerns being raised by Mr Singh to ensure that costs were kept within his budget, the significance of the above exchange is the position being maintained by Ms Ali that the instalments of the purchase price reflect actual costs being incurred by Geowash in relation to the fit‑out. Of course, this reflects the terms of the Disclosure Document and franchise agreement. It is inconsistent with the case advanced by Ms Ali and Mr Cameron that the parties agreed a lump sum purchase price and the instalments requested by Geowash were for payment of that purchase price.
The second franchisee: Mr Tejinder Singh Chhina (The South Fremantle Site)
Mr Chhina’s profile was similar to that of Mr Singh. He was from India (Punjab), immigrating to Australia in 2010. He was an engineer in India. In Australia he worked as a taxi driver until taking up the Geowash franchise which was his first business enterprise.
This franchise is important to the arguments of the appellants, because it is one of the two franchises excluded from the conclusions of the primary judge as to unconscionability. The site was opened in August 2014.
Mr Chhina had two colleagues in the franchise, Mr Hardevinder (Harry) Singh Randhawa and Mr Sukhdeep Singh, each being a shareholder and director of a company formed to run the business.
The primary judge set out at LJ [174]–[192] the flow of events leading up to the opening of the site in South Fremantle. The draft franchise agreement and disclosure document were sent to Mr Chhina after he paid the deposit. He did not read them. He and his two colleagues had been looking for a business that cost around $150,000 and would be easy to run. After signing the agreement and paying the establishment fee, he visited prospective sites in Perth, meeting Ms Ali and Mr Cameron in March 2014. Mr Chhina and his colleagues expressed interest in the Beaconsfield site in South Fremantle. The discussions about this site and its cost were not in terms of cost of fit-out or set-up, but rather a price to buy. The price was simply put at $250,000. Mr Chhina was told by a Mr Kalyan, who identified himself as the Geowash master franchisee, that if Mr Chhina did not want the site or could not pay $250,000, he (Mr Kalyan) would take it. Mr Chhina and his two colleagues agreed to pay $250,000. At LJ [195], the primary judge summarised the position as follows:
What is evident is that the amount charged to establish the Beaconsfield site was not determined by reference to any measure of actual cost. Rather, the amount of $250,000 plus GST was presented as the amount that would have to be paid to secure the site. If it was not agreed then the site would be taken by the master franchisee.
Mr Chhina was unhappy about the quality of the work undertaken by Geowash, but such defects did not form part of the claims of the ACCC.
It will be necessary to return to this episode; it is sufficient for present purposes to refer to the submission of the appellants that if their conduct in relation to Mr Chhina was not unconscionable, notwithstanding the sending of the franchise agreement and disclosure document, there was little distinction or distance to be identified from this (not unconscionable) conduct and their dealings and conduct with other franchisees that was found to be unconscionable.
The third franchisee: Mr Harvinder Brar (The Northbridge Site)
Mr Brar was also from India. He held a diploma qualification in electronics and communication engineering from a College in Punjab. He came to Australia as a student and completed diploma courses at a TAFE college and a private college. He had worked in Perth as a disability support worker. He listed his work experience in the application documentation as taxi driver, farm worker, car washer and labourer. He had saved $40,000 to start a business. After enquiring he received an email from Mr Cameron and a Franchise Overview document. He thereafter communicated with Mr Cameron and Ms Ali and was provided with the Franchisee FAQs document. Mr Brar decided to take a franchise.
At LJ [222], the primary judge set out what he accepted from Mr Brar’s evidence (having rejected much of Mr Cameron’s evidence):
As Mr Brar said in his oral evidence, he knew that there would be a final price for the franchise that would relate to the particular site and the features of the franchise business that would be established at the site. His evidence, which I accept, was that first it was necessary to find a good site and then costing would be discussed. He was told that Geowash could work to make the site affordable and that he would be invoiced for the establishment fees of $35,000, 50% of the balance of the purchase price upon selection of the site and 50% of the remainder on commencement of site construction. Whatever the final price might be, that was how he was to be invoiced.
Mr Brar had indicated that he had limited funds ($100,000) but that he would be prepared to borrow additional funds. It is unnecessary to refer to much of the exchanges. He was offered a site at Northbridge in Perth for $200,000 plus GST. There were various communications after the first invoice for $110,000 (including GST). At LJ [256], the primary judge found as follows:
In any event, what is shown by the dealings is that the quantum of the invoice was not connected with any estimate of likely actual cost by Ms Ali or Mr Cameron or anyone else at Geowash and the course of dealings involved Geowash, through Ms Ali and Mr Cameron, pressing for payment of an amount that they specified after discussing arrangements with Mr Brar arrangements [sic] to pay amounts that were increasing considerably from those that were discussed at the time of the initial inquiry concerning the franchise.
Importantly, however, these communications were to the effect that the charge was determined by reference to actual cost, the primary judge finding as follows at LJ [260] and [262]–[263]:
[260] Significantly, these communications indicate that Geowash was charging an amount determined on the basis of actual cost, not some price agreed up-front.
…
[262] Mr Brar said that he wanted to be involved in the process of design and buying equipment and furniture. Ms Ali responded:
More than happy for you to see the items that budget allows for furniture etc. Where an item you wish to upgrade costs more than we have budgeted for you can upgrade at the cost of the item as long as we can approve the purchase. Obviously you are buying a franchise and there is a look and feel and also equipment listing required to run the business and this is done by the Franchisor. Thats after all why you brought a franchise instead of setting up your own car wash.
[263] Despite the reference to budget, no documents of that kind have been produced and relied upon by Ms Ali or Mr Cameron.
Mr Brar’s loan application within the bank was refused and he withdrew from the Northbridge site. He sought to withdraw and obtain a refund of his money. It was refused for certain given reasons which the primary judge found to be unfounded. The primary judge made clear the position at LJ [275]–[276] and [278]:
[275] Therefore, the position adopted by Ms Ali in her email to Mr Brar concerning the payments that had been made was inconsistent with the franchise agreement. It was also inconsistent with my findings as to their dealings. There was no oral agreement that a 'purchase price' would be paid. Rather, there was discussion of an overall cost that would be incurred that would depend upon the type of franchise to be established. Ultimately, what was paid would depend upon actual costs. There would be two instalments to be paid.
