Astram Financial Services Pty Ltd v Bank of Queensland Ltd
[2010] FCA 1010
FEDERAL COURT OF AUSTRALIA
Astram Financial Services Pty Ltd v Bank of Queensland Ltd [2010] FCA 1010
Citation: Astram Financial Services Pty Ltd v Bank of Queensland Ltd [2010] FCA 1010 Parties: ASTRAM FINANCIAL SERVICES PTY LTD, LEICESTER DENIS RAMSEY, KIM SUE-ELLEN RAMSEY and LD RAMSEY FAMILY TRUST v BANK OF QUEENSLAND LTD File number: NSD 2479 of 2006 Judge: BUCHANAN J Date of judgment: 15 September 2010 Corrigenda: 20 September 2010
15 September 2010Catchwords: TRADE PRACTICES – s 52 of Trade Practices Act 1974 (Cth) – misleading and deceptive conduct – alleged misrepresentations made in oral discussions – representations contrary to statements made in formal written documents – necessity to look at whole course of conduct – representations either not made or not misleading or deceptive having regard to whole course of conduct – no reliance on representations – no loss or damage caused to applicants
TRADE PRACTICES – s 51AC of Trade Practices Act 1974 (Cth) – respondent alleged to have engaged in unconscionable conduct – unconscionable conduct involves a high level of moral obloquy or is highly unethical – no unconscionable conduct established on facts
TRADE PRACTICES – s 51AD of Trade Practices Act 1974 (Cth) – breach of industry code – franchising code of conduct – no failure to comply with franchising code of conduct – no breach of legislation
CONTRACTS – breach of contract – representations alleged to be warranties of a contract collateral to formal written contract – such representations not made or not breached – no repudiation by respondent of formal written contract
EVIDENCE – tendency evidence – amendments to Evidence Act 1995 (Cth) – evidence only admissible if it will have significant probative value – evidence sought to be adduced was not admissible under tendency rule
TRUSTS – trustee remains personally liable even if documents were signed as trustee
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12BAB, 12CC, 12DA, 12GF, 12GM
Evidence Act 1995 (Cth) ss 57, 95, 97, 192A
Trade Practices Act 1974 (Cth) ss 4, 51AA, 51AB, 51AC, 51AD, 51AF, 51A, 52, 82, 84(2)(b), 87Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth)
Federal Court Rules O 11 r 13(3)
Cases cited: Attorney General of New South Wales v World Best Holdings Pty Ltd (2005) 63 NSWLR 557
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51
Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Re CSR Ltd (2010) 265 ALR 703
Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58
Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193
Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773
Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78
Jacara Pty Ltd v Perpetual Trustees WA Ltd (2000) 106 FCR 51
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101
McGrath v Australian Naturalcare Products Pty Ltd (2008) 165 FCR 230
Poulet Frais Pty Ltd v Silver Fox Company Pty Ltd (as trustee for Baker Family Trust) (2005) 220 ALR 211
St George Bank Ltd v Federal Commissioner of Taxation (2009) 176 FCR 424
Traderight Pty Ltd v Bank of Queensland [2010] NSWSC 139Dates of hearing: 28, 29, 30 September 2009
1, 6, 7, 8, 9, 13, 14 October 2009
1, 2, 9, 10 December 2009
15 and 16 February 2010
21, 22, 23, 28 April 2010
4 and 5 May 2010Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 377 Counsel for the Applicants: Mr P King and Mr J Loxton Solicitor for the Applicants: Mulally Mylott Solicitors Counsel for the Respondent: Mr S Couper QC, Mr A Moses SC and Mr B Miles Solicitor for the Respondent: HWL Ebsworth Lawyers FEDERAL COURT OF AUSTRALIA
Astram Financial Services Pty Ltd v Bank of Queensland Ltd
[2010] FCA 1010CORRIGENDUM
1.In line 1 of paragraph 373 of the Reasons for Judgment, replace the words “Mr and Mrs Astridge” with “Mr and Mrs Ramsey”.
I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Buchanan. Associate:
Dated: 20 September 2010
FEDERAL COURT OF AUSTRALIA
Astram Financial Services Pty Ltd v Bank of Queensland Ltd
[2010] FCA 1010CORRIGENDUM
1.In line 1 of paragraph 25 of the Reasons for Judgment, replace the words “this kind” with “a franchising code”.
I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Buchanan. Associate:
Dated: 15 September 2010
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2479 of 2006
BETWEEN: ASTRAM FINANCIAL SERVICES PTY LTD
First Applicant/Cross-RespondentLEICESTER DENIS RAMSEY
Second Applicant/Cross-RespondentKIM SUE-ELLEN RAMSEY
Third Applicant/Cross-RespondentLEICESTER DENIS RAMSEY AS TRUSTEE FOR THE LD RAMSEY FAMILY TRUST
Fourth Applicant/Cross-RespondentAND: BANK OF QUEENSLAND LTD
Respondent/Cross-Claimant
JUDGE:
BUCHANAN J
DATE OF ORDER:
15 SEPTEMBER 2010
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The respondent is to bring in short minutes of order to give effect to these reasons for judgment within seven days.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 2479 of 2006
BETWEEN: ASTRAM FINANCIAL SERVICES PTY LTD
First Applicant/ Cross-RespondentLEICESTER DENIS RAMSEY
Second Applicant/ Cross-RespondentKIM SUE-ELLEN RAMSEY
Third Applicant/ Cross-RespondentLEICESTER DENIS RAMSEY AS TRUSTEE FOR THE LD RAMSEY FAMILY TRUST
Fourth Applicant/ Cross-RespondentAND: BANK OF QUEENSLAND LTD
Respondent/Cross-Claimant
JUDGE:
BUCHANAN J
DATE:
15 SEPTEMBER 2010
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
[1]
The principal parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
[1]
Mr Ramsey as the fourth applicant........ ........ ........ ........ ........ ........ ........ ........ ........ .
[2]
Opening remarks........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
[5]
The OMB Agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
[13]
The pleadings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....
[18]
EVENTS BEFORE EXECUTION OF THE OMB AGREEMENT........ ........ ........ .
[26]
Mr Ramsey’s background and experience........ ........ ........ ........ ........ ........ ........ ......
[26]
Meeting No 1 – 17 November 2004........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[27]
Meeting No 2 – 9 December 2004........ ........ ........ ........ ........ ........ ........ ........ ........ .....
[32]
Meeting No 3 – 3 February 2005........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[44]
Meeting No 4 – 21 February 2005........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[54]
The business plan........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
[66]
The OMB Agreement and the security documents........ ........ ........ ........ ........ ........
[84]
Independent advice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[86]
Execution of the OMB Agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[97]
The representations deed........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..
[99]
EVENTS AFTER EXECUTION OF THE OMB AGREEMENT........ ........ ........ ....
