Australian Competition and Consumer Commission v 4WD Systems Pty Ltd - [2003] FCA 850

FEDERAL COURT OF AUSTRALIA
Australian Competition & Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850
TRADE PRACTICES – franchising – misleading conduct – obligation to disclose – false statements as to source of goods – assumption in market place of place of manufacture – obligation to disclose changes to place of manufacture – unconscionable – breach of franchising code – remedies – injunctions – when appropriate
Trade Practices Act 1974 (Cth) ss 51AA, 51AC, 51AD, 52, 53, 80, 87
Evidence Act1995 (Cth) s 95, s 97
Trade Practices (Industry Codes – Franchising) Regulations 1998
Sanders v Glev Franchises Pty Ltd [2002] FCA 1332
Grivas v Brooks (1997) 69 SASR 532
Jacara Pty Ltd v Perpetual Trustees WA Ltd (2000) 106 FCR 51
James v Australia and New Zealand Banking Group Ltd (1986) 64 ALR 347
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Watson v Lee (1979) 144 CLR 374
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 197 ALR 153
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376
Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253
Hurley v McDonald’s Australia Ltd [1999] FCA 1728
Jamieson v The Queen (1993) 177 CLR 574
Westpac Banking Corporation v Northern Metals Pty Ltd (1989) ATPR 40-953
Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 496
ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1
Australian Competition and Consumer Commission v Top Snack Foods Pty Ltd (1999) ATPR 41-708
Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd [2002] FCA 1548
Australian Competition and Consumer Commission v Grant [2000] FCA 1564
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Australian Competition and Consumer Commission v Shell Co of Australia (1997) 142 ALR 569
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v 4WD SYSTEMS PTY LTD ACN 008 134 861 and ORS
S 170 of 2001
SELWAY J
13 AUGUST 2003
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

S 170 OF 2001

BETWEEN:

AUSTRALIAN COMPETITION AND
CONSUMER COMMISSION
APPLICANT

AND:

4WD SYSTEMS PTY LTD ACN 008 134 861

FIRST RESPONDENT

4WD SYSTEMS AUSTRALIA PTY LTD ACN 085 343 219

SECOND RESPONDENT

RALEIGH JULIAN HOBERG

THIRD RESPONDENT

THOMAS DAVID HEWITSON

FOURTH RESPONDENT

JUDGE:

SELWAY J

DATE OF ORDER:

13 AUGUST 2003

WHERE MADE:

ADELAIDE

THE COURT DECLARES THAT:
1.The first respondent engaged in conduct in trade or commerce which was misleading in breach of s 52 of the Trade Practices Act 1974 (Cth) in that:
(a)as to Beresfield Automotive Services Pty Ltd in the period June-July 1998, the first respondent failed to inform that company that the first respondent would not comply with the usual industry standard as to the time for supply in circumstances where such failure constituted conduct which was misleading.
(b)As to the partnership trading as Elston On & Off Road Access in the period June-July 1998, the first respondent made representations to the partnership as to the time for supply and as to the quality of goods which representations were misleading.
(c)As to the partnership trading as P & G Customising, the first respondent in a letter dated 19 February 1999, made representations to the partnership as to quality of goods which representations were misleading.

2.The second respondent engaged in conduct in trade or commerce which was misleading in breach of s 52 of the Trade Practices Act 1974 (Cth) in that in the negotiations between the second respondent and HDR Associates Pty Ltd (as trustee for J & J Trust), the second respondent failed to inform HDR Associates Pty Ltd that it did not and would not comply with the usual industry standards as to the time for supply .
3.The first respondent, in trade and commerce and in connection with the supply of goods made a misleading representation concerning the place of origin of goods in breach of s 53(1)(eb) of the Trade Practices Act 1974 (Cth) in that:
(a)the first respondent represented to Mr Atkins of Beresfield Automotive Services Pty Ltd that the Australian made Lock Right product was the ‘exact same product’ as the US made product;
(b)the first respondent advertised in various four-wheel drive magazines from July-December 1999, that the Lock Right product being supplied by the first respondent was the US made ‘Powertrax’ product when an increasing proportion of the product supplied over that period was the Australian made product manufactured by the first respondent;
(c)the first respondent did not inform the franchisees and others in or before July 1999 that as from July 1999 some of the product that the first respondent would supply in response to orders for Lock Right products would be Australian made product rather than US made product in circumstances where the market understanding and expectation was that the product was made in the US.