[276] Therefore, in November 2014, the position was not that B Company, Mr Brar and Mr Sran could not terminate the agreement. Rather there had to be reasonable further efforts to find a suitable site.
…
[278] The position adopted by Ms Ali was inconsistent with the terms of the agreement and the discussions with Mr Brar. It proceeded from the false premise that Geowash had a right to retain all the amounts that had been paid irrespective of the circumstances.
Mr Brar’s communication in writing with Ms Ali included seeking a cheaper option. Ms Ali responded negatively in an email that told Mr Brar how his money had already been expended. Once again it was explicit and implicit that his investment went to actual costs. The email said (see LJ [280]):
As per previous emails to you I cannot simply vary our original agreement.
The investment required for the Franchise business you committed to is substantially higher than the amount you ended up having. I understand at the time that you had financial pressures but I cannot be held responsible for your misfortune.
Your problems in not being approved securing a loan to complete our transactions as per the obligations imposed on you in our agreement is not in my control. Indeed our arrangements were never subject to finance. I understand from you that Amaninder did not provide the appropriate visa to indicate to the lender he was a permanent resident. All I can suggest is to reapply but ensure the documentation you provide supports an approval. May be try another bank or look at other funding options.
We expended much of your monies finding sites and negotiating lease for sites you had indicated approval of. I remind you, the ones you selected had a price point which you were well aware of. In light of your approval we spent funds on architects and flew builders in at expense to view proposed works. You not proceeding was a breach of your agreement, and whilst we attempted to secure another franchisee for that site we were not successful in time. The site as I understand is now leased.
So as you can see I haven't banked your money waiting for you to add to it to secure you a site and build you a store. Management & consultants time have been incurred in ensuring I complied with my obligations to you. Even if I had a shopping centre site ready to give you, which I don't, you would need to have the ready money required to build the store.
Its an unfortunate situation you are in and whilst I sympathise, I can't see what I can do to help. I can't and won't vary our current arrangements but am open to assisting where I can if you can secure the funds required for a store under a new agreement.
Please let me know as I will help if I can.
The falsity of this was explained by the primary judge at LJ [281]:
I do not accept the statements made by Ms Ali about where the money was expended. Ms Ali had no records on which such a statement could be based. At no point did dealings with Mr Brar reach a stage where it would be reasonable or appropriate to incur costs on architects and builders. As I have found elsewhere, Geowash paid substantial commissions on monies received from franchisees. It is the payment of those commissions that would have accounted for a significant part of those funds. No accounting record was produced that itemised as part of an expense line in a ledger or other usual accounting record the particular expenditure that related to the franchise agreement with B Company.
The end of Mr Brar’s investment is recounted by the primary judge at LJ [282]–[284]:
[282] On 13 August 2015, Mr Brar sent an email to Ms Ali asking for 'the details about the expenses from the total deposit money I gave you last year. Also the price for shopping center site. I need to calculate the difference so that I can figure out what options I have. You can understand without details nobody can understand what I invested how much spent and what I have left to use further. I need your help here Sanam please'. This was a request that was entirely justified given the terms of the franchise agreement and the dealings by Mr Brar with Mr Cameron and Ms Ali.
[283] Mr Brar received no further response from Ms Ali or Mr Cameron.
[284] Geowash did not deliver a franchise outlet of the kind discussed due a number of factors including the fact that finance was unable to be obtained by Mr Brar.
The fourth franchisee: Mr Jamal Khan Khalid (The Palmyra Site)
Mr Khalid came to Australia from Pakistan in 1994. He had been a seafarer in the merchant marine. In Australia he had worked at McDonalds, as a bus driver and as a taxi driver. He wanted to run his own business. He had made enquiries of another car wash franchise, “Magic Hand”. He made enquiries of Geowash after viewing its website.
At their first meeting with Ms Ali and Mr Cameron, Mr Khalid and his partner said that they could only afford $300,000 plus GST with 50% of that by loan. The primary judge found Mr Cameron’s response (LJ [288]) as follows:
… Mr Cameron said that the price would be capped at $300,000 plus GST and for that amount they would get a standalone site with a café like Magic Hand Carwash on Canning Highway. They were also told that ANZ would lend 50% of the price but may lend more.
The primary judge found (at LJ [292]–[293]) that after the meeting:
[292] … Mr Cameron sent an email to Mr Khalid. It included the following:
Stand Alone Car Wash Sites are around $300,000 plus GST (inclusive of negotiated lease, shop fit out, all equipment fixtures and fittings, establishment of business with the set up initial ongoing customers - turnkey operation) basically all that is required to make money from the first day of operation. As discussed your investment to build will be capped at $300,000.00 plus GST. In this offering we establish the management and staff at the premises, operate the business to ensure training and rosters and then it is handed over to you.
[293] The email from Mr Cameron attached a version of the Your Next Steps document and the Franchisee FAQs. It included an application form to become a Geowash franchisee.
The ACCC emphasised the contents of the email about costs and expenses. The appellants emphasised that the “Franchise FAQs” document referred to purchase price.
Mr Khalid and Mr Cameron met at the opening of the South Fremantle Geowash in August 2014. Mr Cameron was disbelieved in his version of this conversation (LJ [295]–[300]) that concerned the “cap” of $300,000, Mr Cameron saying that Mr Khalid said he could pay more.
In August 2014, Mr Khalid chose the site at Palmyra. Again Mr Cameron was disbelieved in his evidence on this subject matter. The primary judge rejected Mr Cameron’s evidence that the cap of $300,000 could not be offered for this site (at LJ [302]).
In early September 2014, Mr Khalid and his partner met Ms Ali and Mr Cameron to sign the franchise agreement. The primary judge recorded his findings of the meeting (at LJ [312]–[314]) as follows:
[312] On 2 September 2014, Mr Khalid and Mr Mansoor met with Mr Cameron and Ms Ali at Crown Metropol Hotel in Perth to sign the franchise agreement. This was the first time he had looked at the franchise agreement. He had not received the document by mail. Mr Khalid did not read the Disclosure Document, but he did read the figures in the schedule. He started reading the documents in detail for the first time when there was a dispute with Geowash.