[103]
Training........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[103]
Meeting 5 – May/June 2005........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[106]
Mr and Mrs Astridge sell their interest in Astram........ ........ ........ ........ ........ ........ .
[113]
Execution of the security documents........ ........ ........ ........ ........ ........ ........ ........ .......
[125]
business term loan........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..
[129]
business overdraft........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
[130]
Fixed and floating charge........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[131]
guarantee and indemnity for business term loan........ ........ ........ ........ ..
[132]
first guarantee and indemnity for business overdraft........ ........ .......
[133]
business overdraft variation........ ........ ........ ........ ........ ........ ........ ........ ......
[134]
second guarantee and indemnity for business overdraft........ ........ ...
[135]
home loan agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[136]
mortgage........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..
[137]
Branch operations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[139]
Meeting No 6 – 23 January 2006........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[143]
Remedial measures........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[151]
Breach notice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[175]
ACCOUNTING EVIDENCE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
[192]
Mr Darel Hughes........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......
[192]
Mr Fitzpatrick........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[213]
Conclusions about the accounting evidence........ ........ ........ ........ ........ ........ ........ ....
[220]
OTHER MATTERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[224]
The broker book........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
[224]
Reliance on “tendency” evidence........ ........ ........ ........ ........ ........ ........ ........ ........ .....
[231]
Mr Ramsey’s claims about marketing........ ........ ........ ........ ........ ........ ........ ........ .....
[245]
Witnesses not called........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[260]
Character and quality of asserted representations........ ........ ........ ........ ........ ........
[261]
Inducement and reliance........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[283]
THE APPLICANTS’ PLEADINGS IN MORE DETAIL........ ........ ........ ........ ........ ..
[298]
The ASIC Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....
[301]
Section 51A of the Trade Practices Act........ ........ ........ ........ ........ ........ ........ ........ ...
[307]
Section 52 of the Trade Practices Act........ ........ ........ ........ ........ ........ ........ ........ ......
[311]
Section 51AC of the Trade Practices Act........ ........ ........ ........ ........ ........ ........ .......
[333]
Section 51AD of the Trade Practices Act........ ........ ........ ........ ........ ........ ........ ........
[343]
Breach of contract claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...
[355]
Conclusion on the applicants’ claims........ ........ ........ ........ ........ ........ ........ ........ .......
[358]
THE BANK’S CROSS CLAIM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[359]
Mr Ramsey as trustee........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........
[359]
The securities........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......
[371]
COSTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....
[376]
ORDERS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
[377]
BUCHANAN J:
INTRODUCTION
The principal parties
In late 2004 the second applicant (“Mr Ramsey”) decided to apply to the respondent (“the Bank”) to enter into a franchise agreement with it to conduct one of its branches in New South Wales. The first applicant (“Astram”) is the company which was later established to conduct the franchise. A contract was in due course made between Astram and the Bank whereby Astram was appointed the Bank’s agent to operate a branch of the Bank at Campbelltown, New South Wales (Campbelltown is a satellite city a short distance to the south-west of Sydney). The Bank provided term loan and overdraft facilities to Astram to enable it to conduct the franchise. Performance of Astram’s obligations with respect to the loans was secured by a fixed and floating charge given over Astram’s assets, by guarantees executed by Mr Ramsey and the third applicant (“Mrs Ramsey”) and by a mortgage executed by Mr and Mrs Ramsey over their home. In this way Mr and Mrs Ramsey tied their personal financial fortunes to the success or failure of the franchise arrangement.
Mr Ramsey as the fourth applicant
Astram was originally established with Mr Ramsey and two others (Mr and Mrs Astridge) as shareholders (50%/25%/25%). The name “Astram” is derived from their surnames. By about the time the franchise arrangements actually commenced all shares in Astram were held by Mr Ramsey, he having bought out the interests of Mr and Mrs Astridge with the Bank’s consent.
It appears that it was originally intended that each of Mr Ramsey and Mr and Mrs Astridge would hold their shares in Astram as trustees for family trusts (the LD Ramsey Family Trust in the case of Mr Ramsey). However, it is not clear (there being no evidence about it) whether Mr Ramsey ever purported to hold his original shareholding as a trustee. When Mr Ramsey acquired the shares held by Mr and Mrs Astridge it is also unclear whether he intended to do so on behalf of a trust or in his own name. It is likely that he did not really understand the difference involved in acting in those two capacities.
When Mr Ramsey was asked to execute the guarantees which he gave to secure performance of Astram’s obligations, those documents were offered to him for signature (and he signed them) nominally as trustee for the “LDR Family Trust” (not the LD Ramsey Family Trust). Leaving aside that complication, the LD Ramsey Family Trust is not a separate legal entity. It has no independent rights or obligations which are relevant to the present proceedings. I shall later discuss the suggestion that Mr Ramsey may have acted in some respects as a trustee. As will be seen, I conclude that if that occurred, which is far from clear, that has no significance for his obligations personally.
Opening remarks
The franchise which Mr Ramsey sought arose from arrangements put in place by the Bank in 2004 whereby it contracted in New South Wales (as it earlier had in Queensland), with companies established for the purpose of such arrangements, for the operation of new branches of the Bank by franchisees. It was a normal condition of approval of such arrangements that the intended branch manager be a principal shareholder of the franchisee and have adequate prior banking experience. Mr Ramsey did not satisfy that latter condition. However, he found a proposed partner who did, Mr David Astridge. Mr Astridge and his wife, Marie, were proposed as shareholders in the intended franchisee (with a combined interest of 50%). Mr Astridge, who had banking experience, was to be the branch manager. The Bank agreed to entertain a proposal from Mr Ramsey and Mr and Mrs Astridge on that basis.
A central element in the Bank’s requirement of an intending franchisee was the preparation of an appropriate business plan by its principal(s), based on independent enquiries and research, setting out expected expenses and revenue for the initial years of the franchise. Some of the information necessary to make this assessment was provided by the Bank. However, a critical element in the assessment was a judgment about the volume of new loans of various kinds which would be written by the franchisee in its intended location. The Bank had an underlying expectation that, within a reasonable period of opening, a franchisee should be in a position to write new loan business amounting to $4 million per month. Achievement of that objective would provide a satisfactory return to both the Bank and the franchisee. Mr Ramsay and Mr Astridge prepared and submitted a business plan for a proposed Bank of Queensland branch at Campbelltown, predicting such an outcome.