4.On or about February 1999, the first respondent, in trade and commerce, contravened the Franchising Code of Conduct in not providing Disclosure Documents to the partnership trading as P & G Customising as required by cl 6 and cl 10 of the Franchising Code of Conduct and in not obtaining from him a written statement as required by cl 11 of the Franchising Code of Conduct, contrary to s 51AD of the Trade Practices Act 1974 (Cth).

THE COURT ORDERS THAT:
1.For a period of three years from the date of this order, the first and second respondents be restrained from selling or granting franchises or rights for the distribution of products and services unless at or prior to the time at which the first or second respondent is required to provide the Disclosure Document in accordance with the Franchise Code:
(a)there is disclosed to the person to whom the Disclosure Document must be produced the details of the methods of manufacture and distribution adopted by the first or second respondent sufficient to inform that person:
(i)of whether the quality of goods produced is or are likely to be different from what would otherwise be reasonably expected in the industry;
(ii)of whether the time for delivery of goods produced is or is likely to be different from what might otherwise be reasonably expected in the industry.

(b)There is disclosed to the person details of the number and type of all complaints:
(i)received by the first or second respondents within 12 months of the day upon which the disclosure is made;
(ii)made by a franchisee or person having a right of distributorship given by the first or second respondent; and
(iii)related to alleged poor or inadequate quality of goods produced or supplied or alleged delays in the production or supply of goods.

(c) there is disclosed to the person the terms of these orders.
2.For a period of three years from the date of this order, if the third respondent, Raleigh Julian Hoberg is in any way concerned in the sale or prospective sale of a franchise by a corporation, the said Raleigh Julian Hoberg do ensure or take all such steps as are reasonably open to him to ensure that the corporation discloses the existence of these proceedings and the terms of these orders to the purchaser or to any prospective purchaser of that franchise.
3.The application by the Australian Competition and Consumer Commission pursuant to s 87 of the Trade Practices Act 1975 (Cth) for refunds and/or compensation on behalf of specified franchisees of the first and second respondents is dismissed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

S 170 OF 2001

BETWEEN:

AUSTRALIAN COMPETITION AND
CONSUMER COMMISSION
APPLICANT

AND:

4WD SYSTEMS PTY LTD ACN 008 134 861

FIRST RESPONDENT

4WD SYSTEMS AUSTRALIA PTY LTD ACN 085 343 219

SECOND RESPONDENT

RALEIGH JULIAN HOBERG

THIRD RESPONDENT

THOMAS DAVID HEWITSON

FOURTH RESPONDENT

JUDGE:

SELWAY J

DATE:

13 AUGUST 2003

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

The issues for decision in this case are whether the first or second respondents have:
·engaged in misleading or deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth) (‘TPA’); and/or
·made any false or misleading statements that goods were of a particular standard, quality, grade, composition or model in breach of s 53(a) of the TPA; and/or
·behaved unconscionably in breach of s 51AA(1) and/or s 51AC(1) of the TPA; and/or
·contravened an applicable industry code contrary to s 51AD of the TPA.
And whether the third or fourth respondents have relevantly aided and abetted or been involved in any such behaviour.
It is my view for the reasons given below that the first respondent has breached ss 51AD, 52 and 53 TPA and that the second respondent has breached s 52 TPA, but that the breaches are not as extensive as alleged by the applicant in its pleadings. I am not satisfied that the conduct of the first or second respondent can properly be described as ‘unconscionable’ for the purpose of s 51AA or s 51AC TPA. It is also my view that the third respondent was relevantly ‘involved in’ the relevant breaches of the TPA by the first and second respondents.
For the convenience of the parties and others who may need to consider these reasons, I have inserted footnotes containing references to the transcript and exhibits. The references are not intended to be comprehensive.
Background
As the trial developed it became apparent that the parties were in general agreement in relation to much of the evidence. It will be necessary to consider some of the evidence in more detail in due course. Before doing so it is appropriate to describe the factual background at least in broad terms.
Ever increasing numbers of otherwise ordinary and sensible purchasers of ‘family’ automobiles have found commercial and pseudo-military style vehicles attractive. Motor vehicles described as ‘four-wheel drive’ vehicles have become very popular. One effect of that increasing popularity would seem to be a growth in the manufacture of and trade in parts and accessories for these vehicles.
In and prior to 1995 the first respondent operated a business of selling and fitting parts for four-wheel drive vehicles[1]. It manufactured some parts, particularly those involving metal fabrication such as bull-bars and fuel tanks. It obtained other parts from suppliers. As appears to be common practice in the industry it sometimes ‘re-badged’ such goods as its own[2]. It sold these products directly from its own premises, by mail order and through various stockists and distributors.
[1]T940 ff
[2]T1146
The third respondent, Mr Hoberg and the fourth respondent, Mr Hewitson were both shareholders, directors and employees of the first respondent and subsequently the second respondent at all relevant times[3]. Mr Hewitson had the general responsibility for the day to day commercial operations of the company; Mr Hoberg managed the ‘back office’ functions and had specific responsibility for strategic planning[4].
[3]See T940 ff
[4]T946, 949-950
In about 1996 or 1997, as part of a more general strategy of business growth[5], the first respondent began to develop a more intensive system for the distribution of its products[6]. This was described by it as a ‘franchise system’, but up until final oral submissions the parties were in dispute as to whether this was its correct legal characterisation. This will need further consideration later in these reasons. For present purposes it is probably sensible to use the terms that the first respondent used at the time, but to use those terms in quotation marks to make it clear that the meaning may be a specialised one. The ‘franchise system’ had a number of benefits to the first respondent over the previous distribution system using what were then described as ‘stockists’. In particular, the ‘franchise system’ was expected to give rise to more loyalty and more control to the first respondent[7]. This ‘franchise system’ developed and evolved over time. The first ‘franchises’ were established in about 1996. These included Four-Wheel Drive Systems at Murray Bridge, Four-Wheel Drive Systems in Millicent and then later Four-Wheel Drive Systems in Berri. It would appear that these ‘franchisees’ were and are content with their relationship with the first respondent.
[5]Exhibit R 45-RJH 59; T1237-1238
[6]T945, 1426
[7]T956-957
During 1998 and 1999, the first respondent increased its efforts to expand its ‘franchise system’. It entered into ‘franchise’ arrangements with the following bodies or persons on the following dates[8]:
[8]See T852, 857-858

‘Franchise Business’

‘Franchisee’

Date of Agreement

Four-Wheel Drive Systems Hunter Valley (NSW)

Atkins (Beresfield Automotive Services Pty Ptd)

July 1998

Four-Wheel Drive Systems Alice Springs (NT)

Elston (partnership t/a Elston On & Off Road Access)

September 1998

Four-Wheel Drive Systems Auburn (NSW)

Page (t/a GRP Automotive)

September 1998

Four-Wheel Drive Systems Rockhampton (Qld)

Tucker (partnership t/a P & G Customising)

February 1999; September 1998

Four-Wheel Drive Systems Canningvale (WA)

Carroll (HDR Associates Pty Ltd as trustee for J & J Trust)

September 1999

The applicant claimed that the first respondent had also entered into a ‘franchise’ arrangement with Mr Werner (in partnership with his wife t/a Four-Wheel Drive Systems, Terralgon) in February 2000, but this was disputed by the first respondent. The details of this arrangement will be considered in more detail later.