[313] Mr Khalid put the position concerning his understanding of the agreement in the following way when being cross‑examined:
To be honest, to make it simple for you, there was so many things was sent from Charles Cameron, but we were all relying on Charles Cameron regarding to how we will pay and whatever steps it was there, it was not taken properly. We were not explained, this is steps is this, this is step is this and this will take this. With regards to the - as you said the price, I was clearly told by them and I was clear by them that I cannot afford more than 300 plus GST. That was my maximum price. So there are so many documents which says this, that, but we have really good relation with Mr Charles Cameron as he was presented by him to us, and we were totally relying on him.
[314] I accept this evidence as recording Mr Khalid's state of mind when he entered into the agreement. Further, on the basis of the findings I have made, at the time that the franchise agreement was signed by Mr Khalid, Mr Mansoor and Western Care, Mr Cameron knew that those parties were proceeding in the belief that the franchise set‑up costs would be capped at $300,000 plus GST. Further, by reason of the evidence concerning the way in which Ms Ali and Mr Cameron dealt with each other in relation to matters concerning Geowash, I find that Ms Ali would also have been aware at that time of the arrangements in relation to the cap of $300,000 plus GST.
The establishment fee was then paid and the lease signed.
The delivery of the first 50% invoice of $120,000 plus GST and Mr Khalid’s reaction to it were dealt with by the primary judge at LJ [318]–[321].
By May 2015 (8 months later), building had not started and lease payments were commencing. At the end of May and the beginning of June 2015, Mr Cameron sent emails to Mr Khalid requiring more money. Importantly, as the primary judge noted (at LJ [328]) these emails “continue[d] the impression that the invoiced amounts [were] to cover set-up costs as actually incurred by Geowash”.
As the primary judge found (contrary to the disbelieved evidence of Mr Cameron), there was to be a cap of $300,000 plus GST for the site. The emails and their purpose (which worried Mr Khalid) were set out and described at LJ [326]–[328] and [332] as follows:
[326] On 29 May 2015, Mr Cameron sent an email to Mr Khalid in the following terms:
Thank you for your remittance of $25,446.66 to Acton Commercial Estate Agent, being 2 months' rental leasing deposit for proposed Geowash site at 343 Canning Highway Palmyra.
To date we have received from you, Stage 1 payment for this site to the amount of $132,000.
To fulfil your further obligations to the Geowash Franchisor, and to establish your business at the Palmyra site, estimated next stage financial commitments for you to complete include:-
$38,170 Rental Bond Guarantee - payable when the lease is signed
$40,000 Working capital - funds to be available from the date the lease is signed.
$l65,000 Balance of site building costs - payable upon commencement of site build
To ensure that the proposed site is retained for you to operate your Geowash franchise, can you please confirm your capacity to fulfil these requirements?
[327] Then on 3 June 2015, Mr Cameron sent a further email to Mr Khalid in the following terms:
Further to our conversation today and in reference to my email to you dated Friday the 29th May, 2015:-
In that email it did not include all the additional costs for this site already explained to you and agreed to by you.
As per these previous discussions the estimated budgeted cost to build your store is, subject to any variations:-
$360,000 plus GST
You have already paid the following amount to the project:-
Geowash Pty Ltd $35,000.00 plus GST
Geowash Pty Ltd $120,000.00 plus GST
Total paid to Geowash Pty Ltd is $155,000.00 plus GST
Therefore your balance owing to complete construction (subject to variations) is $205,000.00 plus GST
Could you please confirm that a loan amount including provision for some working capital of $200,000.00 will enable you to proceed with this site?
You have already paid to Acton Commercial Estate Agent, $25,446.66.00 being 2 months' rental leasing deposit.
You still require a 3 month rental bond of $38,170.00 payable when the lease is signed
And minimum $40,000.00 Working capital
If bank provides funds of $200,000.00 you will require around $95,000.00 plus GST. Could you please confirm prior to us proceeding any further on this site that you are in a position to come up with the shortfall of around $95,000.00 plus GST (subject to variation) as described above after the bank's contribution, assuming your loan meets their loan parameters and is approved.
[328] The reference to a balance owing 'to complete construction (subject to variations)' is significant. It continues the impression that the invoiced amounts are to cover set‑up costs as actually incurred by Geowash.
…
[332] I do not accept the evidence that the June email was sent to provide full details of costs. There were no details provided in the email, just a higher figure. I find that despite the agreed cap, Geowash was seeking to charge a much higher amount. Mr Cameron was pressing Mr Khalid to accept the additional cost or forfeit the Palmyra site. The reference in Mr Khalid's email of 3 June 2015 to 'any variation required to complete the site' reflects the conversations with Mr Cameron at the time being about the need to pay more than the capped amount of $300,000.
The parties then fell into dispute over the $95,000 said to be owing. The denouement of the unsatisfactory relationship was described by the primary judge at LJ [340]–[343] and [345]–[346] as follows:
[340] On 9 October 2015 Mr Khalid sent a long email to Ms Ali about his dispute with Geowash. He proposed that the parties have a detailed discussion. The factual account given in the email at a time when Mr Khalid was seeking to reach agreement to be able to proceed is consistent with the account he gave in these proceedings. In particular, it details his complaint that he was told the costs would be $300,000 but by that time (October 2015) the project would cost nearly $450,000.
[341] It appears that neither that discussion proposed by Mr Khalid in his email nor the loan proceeded because a formal breach notice was sent on 15 October 2015.
[342] Building by Geowash on the Palmyra site never commenced and no further funds were paid by Mr Khalid, Mr Mansoor or Western Care to Geowash.
[343] Rent continued to be paid on the Palmyra site by Western Care until about March 2016. There was a dispute about the lease. Western Care resumed paying rent in May 2017 and has built a carwash business on the site trading as Impeccable Hand Carwash.
…
[345] I accept the evidence of Mr Khalid that if he had known at the outset that the cost would be more than $300,000 then he would not have entered into the franchise agreement with Geowash.
[346] Geowash did not deliver a site to Mr Khalid because it sought to obtain payments from Mr Khalid that substantially exceeded the cap that it had agreed. The monies received from Mr Khalid, Mr Mansoor and Western Care were applied, in accordance the usual practice of Geowash, to pay commissions and to meet the general operating costs of Geowash. Those matters may have contributed to the need for Geowash to seek further monies. What can be said on the evidence is that Geowash would not have had at its disposal all of the monies that had been paid to it for the Palmyra site.