The Bank’s position in relation to the franchise arrangement was set out in detail in a number of documents. Some were formal letters (the contents of which were required to be acknowledged before negotiations proceeded further); some were contractual documents. They each bear the appearance of documents drafted from a position of commercial and negotiating superiority but, notwithstanding the availability of criticism of their terms on that account, they were consistently emphatic that entry into a franchise arrangement of the kind which Mr Ramsey and Mr Astridge sought with the Bank was to be based on business judgments made by the intending franchisee, and its principal or principals, and not on assumptions engendered by any conduct of the Bank. The Bank, at the time of entry into the franchise and earlier, expressly disclaimed any liability for the business fortunes of the franchise. Franchisees and their principals were required to acknowledge and accept this feature of the arrangement and agree to absolve and indemnify the Bank from any responsibility for the business fortunes of the franchise, after receipt of legal and accounting advice. Astram, Mr Astridge and Mr Ramsey accepted those terms.
The Bank accepted Astram’s proposal, based on the business plan submitted by Mr Astridge and Mr Ramsay. A formal contract was executed. Some time later, but before the branch opened, Mr Ramsey and Mr Astridge decided not to continue in partnership and as co-principals of Astram. Mr Ramsey wished to continue alone. The Bank permitted him to do so provided he employed an experienced banker as branch manager, while he sought another partner, which he agreed to do.
Astram’s business failed. The case for the applicants, expressed in various ways, is that the business failed because the Bank misrepresented the prospects for success of the business and/or the level of support which it would provide to it.
Astram never achieved the targets stated in the business plan by Mr Ramsey and Mr Astridge including writing $4 million in loans per month. The applicants’ case is that the Bank assured them that such a target was achievable and knew of no reason why it would not be achieved. Mr Ramsey asserted in his evidence that he relied on the Bank in that regard and would never have entered into the arrangement otherwise. At the heart of the applicants’ case lay the premise that the written terms of the documents which recorded the various legal relationships between the Bank and the applicants should be subordinated to a finding that the Bank had promised Astram a successful business. When the business failed, the cause of failure was to be found in the non-fulfilment of the Bank’s assurances. The Bank was responsible, not the applicants. As a result (although logical support for this extension of the theme is difficult to find) the applicants should be relieved of all their liabilities to the Bank, including pre-existing debts which the Bank refinanced.
It is easy enough to feel sympathy for the position in which Mr and Mrs Ramsey now find themselves. However, the central defect in the applicants’ case, which was never satisfactorily addressed, lies in the fact that the commitments which they each made were based on written statements (some contractual) about the rights and obligations of the parties which were clear and relevantly unqualified. In each case the “assurances” upon which the applicants relied were contradicted by the express written contractual terms which they executed, and by intermediate written statements of the Bank’s position. Not only the contractual terms, but also the intermediate written statements, were accepted by Mr Ramsey on behalf of Astram and endorsed as understood by him. The applicants’ case elevated the asserted contents of introductory discussions (of which there was no written record) to a position of overriding importance. It reduced the significance of every inconsistent or contradictory written statement or contractual term effectively to one of no, or insignificant, weight or legal content. There is no foundation in legal principle, statute or commercial practice for such an approach and the applicants’ case was therefore bound to fail.
The lengthy discussion which follows, out of deference to the need for an explanation of the preceding summary, will lead only to that same conclusion.
The OMB Agreement
During the course of the proceedings, there was frequent reference in the applicants’ case to the “model” which the Bank held out to intending franchisees. It was implicit in the way the term was used that the model was advanced by the Bank as the embodiment of a certain intended standard of success. I do not intend to use the term with that connotation implicit in it. Whether any particular standard of success was anticipated for the model, much less represented, is something which requires separate consideration. However, used neutrally, the term is a useful enough description of the Bank’s proposal that the conduct of a significant number of branches in New South Wales be placed in the hands of franchisees. The centrepiece of the model was the “OMB Agreement” (“OMB” indicating owner managed branch).
The OMB Agreement, which in Astram’s case was executed on 26 April 2005, extended for 46 pages. Schedule 1 occupied a further 11 pages. A 29 page lease was attached. The parties to the OMB Agreement were the Bank, Astram and its directors, who at the time of execution were Mr Ramsey and Mr Astridge. The agreement provided for the conduct of a branch of the Bank at premises which were to be leased by the Bank (although they were in fact to be selected by Messrs Ramsey and Astridge on behalf of Astram). Astram was appointed the Bank’s agent to conduct the business of the branch. An upfront fee of $80,000 was payable by Astram. A monthly licence fee of $1,000 was payable after the first year of operation. The agreement was for a term of five years. Astram was to be paid for its services in conducting the branch as the agent of the Bank in accordance with a schedule of commission payments identified in Schedule 1 to the OMB Agreement.
Astram was required to appoint a branch manager who would be a director or shareholder of Astram. Approval of the Bank to the appointment of the branch manager was required. Written approval of the Bank was required before any change was made in the identity of the branch manager or in the shareholding or control of Astram. Astram was required to employ other staff and was responsible for meeting all the costs of their employment. It was responsible, generally speaking, for all the operational costs of the branch. Astram was also required to fund the cost of fit-out of the branch premises.
Clause 33 of the OMB Agreement contained the following provisions:
33.2Amendment
This Agreement can only be amended, supplemented, replaced or novated by another agreement signed by the Parties.
…
33.4 Operation of this document
(a)Subject to any contrary provision contained in any Transaction Document, this Agreement contains the entire agreement between the Parties about its subject matter. Any previous understanding, agreement, representation or warranty relating to that subject matter is replaced by this Agreement and has no further effect.
The transaction documents to which clause 33.4(a) referred included a fixed and floating charge over the assets of Astram and personal guarantees to secure performance of Astram’s obligations to the Bank arising from the franchise arrangements. These will be referred to in due course. These documents did not make any provision contrary to the OMB Agreement. The transaction documents also included a “representations deed” to which separate attention needs to be given. Subject to those matters, the provisions of clause 33.2 and 33.4(a) represented a significant obstacle to the applicants’ case, based as it was largely upon suggested representations which preceded the execution of the OMB Agreement.
The pleadings
The pleadings in this matter proceeded in large part by repetition of identical allegations, separated only by reference to different statutory obligations. The result is a dense thicket of intermingled allegations from which it is difficult to extract clear and reliable factual complaints to support clearly identified legal rights. In the circumstances of the present case it will be necessary to deal in some detail with the facts before attempting to examine the pleaded allegations in any detail.
Most of the applicants’ causes of action arise from the Trade Practices Act 1974 (Cth) (“the TP Act”). They represent three broad accusations concerning the Bank’s conduct:
A.The Bank committed misleading and/or deceptive conduct (s 52 of the TP Act).
B.The Bank committed unconscionable conduct (s 51AC of the TP Act).
C.The Bank breached a statutory franchising code of conduct by which it was bound (s 51AD of the TP Act).
I will address each of these contentions in greater detail after I have dealt with the factual circumstances against which they must be assessed. However, some very general points may be made at the outset. I will discuss the legal foundation for the propositions distilled hereunder when I return to deal with the pleadings in more detail.