For convenience the parties referred to the ‘franchises’ and the ‘franchisees’ by referring to the person called to give evidence in relation to that business. So, for example, the business of Four-Wheel Drive Systems Hunter Valley owned by Beresfield Automotive Services Pty Ltd was described as Mr Atkin’s business and was treated as if owned by him alone. For convenience I shall do the same in these reasons. However, for those reading these reasons the reference to the relevant witness may be a shorthand description of the relevant owner and/or the relevant business.
The ‘franchise system’ continued to develop over the period during which the first respondent entered into the above ‘franchises’. For example, template contracts and other legal documents were gradually developed over the period 1998-2000.
There is some dispute between the parties as to what representations were made in relation to particular ‘franchises’. There is also some dispute as to the conditions upon which those ‘franchises’ were granted. It will be necessary to return to this in due course. But there is substantial agreement on at least some of the terms and conditions of the ‘franchises’. In order to obtain a ‘franchise’ the ‘franchisee’ in most cases travelled to Adelaide and had a detailed discussion with the third respondent. In order to obtain the franchise they had to pay what was variously described as a ‘franchise fee’ or an ‘establishment fee’. These seem to have been quite variable. The fee for Mr Elston was $5,000; for Messrs Atkins and Tucker it was $7,500; for Mr Carroll it was $20,000 and for Mr Page it was $25,000[9]. They were also required to purchase an initial amount of stock from the first respondent. Again this seems to have been variable. The ‘franchisees’ were required to use similar trading names. They were also required to submit any advertising to the first respondent for approval.
[9]T957-958
In return the ‘franchisees’ were to receive at least the following:
·The right to use the ‘4WD Systems’ name.
·The right to obtain product from the first respondent at the ‘franchisee’ price[10].
·The exclusive right to trade in at least some of the first respondent’s product in the ‘franchise area’[11]. The extent of that right may have differed between ‘franchisees’. This is discussed further below.
·Assistance in setting up their ‘franchise’ business, including the assistance of the third respondent at an Opening Day designed to launch the business.
·Training by the third respondent[12]. The extent and nature of that training is in dispute.
Other representations were made. The extent of them, what they were and the extent to which they were relied upon or were breached is in dispute.
[10]T957, 1231
[11]T957, 1230
[12]T957-958
There is no doubt that some of these representations were properly met. For example the third respondent provided personal assistance to the relevant ‘franchisee’ at opening days. All of the ‘franchisees’ who gave evidence were satisfied with that assistance, to a greater or lesser extent. In each case this involved a significant effort by the third respondent, usually travelling by motor vehicle from Adelaide to ‘the franchise’ premises and staying with the ‘franchisee’ for a couple of days to assist in sales and to provide training.
On the other hand, the ‘franchisees’ called by the applicant all gave evidence of concerns with the extent of training that they received, with the quality of the goods they received from the first respondent and with the timeliness of supply from the first respondent. Some of them had other particular concerns. All of these concerns are discussed in more detail later in these reasons.
Also during the relevant period there were changes in the applicable legislation. From 1 July 1998 a Franchising Code (‘the Code’) was prescribed by regulation made pursuant to s 51AE of the TPA. The Code was set out in a schedule to the regulations. The regulations were notified in the Gazette of 25 June 1998, pursuant to the Statutory Rules Publication Act 1903 (Cth). I am informed that the Code was generally available for purchase soon after. The Code was prescribed to come into operation from 1 October 1998. Mr Hoberg gave evidence that he or his advisers were unable to obtain a copy of the Code until after 1 October 1998 and that this was one of the reasons why the respondents were unable to comply with it. However, in their written submissions to me the respondents accepted that copies of the Code were generally available at least from August 1998.
The first respondent experienced some delays in being able to comply with the requirements of the Code, particularly in relation to the provision of contracts. This was a matter of particular concern to at least some of the ‘franchisees’ called by the applicant. This is discussed in more detail later. However, some of the legal issues that have been argued before me, such as the question whether the arrangements can properly be characterised as franchises for the purpose of the TPA and the date of commencement of the arrangement with Mr Page at Auburn, NSW, are relevant primarily because some provisions of the Code did not have application to some events or arrangements entered into prior to 1 October 1998.
One matter of relevance in relation to the development of the franchise system was the role of the second respondent. As part of the development of the formal documentation for the franchise system it was envisaged that the documented franchise would be entered into by the second respondent[13]. Mr Hoberg gave evidence that the second respondent had a contract with the first respondent for this purpose. The details of this arrangement were not explained to me[14]. For present purposes it is sufficient to say that only two prospective franchisees, Messrs Carroll and Werner, were sent the relevant documentation[15]. As discussed later only Mr Carroll actually executed the franchise agreement. So far as the evidence reveals no other prospective franchisees were even aware of the existence of the second respondent[16]. The significance or otherwise of this will need to be considered in due course.
[13]T1252-1254, 1280, 1283-1284
[14]T1253
[15]Mr Elston also received a copy of the documentation, but the arrangements had ceased by that time
[16]T1252. There was some dispute as to whether Mr Page was informed of the role of the second respondent: see T1252; contrast T470. However, there was no evidence suggesting that Mr Page had agreed any changes