The fifth franchisee: Mr Rajiv Kalyan (Geowash East Perth)
Mr Kalyan’s background was dealt with by the primary judge at LJ [347]–[348]:
[347] Mr Kalyan was born in India and has lived in Australia since 2005 and in Perth since 2007. He obtained a Bachelor of Science degree in India. He studied hospitality management in Australia. He owns a property in High Wycombe that he bought with his friend Mr Jasvinder Singh. He lives in the property with his wife and daughter and Mr Singh.
[348] Mr Kalyan and Mr Singh are the trustees of the Rhods Family Trust. Mr Kalyan was questioned about his knowledge of trust structures. Based on his answers I would not conclude that he had a sophisticated understanding of different business structures. In Australia, Mr Kalyan has worked as a cook, security guard and taxi driver. His involvement with a Geowash franchise was his first business.
Mr Kalyan and Mr Singh wanted to own a small business using their savings and a loan. From the internet they identified Magic Hand Carwash and Geowash as prospective businesses. Upon contacting Geowash, Mr Kalyan began dealing with Mr Barjesh (Bajji) Kalyan who came from the same village in India as Mr Kalyan. In introductory discussions Mr Bajji Kalyan and a colleague from Geowash said that a franchise costs about $200,000 for the store and between $240,000 and $265,000 with a café.
After paying a deposit and receiving the draft franchise agreement and disclosure document Mr Kalyan and Mr Singh met with Ms Ali, Mr Cameron and Mr Bajji Kalyan in Perth. Ms Ali said the cost of setting up the franchise was generally between $250,000 and $350,000, depending upon the size of the café: LJ [354].
In September 2014, the documents were signed and the establishment fee paid. At LJ [359], the primary judge made the following findings regarding Mr Kalyan’s knowledge:
Mr Kalyan did not have a detailed legal understanding of the franchise agreement. It was the other material that he received and the conversations that he had that provided him with his understanding of the arrangements. He did not rely upon the detailed terms of the franchise agreement concerning the cost of the franchise.
Possible sites became available in early 2015. An invoice for $130,000 was sent on 24 March 2015, as dealt with by the primary judge at LJ [360]–[361] as follows:
[360] There were discussions about possible sites. On 24 March 2015, Ms Ali sent an email to Mr Kalyan saying that a site in Mandurah had been secured and attaching an offer to lease. An invoice was attached for $130,000 plus GST. The email said that matters had progressed to Stage 2. It then said:
1. Part-Payment of the Geowash Hand Car Wash Franchise.
Please find attached Tax Invoice relating to the purchase of your Geowash Franchise Store. Your next step is to attend to the payment of the attached Tax Invoice. Our staff and management team then commences / continues the management process of discussions with Planning Officers, Engineers, Senior Draftsman, Council, Builders, Solicitors etc.
Please note, once you have paid the attached invoice, our town planners and engineers will be undertaking the following tasks to prepare and submit the Development Application and negotiate its approval and we personally will be overseeing and managing the process: -
Task 1 - Due Diligence
•Review planning requirements of the City of Mandurah;
•Review relevant Local Planning Policies;
•Undertake site visit to survey existing development on the subject land and surrounding sites.
•Provide Building Designer with a short summary of relevant findings.
Task 2 - Organisation and Coordination of Co-Consultant Inputs
•Brief, request quotations, review and provide recommendation on the engagement of Technical Specialists (if required).
•Confer with and review outputs of Technical Specialists.
Task 3 - Preparation of Draft Development Application
•Review and provide input to prepare Development Plans.
•Prepare draft Development Application and consulting with the council
•Oversee Land Owner Authorisation of the application
Task 4 - Formal Lodgement of Development Application with Council
•Refine DA to reflect any feedback received.
•Prepare final DA and covering letter, print and arrange formal lodgement with the City.
Task 5 - Post Lodgement: Monitoring and Reporting.
•Monitor Council processing, assessment and officer reporting on DA.
•Attend follow up meetings as required with City of Mandurah to negotiate acceptable outcome.
•Progress reporting to the City of Mandurah.
Once you have completed the first step of this stage, we will then proceed to step 2 of formally securing the site for you.
[361] No estimate of costs was provided with the invoice. It was sent as soon as there was a lease proposal. No documents have been produced by Ms Ali to support any costing in relation to the site. The email sets out very generalised information about the steps to be taken of a kind that was provided to other franchisees at the same stage of their dealings with Geowash. The email is presented in a way that indicates that there will be engagement of external parties to undertake much of the work required. Notably, the email refers to town planners and engineers undertaking tasks to submit applications for development approval.
The invoice was paid.
Mr Kalyan became dissatisfied with delays in finding a suitable site. Mr Kalyan and Mr Singh met with Ms Ali and Mr Cameron in July 2015 (see LJ [363]):
… Mr Kalyan expressed his frustration about the delays. Ms Ali said that the site could be pulled together in four to six weeks. He asked about cost. Ms Ali said that the cost would be $250,000 to $275,000 plus GST including the café, but $75,000 less if they did not want a café.
In August 2015 the second invoice was the subject of discussion with Ms Ali as set out at LJ [365]:
In late August 2015 Mr Kalyan had a telephone conversation with Ms Ali in which she said that she would be sending an invoice for the second stage payment of $176,000. He asked why the invoice would be for so much when she had said that the business would cost between $250,000 and $275,000 plus GST including the café. Ms Ali explained that the additional amount was because certain costs were not going to be covered by the owner of the premises but the owner had agreed to give a further three months rent free period which was about the same as the difference. On that basis Mr Kalyan agreed to pay the extra. The invoice came on 2 November 2015 and it was paid on 6 January 2016.
Mr Kalyan was dissatisfied with the work and the delay. After an administrator was appointed to Geowash he finished the fit-out and rebranded the business. At LJ [368], the primary judge found:
Mr Kalyan says that the costs that he paid for the establishment of the Geowash franchise were more than he was told and the fit‑out was never finished. He was not provided with a breakdown of actual costs incurred by Geowash in establishing his franchise.
The sixth franchisee: Mr Rajiv Kumar (Geowash Baldivis)
Mr Kumar was born in India where he completed studies in computer applications before coming to Australia on a student visa where he studied cooking and business management. He worked in restaurants and as a store person. He was interested in establishing his own business. He thought he could afford about $200,000 to $250,000, using savings of $80,000. After seeing an advertisement for Geowash in late 2013, he made contact. The primary judge described the response at LJ [371], as follows:
… He received an email response from Geowash. It referred to prime exclusive territories being available 'from $149,500 plus GST (inclusive of negotiated lease, shop fit out, all equipment fixtures and fittings. establishment of business with the set up and initial ongoing customers)'. It attached the Franchise Overview and Your Next Steps documents. The Franchise Overview described 'Geowash Hand Car Wash Set‑up Costs' as ranging from $89,000 for a multi‑level car park to $250,000 for carwash and café.