Most of the evidence in the applicants’ case was devoted to the proposition that, the Bank breached s52 of the TP Act by making representations about the franchise model, and about the prospects for a franchisee, which were misleading and/or deceptive. As a result of the Bank’s conduct, the applicants contended, they were induced to participate in (or support) the franchise arrangements with the further result that they lost substantial sums of money, or were exposed to the risk of such loss.
A case of that kind must be evaluated bearing some important considerations in mind:
•In the case of pre-contractual representations, where the representee seeks to avoid the ordinary legal consequences of a contract, or be released from an overall arrangement, the whole of the conduct of the representor, up to the time that the contract was made, or the arrangement entered into, must be taken into account.
•The conduct of the representor, including the representations themselves, must be objectively assessed against the likely impact on a reasonable person in the position of the representee.
•In order to succeed in a case for damages or compensation it must be shown that the loss, or risk of loss, was actually caused by the representations in the sense that the representee relied on them and would not otherwise have made the contract or entered into the arrangement. That issue must be assessed bearing in mind the points already mentioned. Questions of inducement and reliance must also be approached objectively, bearing in mind the likely responses of a reasonable person in the position of the representee.
The misleading and/or deceptive conduct asserted by the applicants was said to be constituted by oral statements made by officers (or alleged agents) of the Bank at six different meetings. Most of the meetings occurred before execution of the OMB Agreement and the various security documents which the applicants seek to set aside. The great bulk of the factual issues which require determination arise in connection with this part of the case. The six meetings were:
1.17 November 2004 with Mr Michael Zacharia, the manager of the Menai branch of the Bank (a franchise branch).
2.9 December 2004 with Mr Garry Allsopp, the officer of the Bank at that time primarily responsible for dealing with persons interested in a franchise.
3.3 February 2005 with Mr Allsopp.
4.On or about 21 February 2005 with Mr Graham O’Kell, the manager of the North Parramatta branch of the Bank (a franchise branch).
5.May/June 2005 with Mr Allsopp (after the OMB Agreement had been made but before the Campbelltown branch opened).
6.23 January 2006 (after the Campbelltown branch had opened) with Mr Stuart Edwards, a senior officer of the Bank in New South Wales.
To succeed in showing that the Bank’s conduct was unconscionable the applicants must identify a high level of unethical behaviour on the part of the Bank. That may not be done merely by complaining about the commercial position it took, or the fact that it negotiated with its own interests in mind.
One thing to be assessed, if some breach of this kind was established, is whether it would lead to any form of relief. Relief for a breach of a franchising code of conduct must be proportionate to the effect of the breach.
EVENTS BEFORE EXECUTION OF THE OMB AGREEMENT
Mr Ramsey’s background and experience
Mr Ramsey gave evidence that after leaving school he worked for short periods in the printing and cottage industries and then worked for about ten years in the building industry, training initially as an apprentice carpenter and then becoming a safety officer. He later worked for the Australian Council of Trade Unions in relation to industry superannuation and then for a subsidiary of Australian Mutual Provident Society. In 2004 he obtained a qualification as a business broker through the University of Western Sydney. At this time he was working as a night manager at a hotel. Until 2003 he had done some consulting work through a consulting firm which he had established, and was contemplating establishing a business broker consulting service. During his evidence in chief Mr Ramsey did not mention that he had earlier been involved in an unsuccessful franchise venture called “Welcome Wagon”. That was a matter about which both Mr and Mrs Ramsey were asked in cross-examination but it is not necessary for me to deal with that issue at the moment.
Meeting No 1 – 17 November 2004
In late 2004, as a result of a legal settlement, Mr Ramsey had about $100,000 to invest. In about November 2004 he received a brochure in his letter box which mentioned a special opening branch rate for cash management funds at a local branch of the Bank of Queensland, the Menai branch. The Menai branch was a franchise of the kind which Mr Ramsey subsequently sought. The branch manager was Mr Michael Zacharia. Mr Ramsey made an appointment to see Mr Zacharia on 17 November 2004. As a result of his visit, he opened a cash management account at the Menai branch. During the course of the visit, in what appears to have been a short conversation, Mr Zacharia referred to the franchise nature of the branch. Mr Ramsey, according to his evidence in chief, thereupon asked Mr Zacharia the following questions:
I said, is it a good business; I’m looking for a business opportunity?
MR KING: And how did he respond to your question?---He said, it is a good business, a profitable business, and if you want to find out more about the franchise you will have to speak to Garry Allsopp.
And what did you say in response to that?---I said, can I get Garry Allsopp’s details about the franchise, to contact him.
And how did he respond?---He then wrote out his name and phone number and gave me a piece of paper.
It was part of the applicants’ case that this conversation constituted a representation by Mr Zacharia in trade and commerce, as agent for the Bank, about the prospects of success if Mr Ramsey embarked upon a franchise of his own with the Bank. I reject every element of this contention. On Mr Ramsey’s own evidence it was a chance conversation involving answers to questions administered by him which were remote from the purpose of his visit. Mr Zacharia was not, in his personal responses, acting as the agent for the Bank for the purpose suggested. There is no substance in the suggestion also made on behalf of the applicants that Mr Ramsey was entitled to, and did, rely upon what Mr Zacharia said as some form of assurance on behalf of the Bank that he would succeed in a similar business.
The only real significance of this meeting is that it explains how Mr Ramsey came to make contact with Mr Allsopp, the person to whom he attributed most of the supposed assurances given by the Bank. The proper context in which to view the exchange between Mr Ramsey and Mr Zacharia was elicited from Mr Ramsey in cross-examination as follows:
MR COUPER: Mr Ramsey, I’ll ask you my question again, please listen to it and answer it. The only result of Mr Zacharia’s comments to you was to make you think that it was worth your while to investigate whether a Bank of Queensland agency business, was a worthwhile business for you to go into. Now, that’s right isn’t it?---Yes.
Using the details supplied by Mr Zacharia, Mr Ramsey contacted Mr Allsopp late in November 2004 and arranged a meeting for 9 December 2004. On Mr Ramsey’s evidence he explained his request for the meeting by saying that he “wanted to find out more about the Bank of Queensland franchise”. In my view, if the issue was not in any event beyond debate, this simple and unremarkable statement is sufficient to dispel any later suggestion that Mr Ramsey was entitled to rely, as a representation, on anything said by Mr Zacharia. On Mr Ramsey’s own evidence his inquiries were just beginning.
The meeting with Mr Zacharia marks the beginning of a consistent course of conduct by Mr Ramsey during which he pursued the idea of obtaining a franchise for himself. In this meeting, as in subsequent meetings, the impetus was supplied by Mr Ramsey.
Meeting No 2 – 9 December 2004
Mr Allsopp was the officer of the Bank whose task it was to deal with enquiries about the possibility of a franchise and to explain how the model was intended to operate.
This meeting was a short one. At an early stage Mr Allsopp terminated the meeting when he appreciated that Mr Ramsey lacked banking experience. Neither Mr Ramsey’s curriculum vitae nor his three references identified any banking knowledge or experience. It became clear that this was Mr Allsopp’s initial concern. On Mr Ramsey’s own evidence, as soon as Mr Allsopp appreciated that Mr Ramsey lacked any banking experience, Mr Allsopp brought the meeting quickly to an end and made it clear that he would not discuss the matter further. When that point was reached, according to Mr Ramsey the following exchange occurred:
I said to him, “I’m not a banker.” He said, “Well, I won’t discuss this issue – the franchise with you any further.”
MR KING: And what did you say?---I said, “If I get a banking partner, or somebody with a retail banking background, will you continue to talk to us?” And he said, “Yes.”
However, according to Mr Ramsey’s evidence in chief, Mr Allsopp at this meeting made definite, and predictive, statements about the commercial prospects for a Bank of Queensland franchise. Mr Ramsey gave the following evidence:
I handed my references and resume to him. Gary Allsopp had a quick look through my references, and then said, ‘If you want to look at the Bank of Queensland franchise, to be successful in this business, you’ll need to do four million dollars a month, which with the size of mortgages in Sydney, is achievable. And you’ll need $100,000 worth of working capital’.
MR KING: And did he say anything to you about the plans, or the basis of what was occurring? The plans of the Bank?---He said the Bank had opened up branches at – the Bank had made a decision to do an interstate expansion program, had gone away from its brokers, and was establishing its branch network, and has opened branches at Menai, Parramatta and Dee Why.
And you said that he made reference to writing four million dollars per month for a franchise, and did he say anything further about that?---He said, in Sydney, it was achievable, because of the size of mortgages.
(Emphasis added)
This evidence was given towards the end of the first day of oral evidence in the proceedings. On the following day Mr Ramsey’s answer to the first question asked of him (still in evidence in chief) was as follows:
MR KING: Mr Ramsey, yesterday afternoon I asked you a number of questions regarding the second meeting, and I just wish to revisit one aspect of that meeting. Do you recall whether or not any reference, any specific reference was made at that meeting to borrowing costs or the like via Mr Allsopp?---Garry Allsopp said if you do $4 million per month which is achievable with the size of mortgages in New South Wales, you will cover your operational expenses and borrowings and give a good return on investment.
(Emphasis added)
The conditional nature of the statement attributed to Mr Allsopp should be noted. If such a statement was made by Mr Allsopp at this meeting (which, for reasons to be explained, I doubt) there was nothing about it which was misleading or deceptive. The estimate that achieving loans of $4 million a month would give a good return on investment as well as covering operational expenses and borrowings eventually became common ground in the case.
Mr Ramsey also asserted that, at the meeting of 9 December 2004, Mr Allsopp said that the Bank was proposing a major marketing campaign targeted to occur when branches were opened. That is a matter I shall discuss in more detail in due course. However, I think it is unlikely that any matter of detail was discussed at this initial meeting with Mr Allsopp. At a later meeting, Mr Allsopp insisted that a confidentiality agreement be signed before such matters were discussed. I think it improbable that Mr Allsopp discussed at this initial meeting with Mr Ramsey matters which, at the subsequent meeting, he was only prepared to discuss after a confidentiality agreement had been signed. Nevertheless, I shall, for the moment, accept that the statements were made.
Almost every aspect of the applicants’ case was devoted to the proposition that those alleged statements (and ones to similar effect at the next meeting) represented some form of promise or assurance that, come what may, wherever a franchise might be established by Mr Ramsey, and whatever its operating environment, success was assured. Loans of $4 million per month were achievable and he, Mr Ramsey, would achieve them. No allowance was made, in this reconstructed version of events, for the fact that Mr Allsopp had only just met Mr Ramsey, knew next to nothing about him, that no site for a franchise was discussed and that, as Mr Allsopp quickly discovered, Mr Ramsey did not qualify for consideration as a person equipped to manage such a franchise operation.
Even if Mr Ramsey’s evidence was accepted about what was said at that meeting of 9 December 2004, a number of observations should be made. First, the initial reference to $4 million a month was, even on Mr Ramsey’s version of events, expressed as a caveat. Next, Mr Ramsey’s evidence about the size of mortgages was not consistent. First he referred to mortgages in Sydney. Immediately upon commencing his evidence the following day, Mr Ramsey said Mr Allsopp referred to the size of mortgages in New South Wales. Arguably, Campbelltown is not part of Sydney. The evidence given the previous day might have been unhelpful. On the second day, without explanation, the references (there was more than one) to mortgages in Sydney were replaced by a reference to mortgages in New South Wales. Thirdly, although the case had been pleaded, and thereafter proceeded for a considerable distance, upon the footing that Mr Ramsey had relied upon the statement he attributed to Mr Allsopp that he would need $100,000 of working capital for the business, this aspect of the pleaded case was later abandoned in the light of evidence that Mr Ramsey himself projected (with Mr Astridge) in their business plan that much more than $100,000 would be required. The insistence by Mr Ramsey in his evidence at various points, that he had relied upon a statement by Mr Allsopp about the amount of working capital which would be needed, was never able to be reconciled with his own contemporaneous estimate of the need for a much larger amount of working capital.
Mr Ramsey’s suggestion that he relied upon statements attributed to Mr Allsopp at this meeting should also be viewed with caution for another reason. His lack of banking experience presented him with an obstacle to understanding what Mr Allsopp was talking about, assuming the statements were made by Mr Allsopp. In cross-examination about this meeting the following exchange occurred:
MR COUPER: When he said you would have to achieve $4 million, did you understand what he was talking about?---Not really.
Mr Ramsey also accepted that there was no discussion at this meeting about the nature or amount of expenses which might be involved or the way in which the franchise would earn money from the conduct of the branch. That led to the following exchange:
MR COUPER: Mr Ramsey, at the end of that first meeting with Mr Allsopp, you couldn’t form any opinion about whether it was worthwhile to proceed with a Bank of Queensland agency franchise or not. Correct?---I thought it was an exciting opportunity to investigate further.
HIS HONOUR: That wasn’t quite the question you were asked. You were asked whether at that point you were in a position to form an opinion about whether you should proceed or not?---No. No, I didn’t have an opinion.
You didn’t have any information either?---No, that’s right.
Whatever was said by Mr Allsopp at this meeting it lacked the necessary quality of a representation made in trade and commerce upon which Mr Ramsey could later rely as any form of assurance. The meeting was, at best, plainly introductory. In fact, it ended in rejection. Mr Ramsey was not on the path to a franchise at this stage. Negotiations with the Bank had not yet opened.