Mr Kumar’s first discussion with Geowash follows, as set out by the primary judge at LJ [372]:
Mr Kumar then spoke to Mr Gujral on the telephone. Mr Kumar said he was in Baldivis and Mr Gujral said that Geowash had a site there for a franchise. Mr Kumar asked about cost. Mr Gujral told him that the starting price would be $149,500 plus GST, but a store with a café would be a maximum of $250,000 plus GST. Mr Kumar asked whether everything was included in the $250,000 and Mr Gujral confirmed that everything was included. He said that it would take three to six months to get the franchise started because Geowash had good relationships with councils.
Later he completed an application form. He met Ms Ali some months later at the opening of the South Fremantle store. He paid a deposit and was sent the franchise agreement and disclosure document in November 2014.
Mr Kumar read the documents. At LJ [378]–[382], the primary judge described the email exchange between Mr Kumar and Mr Cameron about Mr Kumar’s enquiries about costs. These paragraphs are important to the findings in the case generally:
[378] On 5 December 2014, Mr Kumar sent an email to Ms Ali in the following terms:
I have few questions to clarify before signing the agreement. Would you be able to provide me roughly idea regarding how much would be the total cost altogether and what would be included in it. I have read the agreement and I want to know about how much we have to pay now and what would be included in that because it mention in the agreement about establishment fees, training cost, licence fees, documentation fee and so on. Is everything included in the money that we have to pay after we sign the agreement i.e $33,500 or all these are to be separately pay out?
[379] Mr Cameron responded the next day with the following:
As discussed you don't get separate invoice for training fee as it is packaged in total price of setup. You would already have received the documentation fee invoice from the solicitor and this is paid directly to them after you sign the hard copy of the agreement next week (you have already signed the signature pages and emailed us the copy of the pages you signed of the agreement you received by email). We cannot pay the documentation fee as it is the legal cost or documentation fee for the solicitor preparing the agreement and we cannot pay your legal fee.
Also, as discussed, there are many variables into the price that is paid for a Geowash store that won't become evident until a site is selected and plans and permits are approved and obtained. At this point we can obtain a quote from the builder or builders who will tender for the works. The estimated price will then be provided but will still be subject to the level of fit out of the Cafe', as you have seen at our stores there is a variance in Cafe' finish selected and therefore a different price costed for those stores. As discussed we will have more of an idea once sites are selected and we know more about council requirements etc. Obviously if you select a site of say 1500 square meters and council requires the whole area to be paved then your cost will be more than if the site is already concreted. its was easier for you to get an estimate for the cafe you went into partnership with because you knew the site and a cafe is different to quoting for a site the details and size of which at this stage are not known. You are also not forced to chooses any site shown to you.
I confirm that you will be paying your establishment fee by Monday. I look forward to seeing you next week and in the meantime please call me if you have any further questions.
[380] Mr Cameron's email was copied to Ms Ali, Mr Barjesh Kalyan and Mr Gujral.
[381] The response from Mr Cameron is a significant document in a number of respects. First, there is no suggestion that the arrangement was for an agreed price. Second, Mr Cameron is describing a process of a kind provided for in the franchise agreement, namely the amount to be paid will depend upon the actual cost of the fit‑out. Third, there is no suggestion that there will be charges for time spent by Geowash personnel in respect of the costs of constructing the outlet. The email refers to obtaining quotes from a builder as part of a tender and final cost depending upon the level of finishes.
[382] Other franchisees have given evidence that the arrangements that they made were to similar effect, namely the amounts to be paid to Geowash after the establishment fee were for the costs of arranging the fit‑out. Those franchisees referred to oral communications with Ms Ali and Mr Cameron at about the same time. The email from Mr Cameron in response to the general inquiry from Mr Kumar about how costs would be charged under the franchise agreement for the establishment of the franchise site provides substantial support from a contemporaneous document authored by Mr Cameron for the version of events given by each of the franchisees. It is completely contrary to the case advanced by Ms Ali and Mr Cameron that franchisees agreed a price payable in two instalments.
At RJ [218]–[221], the primary judge excluded the South Fremantle and, potentially, Rockingham franchisees from participation in the fund and, at RJ [222], any other franchisees who had agreed a fixed price with Geowash.
Penalties: grounds 9 and 10
Grounds 9 and 10 of the notice of appeal challenge the penalties imposed by the primary judge as follows:
9. The primary judge erred in relation to the penalties imposed by Order 7 against [Ms Ali] in that:
a. If the Court upholds ground 2 or ground 3, either separately or in combination with any of grounds 4 to 8:
i. no penalty can be imposed for the contravention of s 21 of the ACL; and/or
ii. no penalty can be imposed for the contravention of clause 6 of the Franchising Code of Conduct;
b. Was otherwise in error because the penalty of $800,000 for the contravention of s 21 of the ACL:
i. exceeded the statutory maximum for the single contravention available for the “system” of unconscionable conduct pleaded by the Respondent and found in the Liability Judgment; and/or
ii. manifestly excessive for the objective seriousness of the conduct;
c. The $150,000 penalty imposed in respect of the profit and revenue representation was manifestly excessive for the objective seriousness of the conduct; and
d. The $75,000 penalty imposed in respect of the affiliation representation was manifestly excessive for the objective seriousness of the conduct.
10. The primary judge erred in relation to the penalties imposed by Order 8 against [Mr Cameron] in that:
a. If the Court upholds ground 2 or ground 3, either separately or in combination with any of grounds 4 to 8:
i. no penalty can be imposed for the contravention of s 21 of the ACL; and/or
ii. no penalty can be imposed for the contravention of clause 6 of the Franchising Code of Conduct;
b. was otherwise in error in that the penalty of $640,000 for the contravention of s.21 of the ACL:
i. exceeded the statutory maximum for the single contravention available for the “system” of unconscionable conduct pleaded by the Respondent and found in the Liability Judgment; and/or
ii. manifestly excessive for the objective seriousness of the conduct.