Mr Ramsey, however, was apparently undaunted. He wanted to pursue the matter. Mrs Ramsey knew Mrs Marie Astridge. Her husband, Mr David Astridge, had a banking background. Mr and Mrs Astridge had recently sold a business. Mr and Mrs Ramsey spoke with them about the Bank of Queensland franchise. Mr and Mrs Astridge agreed to meet with Mr Allsopp and another meeting was arranged for 3 February 2005.
Meeting No 3 – 3 February 2005
This was a longer meeting. Very early in the meeting it appears that Mr Allsopp asked Mr Ramsey and Mr and Mrs Astridge to sign a confidentiality agreement and they did so. Mr Astridge’s banking experience was explained. It appeared to be acceptable. Mr Allsopp gave a description of the franchise operation. He said that a business plan would need to be prepared and approved. There was reference to the costs of the fit-out of the branch, which would vary depending on the location and site that was selected. At this stage a possible site for a branch had not been selected, much less any form of business plan prepared.
In his evidence in chief Mr Ramsey repeated the suggestion that Mr Allsopp had quantified a desirable level of loans:
MR KING: And did he say anything to you about what the capacity or expectation was in relation to the writing of loans?---Garry Allsopp said you are expected to write $4 million a month, if you write $4 million a month that will give you enough income to cover any expenses you have, and/or borrowings in relation to the operation of the business.
And did he make any other observation about that figure?---He said that was achievable with the size of mortgages in New South Wales.
Mr Allsopp did not give evidence in the proceedings. There was, accordingly, no denial by him that such a statement was made but the character of the statement which Mr Ramsey attributed to him should again be noted. The attributed statement concerned an expectation that $4 million a month in loans would be written. There is support in later material for the idea that the Bank expected that, at least after an initial interval, loans of about that amount would be written by a franchise. And, as earlier indicated, it became common ground in the proceedings that writing loans of that amount would provide an adequate return.
Mr Astridge did give evidence. He could not remember Mr Allsopp making any reference to specific levels of loans that might be, or should be, written. Whatever was said by Mr Allsopp obviously did not strike Mr Astridge as any form of assurance about the level of loans that might be written at a location that had not yet been identified. Mr Astridge’s recollection was that all the relevant estimates of the amount of business that might be achieved were made by him and Mr Ramsey working together on the business plan. I shall discuss, in greater detail shortly, how the business plan was prepared.
At the end of the meeting on 3 February 2005, Mr Ramsey and Mr and Mrs Astridge were provided with a letter dated 3 February 2005 (“the expression of interest letter”). The letter is an important one. The letter stated that it contained important preliminary information. Early in the letter the following was said:
Responsibility for Risk
As well as being an exciting opportunity, being involved in any kind of business does have its risks. While the Bank obviously provides assistance and support to its Owner Managers, you will retain responsibility and liability for the success and viability of your branch. The Bank cannot give you any assurances or make any predictions about matters like the costs, revenue or future profitability of your branch or the suitability of its location.
Because you will need to accept and manage these important risks, you should think carefully before becoming an Owner Manager.
(Emphasis in original)
Later in the letter the following was said:
Site Selection and Lease
The location of the new branch is an important issue. While the Bank may help you with selection of the site for your branch and will ultimately enter into the lease of the premises for the branch, the suitability of the site is totally your responsibility. Please note, however, that the Bank retains a discretion to reject a particular site as unsuitable.
The Bank will not undertake any detailed investigation or assessment of the suitability of the site proposed for the branch. The Bank expects that you will have satisfied yourself, and obtained expert advice if necessary, as to the suitability of the location of the branch.
As mentioned above, if you are offered an OMB®, it will be subject to a lease being entered into for the premises by the Bank and the landlord, satisfactory to you and the Bank.
The franchisee was to pay for the establishment of the franchise, pay an upfront fee of $80,000 and a licence fee of $1,000 per month from month 13. It was to take responsibility for selection of the site of the branch, meet the capital and ongoing costs of operating the branch and take the business risk of the branch. Quite detailed information was given in the letter about the nature and extent of other costs and expenses which the branch might expect to face including a standard fit-out cost of between $250,000 and $300,000 as well as the costs for the installation of information technology infrastructure of $15,000 to $20,000.
A document setting out the revenue structure for 2004 was also enclosed. No specific reference was made in the letter to the expected level of loans or deposits but the following was said:
Sales Targets
…The Bank sets all of its branches (both Owner Managed Branches and Bank operated branches) minimum lending and deposit targets to ensure that the Bank is maximising its business performance and profile in each particular location. Obviously, your ability to meet targets will impact upon the Bank’s decision whether to renew the term of the OMB® Agency Agreement.
The letter extended over ten pages, it was signed by Mr Allsopp and had provision to be countersigned. It was countersigned by Mr Ramsey and Mr Astridge with a date of 11 February 2005.
This letter was not some empty formality. Mr Ramsey and Mr and Mrs Astridge had secured acceptance by the Bank of the fact that they were expressing serious interest in a franchise, although a number of matters remained to be addressed, including the preparation of a business plan. The Bank was making an obviously formal statement of its position. I do not see how it can be seriously contended that statements of the kind which Mr Ramsey desired to attribute to Mr Allsopp could survive the sobering and immediate announcement, in the letter which he handed to them at that meeting, that the Bank did not give any assurances or make any predictions about revenue or profitability. The applicants’ case treated this letter as trivial and inconsequential. I am satisfied that that was neither its intended effect nor the way in which it should be regarded for the purpose of the proceedings.
Meeting No 4 – 21 February 2005
During the meeting on 3 February 2005 Mr Allsopp provided contact details for Mr Graham O’Kell who managed the North Parramatta franchise and Mr Patrick Chew who managed the Dee Why franchise. Shortly after the meeting between Mr Ramsey, Mr and Mrs Astridge and Mr Allsopp on 3 February 2005, Mr Ramsey and Mrs and Mrs Astridge met with Mr O’Kell, the principal of the franchisee at the North Parramatta branch and the manager of that branch.
The meeting with Mr O’Kell occurred around 21 February 2005. It commenced in the North Parramatta branch and then continued over coffee at a nearby coffee shop. It appears that the meeting was not very long and the conversation was general in its nature. For example, Mr Ramsey indicated in cross-examination that Mr O’Kell did not say anything specific about the sources of the income achieved by the North Parramatta branch nor the expenses which it had to meet. What was important to Mr Ramsey was that Mr O’Kell said (as Mr Ramsey recalled it) that the franchise had paid off its debts within six months. He took that to mean that it had recovered the set up costs of the branch and was making a profit, although the basis for that conclusion seems tenuous at best. Mr Ramsey accepted in cross-examination that he did not know how much money had been borrowed to establish the North Parramatta branch.
The applicants relied upon what they sought to characterise as representations by Mr O’Kell made as agent for the Bank. The principal statement made by Mr O’Kell which was relied upon for the purpose of the proceedings is reflected in the following passage early in the evidence in chief of Mr Ramsey:
I asked – I said to Graham O’Kell, ‘Garry Allsopp said you’re very successful,’ and I said, ‘Does the model work and is $4 million a month achievable?’ And Graham O’Kell said yes.
The conversation with Mr O’Kell should not be regarded as a conversation on behalf of the Bank. What was important to Mr Ramsey and Mr and Mrs Astridge was to obtain Mr O’Kell’s personal views about the franchise arrangement. They were contemplating making personal investments, as Mr O’Kell had done. In any event, as will be seen in due course when I deal with the way the causes of action were pleaded, the applicants pleaded that Mr O’Kell was recommended by Mr Allsopp because he was an “independent expert”. It was not open to contradict the pleaded case as the applicants sought to do.
Furthermore, any statements made by Mr O’Kell were clearly not, nor were they intended to be, representations of the kind suggested by the applicants. Even on Mr Ramsey’s version of events, the most that Mr O’Kell did was to respond in a friendly manner to questions about whether the North Parramatta franchise had proved to be successful. Mr O’Kell knew nothing about Mr Ramsey or Mr and Mrs Astridge. He did not know anything about their personal circumstances. He did not know where they might, in due course, wish to establish a franchise. The suggestion that he was extending some general assurance of business success is fanciful. According to Mr Ramsey’s evidence, Mr O’Kell (who had worked at the Arab Bank) attributed part of his success to his contacts in the Lebanese community. Mr O’Kell also said that he spent a period of about three months, prior to the North Parramatta branch opening, canvassing for future business full time with a staff member employed for that purpose. No such considerations applied to Mr Ramsey or to Mr Astridge. There was no basis to conclude from the casual meeting with Mr O’Kell that success was assured without satisfaction of a range of other commercial objectives in a chosen location servicing an identified community.
Evidence about this meeting was also given by Mr Astridge and by Mr O’Kell. Mr Astridge said that the conversation was a very broad one with nothing specific discussed. Mr O’Kell, he said, “didn’t give us any numbers but he just said he was doing quite well, showed us how it was operating and gave us a view of the actual branch”.
Mr O’Kell’s recollection was:
It was a general discussion around how the logistics of starting a branch, how – my experiences with customers, etcetera, and, you know, the performance that had been achieved and, you know, just my general views on the franchise model.
He also said:
MR COUPER: Do you recall was there any discussion about the amount of business that your branch was writing?---There was. As I recall, it was about the number of new loans written and was the topic of the – they were interested in what average results I was achieving and how that was comparing to the million dollar a week figure that was often bandied around as being required to make a branch viable.
Right. And what did you say?---Well, I said that I had, on average, been achieving around that figure.
Around what figure?---Around the $4 million a month in new loans – up to that point.
As will become apparent when I discuss the accounting evidence, that statement was factually accurate. There was also, according to Mr O’Kell, some discussion about a “broker book” and whether it had any significance for the success of the North Parramatta branch. Mr Ramsey denied that Mr O’Kell had said anything about a broker book. This is an issue which will require separate attention and I will deal with it in due course.
According to Mr Ramsey’s evidence he relied on Mr O’Kell’s statements about the results of the North Parramatta branch, and the franchise model, to which I have already referred, as ones which were critical to his decision to go into a franchise. Mr Ramsey’s attempt to portray this meeting, and Mr O’Kell’s statements, as responsible for his own business decisions descended towards the ridiculous. At this stage Mr Ramsey and Mr Astridge had not formulated the business plan which they would shortly thereafter advance to the Bank for its consideration. They had not chosen the site at which they would propose to the Bank they might set up a franchise. They were in the early stages of examining whether a franchise banking business might yield commercial success and whether they were adequately equipped to take on such a business. Despite that, Mr Ramsey gave the following evidence in cross-examination:
MR COUPER: The only results of your meeting with Mr O’Kell, was that you decided it was worth your while to investigate further whether to proceed with Mr Astridge to enter into an OMB agency agreement with the Bank of Queensland. Correct?---No. It was to verify if it was a viable business.
The step that you took to verify whether your business would be viable was to produce a detailed business plan? Correct?---No.
HIS HONOUR: Mr Ramsey, are you suggesting that what Mr O’Kell said was sufficient for you to commit yourself - - -?---On the representations of both Graham O’Kell and Garry Allsopp it was significant in making our decision.
…
MR COUPER: If when you had done your business plan, your analysis had shown that you would make a substantial loss throughout the life of the OMB agency agreement, then you would not have proceeded with the OMB agreement, regardless of what Mr O’Kell or Mr Allsopp had to say. Correct?---No, that’s not correct.
Well, are you saying that if you had done your analysis and it came up showing that this was a bad deal, you would still have gone ahead because of what Mr O’Kell had Mr Allsopp said?---We were influenced – I was influenced by what Garry Allsopp, Mr Garry Allsopp and Graham O’Kell said.
…
MR COUPER: Mr Ramsey, are you saying that it didn’t matter whether your analysis for your business plan might have shown this was a good deal or a bad deal or a terrible deal. You were going to go ahead, come what may, because of what Mr Allsopp and Mr O’Kell had said to you. Is that right?---Yes. Because we were influenced by their – what comments they made.
Perhaps Mr Ramsey had developed such enthusiasm for the idea of a franchise that he may have decided to go ahead come what may. If that was his position it was a reckless one. Of much greater significance, and certainly of crucial significance to Mr Astridge, was the analysis which was done shortly thereafter when Mr Ramsey and Mr Astridge together developed their business plan.
Mr Ramsey’s insistence that he had relied on what was said by Mr Allsopp and Mr O’Kell in February must also be viewed in the light of other evidence he gave during cross-examination. This evidence arose from Mr Ramsey’s account of the meeting with Mr Allsopp but it necessarily applies at the time of the meeting with Mr O’Kell.
HIS HONOUR: You had not made a decision at this stage, had you, to go ahead?---No, not until March. We had to do a business plan, those types of things, and we were approved in March and then we got our final confirmation later in April.
MR COUPER: So Mr Allsopp would have had no idea when, if at all, you might ever open a branch and, if so, where it might be. Is that right? At the meeting in February?---At that meeting, yes.
The business plan
In its cross claim the Bank pleaded that the guarantees signed by Mr Ramsey were expressed, by clauses in the general conditions applying to those guarantees, to bind him personally and as trustee. The defence to the cross claim opened with a statement that each paragraph of the cross claim was not admitted. The allegation of personal liability pursuant to the general conditions of the guarantees was not otherwise traversed. I do not regard this as a proper pleading (see Federal Court Rules O 11 r 13(3)). The opening paragraph of the defence to the cross claim was liable to be struck out leaving this allegation uncontested. However, no application by the Bank to that effect was made and, for what it was worth, the general statement of non-admission remained. There was no evidence, in the end to support the Bank’s pleaded allegation that the general conditions of the guarantees signed by Mr Ramsey expressly bind him personally as well as in any capacity as trustee. Those general conditions were not in evidence.