Grounds 9(a) and 10(a) only arise if the Court sets aside the declarations of contravention in relation to s 21 of the ACL and cl 6 of the Code. Grounds 9(b) and 10(b) apply if the appellants’ submissions in relation to grounds 1 to 8 are not accepted. In the light of these reasons, grounds 9(a) and 10(a) do not arise.
Grounds 9(b)(i) and 10(b)(i) challenge the primary judge’s imposition on the appellants of penalties which exceeded the single statutory maximum available for individuals knowingly concerned in one “system” of unconscionable conduct.
Grounds 9(b)(ii) and 10(b)(ii) allege that the penalties imposed on the appellants were manifestly excessive against the objective seriousness of the conduct of the appellants.
Grounds 9(c) and 9(d) allege that the penalties imposed upon Ms Ali for her knowing involvement in Geowash’s contraventions of s 37 and s 29 of the ACL for the Profit and Revenue Representation and the Affiliation Representation respectively were manifestly excessive.
Grounds 9(b)(i) and 10(b)(i)
The appellants’ submissions
The substantive complaint of the appellants was that the primary judge erred in not approaching the question of imposition of penalties for unconscionable conduct by reference to one maximum penalty for the employment of one system.
The appellants submitted that the primary judge used one analysis for the purposes of liability: that there was a system or pattern of conduct (see LJ [673]); and another at the stage of determining penalty. It was submitted that the error was to overlook the distinction between a system or pattern and a series of cases of proof of individual disadvantage. The appellants submitted that the error was illuminated in RJ [132]:
In the above circumstances, it is not correct to characterise the case as to unconscionable conduct that was advanced by the ACCC as one where the contravening conduct was confined to the conception and the implementation of a scheme without regard to the particular dealings with each franchisee. The present case is to be distinguished from the nature of the cases advanced in each of Kobelt and Westpac. The case advanced by the ACCC depended to a considerable degree upon the evidence of the actual dealings with the seven franchisees. It was not a system case in the sense that the case advanced as to the nature of the contravening conduct was confined to the formulation of the manner of dealing with franchisees. Nor was this a case of broadcast conduct whereby a single act was directed at many customers such as by the publication of a statement on a website or in an advertisement. Rather, the case depended upon demonstrating a system or pattern as to the way in which Geowash dealt with each franchisee. However, it was necessary to examine the particular conduct in dealing with each of the seven franchisees and the circumstances of each franchisee in order to determine whether there was a pattern of behaviour that enabled inferences to be drawn as to the manner in which Geowash dealt with all of its franchisees.
The appellants drew support from the approach of the trial judge (White J) in Australian Securities and Investments Commission v Kobelt [2017] FCA 387 where the Australian Securities and Investments Commission pursued a single system case irrespective of proof of the circumstances of or dealings with particular individuals. Justice White found a single contravention. The approach was not the subject of analysis in the Full Court or High Court.
The appellants submitted that there were clear errors in the approach of the primary judge in RJ [131]:
(a)RJ [131(1)–(3)] did not consider the concise statement.
(b)RJ [131(8)–(16)] overlooked the difference between how the case was pleaded and then proved.
(c)The submission at RJ [131(14)] was wrongly accepted when it had been rejected on liability.
(d)RJ [131(17)] is answered by the phrasing of the system at LJ [673].
(e)The case, it was submitted, was run as one system, not as thirty contraventions. The appellants referred to [4]–[15] of the concise statement to reinforce the notion of a single system or pattern.
(f)The appellants referred to the expression of the matter such as at LJ [558]–[566] and LJ [672]–[674] as a system of unconscionable conduct, not as separate instances. Expressions used by the primary judge such as “the course of dealing” with franchisees reveal, it was submitted, one course of conduct. The phrasing of LJ [673] ([184] above) was submitted to be crucial.
Consideration of grounds 9(b)(i) and 10(b)(i)
The proper starting point is the statute. Relevantly, s 224 provides as follows:
224 Pecuniary penalties
(1) If a court is satisfied that a person:
(a) has contravened any of the following provisions:
(i) a provision of Part 2‑2 (which is about unconscionable conduct);
…
the court may order the person to pay to the Commonwealth, State or Territory, as the case may be, such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the court determines to be appropriate.
(2) In determining the appropriate pecuniary penalty, the court must have regard to all relevant matters including:
(a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and
(b) the circumstances in which the act or omission took place; and
(c) whether the person has previously been found by a court in proceedings under Chapter 4 or this Part to have engaged in any similar conduct.
Thus, it is each act or omission to which the section applies. That is, in the context of s 21 and s 224(1)(a)(i), each engagement, in the course of the supply or possible supply of goods or services to a person, in conduct that is in all the circumstances unconscionable.
Section 21(4)(b) makes clear that the section (the provision relevantly set out above) is capable of applying to a system of conduct or pattern of behaviour whether or not a particular individual is identified as having been disadvantaged. So, a contravention may be established by proof that a system of conduct or pattern of behaviour that was unconscionable has been employed. It does not follow that such means there has only been one act or omission or one engagement in conduct for the combined purposes of s 21(1) and s 224(1). The question is: What was the relevant act or omission here? The primary judge found, the case having been propounded by the ACCC, that in relation to the supply or possible supply of goods or services to a series of unrelated counterparties Geowash (and complicitly Ms Ali and Mr Cameron) on a number of occasions engaged in conduct that was in all the circumstances unconscionable. Seven franchisees were called. The finding was made in relation to six, and findings were made that the same unconscionable conduct occurred with others. That finding was made, as we have said more than once, based on all the evidence, including that of Ms Ali and Mr Cameron. The appellants approached these individuals in connection with the supply or possible supply of goods or services in a systematic way using a pattern of conduct described by the primary judge and in these reasons. The finding of the system of conduct or pattern of behaviour enabled findings to be made about individuals who gave evidence and individuals who did not.
The case as presented was not just about a system of conduct or pattern of behaviour, but how the finding of such explained, and provided support for factual findings as to how a collection of identified individuals and a group of people were treated over a significant period of time: how Geowash (and complicitly, Ms Ali and Mr Cameron) engaged in conduct on a number of occasions that was unconscionable. The conclusion by the primary judge that the case advanced was not confined to the conception and implementation of a scheme without regard to particular dealings was plainly correct.