In the final further amended statement of claim it was pleaded by the applicants that the Bank took guarantees for the business term loan and overdraft provided to Astram from the second applicant (i.e. Mr Ramsey personally) and from the fourth applicant (i.e. Mr Ramsey as trustee for the L D Ramsey Family Trust – not the style in which he signed the guarantees). The Bank admitted those allegations. However, apart from the confusion about the name of the trust (which may have no significance) the pleaded exchange did not, in my view, adequately identify the later guarantee given by Mr Ramsey for an overdraft of up to $260,000.
Notwithstanding the uncertainties arising from the pleadings and the gaps in the evidence there are, however, other reasons why it should be accepted, as the Bank submitted, that under the general law Mr Ramsey is bound personally by each of the guarantees executed by him.
The existence of a trust was never established by the evidence, much less what were its terms. Even if a trust does exist there was no evidence about what the trust assets might be. Under the general law there is no distinction to be made, so far as third parties are concerned, between a trustee in his personal capacity and a trust he administers as trustee. It is not sufficient, to exclude personal liability, that a trustee executes a document with a statement that he does so as trustee. The trustee remains personally liable, even if he may have a claim against the trust assets.
In Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773 (“Helvetic”) Glass JA (with whom Samuels JA agreed) accepted the following two propositions (at 773):
1.A trustee who enters into a contract will normally incur unlimited personal liability unless by appropriate language or expressed stipulation such liability is restricted.
2.A mere description of the capacity in which he contracts as that of trustee is insufficient to exclude full personal liability.
Similarly, in Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 Gummow J said (at 253):
It is fundamental that the common law does not recognise a trustee as having assumed an additional or qualified legal personality. This means that the liability of the trustee for debts he incurs includes those incurred in the course of performance of the trust. His liability to creditors is not limited or quantified by reference to the extent of the trust assets ... The debts are his debts … clear words are necessary to achieve a result whereby what is prima facie the unlimited personal liability of a trustee is … qualified: Helvetic Investment Corp Pty Ltd v Knight (1984) 9 ACLR 773.
In Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78 Eames J in the Supreme Court of Victoria also referred to the Helvetic case, saying (at 83):
Where a trustee acting on behalf of a trust entered a contract then as a matter of law the trustee would be taken to be personally liable as well as having made the trust liable under the contract. Clear and unambiguous words would be required before the court would accept that the personal liability of the trustee had been excluded …
To similar general effect are the observations of Perram J in St George Bank Ltd v Federal Commissioner of Taxation (2009) 176 FCR 424 at [88] (cited with apparent approval by a Full Court in Re CSR Ltd (2010) 265 ALR 703 at [52]):
In the case of a trust, the trust has no separate existence – what exists is the trustee and its liabilities are its alone although it has a right of indemnity out of the trust assets.
The effect of the principles referred to in these authorities is that Mr Ramsey is personally liable under the guarantees that he gave, regardless of the fact that he signed them in the style of trustee for the LDR Family Trust.
The terms of the mortgage which was executed by Mr and Mrs Ramsey also extend, in any event, to secure any liability which Mr Ramsey incurred as trustee.
The securities
Unless there was some basis upon which to relieve the applicants from liability under the documents which they executed (or which were executed on its behalf, in the case of Astram) there is no effective defence available to the cross claim. Astram’s debts to the Bank were secured (although not in full) by the guarantees given by Mr Ramsey and by Mrs Ramsey. They are liable to the limits of those guarantees. Liability under the guarantees is further secured by the mortgage which Mr and Mrs Ramsey gave over their property.
Evidence was given that an amount realised on the enforced sale by the Bank of Astram’s interest in the franchise ($287,000) was credited in Astram’s favour. Evidence was given of the amounts then outstanding in relation to the business term loan agreement and the business overdraft facility. Evidence was given of the calculation and amounts of interest due under the business term loan agreement and business overdraft facility provided to Astram until those accounts were closed off as at 12 May 2009. Interest is not claimed by the Bank after that date on those debts. Evidence was given that necessary demands under the various instruments, and notices of default, have been given and not satisfied.
The mortgage given by Mr and Mrs Astridge also secures a home loan agreement. That loan is personal to them and interest continues to accrue on it.
The specific claims made were distilled in final submissions in the following way:
1.$616,684.55 as against the First Applicant/First Defendant by Cross-Claim, being:
(a) $216,976.91 pursuant to the Business Term Loan Agreement; and
(b) $399,707.64 pursuant to the Business Overdraft Facility.2.$882,533.10 as against the Second Applicant/Second Defendant by Cross-Claim, being:
(a)$216,976.91 pursuant to the Ramsey Business Term Loan Agreement Guarantee;
(b)$260,000.00 pursuant to the LDR Family Trust Business Overdraft Facility Guarantee; and
(c)$405,576.20 pursuant to the Home Loan Account plus interest accruing at 6.6% per annum.
3.$665,576.20 as against the Third Applicant/Third Defendant by Cross-Claim, being:
(a)$260,000 pursuant to the Mrs Ramsey Business Overdraft Facility Guarantee; and
(b)$405,576.20 pursuant to the Home Loan Account plus interest accruing at 6.6% per annum.
I am satisfied that those claims have been established and that orders should be made which reflect the amounts identified and interest accrued. It will be noted that only Mr Ramsey is jointly liable with Astram for its debt pursuant to the business term loan agreement, that Mr and Mrs Ramsey are jointly liable to contribute (but only to the extent of $260,000) to Astram’s liability under the business overdraft facility and that Mr and Mrs Ramsey are jointly liable with respect to their home loan account.
COSTS
The Bank sought costs against Astram and indemnity costs against Mr and Mrs Ramsey. A claim for costs against the applicants in respect of both the application and cross claim is irresistible. However, I am not satisfied that I should make an order for indemnity costs against Mr and Mrs Ramsey. Notwithstanding my unqualified rejection of their causes of action, and their arguments, and the lack of any respectable defence to the cross claim, their presence in the proceedings has not added materially to the length of time which would have been taken to deal with Astram’s liability. I am not satisfied, in any event, that I should make a distinction, for the purpose of costs, between Astram on the one hand and Mr and Mrs Ramsey on the other hand. In my view the appropriate outcome is that the first, second and third applicants be jointly and severally liable for the respondent’s costs of and in connection with the application and the cross claim.
ORDERS
The respondent is to bring in short minutes of order to give effect to these reasons for judgment within seven days.
I certify that the preceding three hundred and seventy-seven (377) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan. Associate:
Dated: 15 September 2010
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