It can be accepted that how s 21 and s 224 apply in any case can be affected by how the ACCC chooses to construct, present and run the case. The case was framed by the concise statement. In short form it set out how prospective franchisees were dealt with by Geowash, Ms Ali and Mr Cameron. To the extent that the concise statement sought to summarise a system of conduct or pattern of behaviour, such was in aid of assertions as to how Geowash dealt with a group of prospective franchisees. The unconscionable conduct referred to in [20(b)] of the concise statement was about how the franchisees were treated including: by the provision of documents to prospective franchisees: [4]–[5] of the concise statement; in the negotiations with prospective franchisees; how on those occasions when they were selling franchises a system of conduct or pattern of behaviour would be used or exhibited: [7]–[8] of the concise statement; and how in relation to the franchisees the funds were used: [13] and [14] of the concise statement.
The case as run and as discussed by the primary judge in the LJ and the RJ focused upon how individuals who were called were treated, and how, from the whole of the evidence, findings could be made as to how other prospective franchisees were treated. The case was about a system of conduct or pattern of behaviour, but it was also about how that system of conduct or pattern of behaviour was applied to a group of franchisees; and how it explained, and how it permitted conclusions about, the engagement in unconscionable conduct with a significant number of people over the course of a number of years.
There was no error, nor any unfairness whatsoever, in the approach of the primary judge.
We consider that there was no error in the approach to penalty described in RJ [137]–[138] which we have summarised at [333] above, but which we set out in full because not only does it demonstrate concisely and lucidly why there was no single, so-called course of conduct, but also it demonstrates the true nature of the case as set out in the LJ and the RJ:
[137] As to whether the conduct should be viewed as a single course of conduct, in my view that would not be appropriate. The dealings were over a considerable period. They involved a separate and extended engagement with each prospective franchisee. Although the overall approach to the dealings was the same, the meetings and much of the correspondence were specific to the particular franchisee. The fees charged to each franchisee were not the same. To treat the conduct as a single course of conduct would not reflect the sustained nature of the behaviour and the need for separate dealings with each franchisee.
[138] Although the same overall approach was adopted for each franchisee, it was not a case of broadcast conduct whereby a single act was directed at many customers such as by the publication of a statement on a website or in an advertisement. Each dealing was with a particular franchisee and involved separate and distinct conduct repeating the same pattern of behaviour in dealing with different franchisees. It was not a general scheme to engage with all customers by a single program. It involved reaching a separate agreement with each franchisee. It was continued for a number of years. These aspects of the contraventions make the system of conduct an inappropriate tool for the present case. What is more significant is the totality principle and an understanding of the extent of the consequences for franchisees. Whether it be described as a system or as a pattern of behaviour, the contraventions involved essentially the same behaviour formulated as a general approach to dealing with franchisees and then implemented for each of them. It would be inappropriate to assess the contraventions on the basis that they involved completely distinct types of contravening behaviour.
Grounds 9(b)(ii) and 10(b)(ii)
The appellants’ submissions
There were two elements to the complaints by Ms Ali and Mr Cameron as to the penalties imposed on them of $1,045,000 and $656,000, respectively:
(a)an incorrect assessment of the objective seriousness of the conduct; and
(b)a misalignment of the respective penalties by reference to the maximum penalty such as not to reflect appropriate notions of parity.
As to (a) above, the unconscionable conduct and the objective seriousness of the conduct, the earlier submissions on the question of liability were largely repeated. The unconscionability was submitted to arise from how a franchise price was derived – and was at the “very low end of the objective seriousness”. The submissions noted the findings at LJ [683] that the ACCC had not proved that requests for moneys coincided with Geowash being short of funds and that it was not part of the course of conduct that Geowash would not deliver an operating car wash.
As to the Profit and Revenue Representations, Ms Ali submitted that the conduct was not serious. Only six franchisees signed the agreements with Geowash after publication of the representations in May 2015 and none of these gave any evidence of reliance. Ms Ali removed the representations after concern was raised. It was submitted that the conduct was at the low end of seriousness.
As to the Affiliation Representation, again this was submitted to be at the low end of objective seriousness. There was only one page of information. No franchisee called to give evidence had any regard to it. The page was removed after the ACCC raised concerns.
As to (b) above, the misalignment of the penalties against the maximum penalty, the submission was that there was one course of conduct for each contravention and that there was a “fundamental imbalance as against the statutory maximum available”. Also, the proportions between Geowash, Ms Ali and Mr Cameron did not, it was submitted, “show a consistent determination of the objective seriousness of the conduct”. This was reflected in the following table in the appellants’ submissions:
Contravention
Geowash
Ms Ali
Mr Cameron
Profit and Revenue Representation – s 37(2) of the ACL
$300,000 against a statutory maximum of $1.1 million
Low end, approximately 30% of the maximum
$150,000 against a statutory maximum of $220,000
High end, approximately 68% of the maximum
NA
Affiliation Representation – s 29(1)(h) of the ACL
$150,000 against a statutory maximum of $1.1 million
Low end, approximately 15% of the maximum
$75,000 against a statutory maximum of $220,000
Mid to low range, approximately 34% of the maximum
NA
Unconscionable conduct – s 21 of the ACL
$2 million against the statutory maximum of $1.1 million for a body corporate
Approximately two times the worst case
$800,000 against the statutory maximum of $220,000
Approximately four times the worst case
$640,000 against the statutory maximum of $220,000 for an individual
Approximately three times the worst case
Breach of the Good Faith Obligation – s 51ACB of the CCA
$50,000 against a statutory maximum of between $51,000 to $54,000
High end
$20,000 against a statutory maximum of between $51,000 to $54,000
Mid to low end
$16,000 against a statutory maximum of between $51,000 to $54,000
Mid to low end
In particular, the correlation between Ms Ali and Geowash when one took into account penalties for breach of the Code was disproportionate, being twice as heavy for Ms Ali. This revealed, it was submitted, that there was no reasonable relationship between the theoretical maximum and final penalty imposed contrary to Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [156] and Markarian v The Queen [2005] HCA 25; 228 CLR 357.
Consideration of grounds 9(b)(ii) and 10(b)(ii)
All the submissions whether in relation to (a) or (b) at [369] above fail to come to grips with the primary judge’s findings and approach and fail to identify any error of principle sufficient to impugn a discretionary sentencing judgment.
As to the objective seriousness of each of the contraventions, the restatement of the submissions on liability for unconscionability, repackaged in summary form in dealing with penalty, did not identify any error in how the primary judge looked at the seriousness of the unconscionable conduct. It involved a pattern of systematic dishonest conduct over a number of years. The primary judge treated it as serious. It was serious. The primary judge gave careful reasons for the differences in penalties appropriate to Geowash, Ms Ali and Mr Cameron which revealed no error. The statutory maximum is an important consideration. The reasons of the primary judge reflect an understanding of that. The variations in ratios of the different respondents was explained in clear and cogent reasons not otherwise criticised.
As to the website representations, again no error of principle was identified. That the deception was on “one page” is hardly relevant. That the witnesses called did not rely on the page does not affect its misleading quality. The subjects of the misrepresentation were such as were apt to lead to confidence and trust in the organisation – the kind of requisite and proper business trust that was otherwise undermined by the dishonest pattern of unconscionable conduct.
We agree with the ACCC’s submissions that as to both types of conduct the primary judge undertook a careful and considered analysis of the conduct and its nature at RJ [7]–[23], of the explanations and mitigating conduct at RJ [25]–[39] and all relevant factors at RJ [75]–[153]. The utility of comparative penalties in individual fact-sensitive cases such as the present is limited. Certainly, however, the penalties do not bespeak any manifest excess for systematic dishonest conduct and blatant misrepresentations.
Grounds 11 and 12 – consumer redress
The appellants’ submissions
There were initially three aspects to the appeal on the consumer redress orders:
(a)as a matter of construction of s 239 of the ACL and s 51ADB of the CC Act the franchisees were not non-party consumers;
(b)the orders to create a trust fund to be administered by an accountant under the supervision of the Court were novel and beyond power; and
(c)the quantum of funds to be contributed by each of Ms Ali and Mr Cameron was arbitrary, inappropriate and manifestly excessive.
The first group of arguments was abandoned at the hearing of the appeal.
As to the second, (b) above, contained in ground 11, it was submitted that the form of the orders was novel, indeed unprecedented. The argument was, as it had to be, that such a form of order was and is outside the terms of s 239. It was submitted that the kinds of orders that may be made are listed in s 243 and all operate on a bilateral basis against (see s 239) the contravening party. The extrinsic material was submitted to support this bilateral limitation.
It was also submitted that the damage of the non-party consumers was not identifiable; that each case would require some consideration of the merits of the individual’s relationship and negotiation with Geowash.
As to the quantum of the contribution, (c) above, contained in ground 12, the sums were arbitrary and separate from any need for redress. It was submitted, again relying on arguments put forward on unconscionability, that the redress gave a discount on the price of businesses that had been negotiated by the parties. It was further submitted to be inappropriate to give redress where it was not possible on the evidence “to identify the particular extent to which any particular franchisee might have received less by way of expenditure on fit-out and set-up than the amount contributed”: (RJ [163]). There will be, it was submitted, arbitrary guess work involved.
Further, in the light of the evidence that there had been out of court settlements with three franchisees, that some had rebranded their businesses and brought the agreements to an end, and that Ms Ali had contributed $550,000 into Geowash after it entered into administration, the making of the orders was inappropriate and excessive.
Consideration of grounds 11 and 12
We reject these submissions.
The novelty of the structure of such a structured redress order is no defect. The width of the power is confined only by the text of s 239 and the statutory purpose of remedying the likelihood of loss.
The orders were undoubtedly against Ms Ali and Mr Cameron. The orders were carefully drafted and crafted to fit the consequences of the systematic unconscionable conduct. The unconscionable conduct saw money extracted from franchisees for (on the basis of the representations) fit-out and set-up when a significant percentage was taken in commissions. To that extent loss and damage can be posited as the diversion of funds through the dishonest conduct away from the represented purpose. The scheme can be seen to be analogous to “an order directing the respondent to refund money”: s 243(d).
The analysis of the primary judge was careful and led to the conclusion, not squarely challenged, that the unconscionable conduct led to commissions of at least $1,000,000 to be paid to and retained by the appellants: RJ [208].
The evidence allowed the conclusion that commissions were paid at the same rate for each franchisee, making a pro-rata entitlement to payment appropriate and fair, irrespective of the other individual circumstances of the franchisees.
It was not arbitrary to require $500,000 each. Ms Ali had made reparation of $550,000. Both were involved in the systematic dishonest conduct: an equality of burden was not inappropriate.
There is no need for the accountant to undertake any extended examination of the facts of each franchisee. What is relevant is the amount of the payments, which will be readily apparent. There is no basis to think that there will be over-compensation. Any surplus will be returned. The accountant’s role is administrative and under the supervision of the Court. In other cases where there might be more judgment involved it may be wiser to direct that a Registrar of the Court examine the function such that decisions that may be judgmental or judicial in character can be subject to review as contemplated by Harris v Caladine [1991] HCA 9; 172 CLR 84.
The amounts were not excessive. We do not need to repeat our views (which are the same as the primary judge’s views) that the conduct was very serious: as systematic dishonesty. There is nothing excessive about a scheme designed to redress the consequences of the dishonesty.
There is no basis to conclude that the orders directed against Ms Ali and Mr Cameron to pay with the consequential supervisory orders on the accountant to administer the scheme are somehow outside s 239. That proper professional costs of the administration of the fund are to be paid is legitimately incidental and appropriate.
We see no error in the primary judge’s choice of structure of the order or in the content of the orders.
Ground 13: Excessive disqualification
Once again the appellants sought to downplay the seriousness of the conduct as at the low end of seriousness.
We have rejected this earlier in these reasons. This was systematic dishonest conduct. Once that seriousness is recognised, there can be no basis to consider that the primary judge was too harsh. Indeed, no error of principle was put forward. The complaint rested on the characterisation of the seriousness of the conduct. That complaint is ill-founded. This ground also fails.
Orders
The appeal of each appellant should be dismissed with costs. The orders as to costs made by the primary judge in relation to the first instance proceedings should not be disturbed: Australian Competition and Consumer Commission v Geowash Pty Ltd (Subject to a Deed of Company Arrangement) (No 5) [2020] FCA 440.
I certify that the preceding three hundred and ninety-seven (397) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Chief Justice Allsop and Justices Besanko and Perram. Associate:
Dated: 22 June 2021
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