One particular product supplied and distributed by the first respondent was the ‘Lock Right’ diff lock. The differential of a motor vehicle is designed so that power is not transmitted to an axle when that axle is not bearing its usual load, such as during cornering. The purpose of a diff lock is to lock the differential in appropriate circumstances, such as driving over difficult terrain, so as to ensure that in those circumstances power continues to be transmitted to both axles[17]. The first respondent held the Australian rights to the Lock Right diff lock.
[17]T230
Prior to October 1998, the ‘Powertrax’ Lock Right diff lock was purchased by the first respondent from a particular US supplier[18]. For convenience I will refer to the US manufactured ‘Lock Right’ as the ‘Powertrax’ diff lock. The first respondent was the sole Australian distributor of the Powertrax. It was distributed and sold by the first respondent in the box from which it was received from the US. This packaging was orange and blue, included the name ‘Powertrax Lock Right’ and specified that the product was made in the US. It was a popular product – probably the most popular product handled by the first respondent[19].
[18]T951-952
[19]T983, 1126, 1226
In about October 1998, that supply arrangement for ‘Powertrax’ between the US supplier and the first respondent broke down[20]. The US supplier appointed another four-wheel drive accessory company, TJM, to be its exclusive distributor in Australia. Whether or not this was lawful given the rights held by the first respondent is not an issue in these proceedings. What is important in these proceedings is that 4WD Systems was no longer able to access the product directly from its usual US supplier. The first respondent adopted two strategies to deal with the problem this presented. The first interim strategy was to obtain ‘Powertrax’ from elsewhere; the second longer term strategy was to manufacture its own Lock Right[21].
[20]T1501-1512
[21]Exhibit ACCC 38; T1499-1501
In the period October 1998 to March 1999, the first respondent sought the ‘Powertrax’ from other sources in the US[22]. Initially the first respondent continued to sell such product as it could obtain in the ‘Powertrax’ packaging[23]. As is discussed in more detail later in these reasons this strategy resulted in some delays in obtaining product.
[22]T980, 1501
[23]See e.g. T1572-1589
In about March 1999, the first respondent introduced new packaging[24]. The new box had the name ‘Lokka Lock Right’ printed on it and purported to be from 4WD Systems. There was no mention of the place of manufacture. At the time the new box was introduced all the Lock Right product sold by the first respondent was the US ‘Powertrax’ obtained from other sources in the US. This was repacked in the new box.
[24]T978 ff, 1557, 1570; contrast T484 suggesting maybe June/July
Starting in about October 1998, the first respondent was also actively pursuing another strategy. This was for it to self-manufacture an equivalent diff lock. This was a relatively difficult and expensive process[25] which took many months of design, setting up and testing before any significant production could begin[26].
[25]T1525-1526
[26]T1522 ff
The manufacture for retail sale of the first diff locks manufactured by 4WD Systems commenced in about July 1999[27]. The number of models of diff lock manufactured by the first respondent increased steadily thereafter. As the Australian made product became available it replaced the equivalent US Powertrax product. The Australian made product was sold in the same ‘Lokka Lock Right’ package as had been the US made Powertrax since the repackaging of the Powertrax had commenced in March 1999.
[27]T1034-1035, 1521, 1524, 1535-1536, 1571; contrast Exhibit R 24, par 11.6
The Australian made product was clearly distinguishable from the US made product[28]. Although the pleadings would suggest that the respondents proposed to dispute any such difference, the evidence given by the third and fourth respondents before me is that the Australian manufactured product was quite distinct and different from the US product. All of the witnesses, including the third and fourth respondents, claimed to be able to tell them apart[29].
[28]T1498, 1513-1514, 1554
[29]See e.g. T505-506, 1041-1042
There was some suggestion in the cross-examination of Mr Page that ‘Powertrax manuals’ were included in the new packaging when the product was ‘Powertrax’[30]. This was not a matter that was covered in the statements prepared by the respondents; nor was it a matter that had been put to any of the preceding witnesses. On that basis I disallowed the questions. As it happens the question of what manuals were included does not matter. The product in the box could be distinguished whether or not the manuals were also different.
[30]T487-493
In about March 1999, the first respondent commenced a major marketing promotion to increase the sales of diff locks[31]. This included selling them at a much reduced price[32]. The purpose of the promotion was to undercut the new Australian distributor of the ‘Powertrax’ and to create new business for the ‘franchisees’[33]. Sales of diff locks increased considerably.
[31]Exhibit ACCC 3-SWA 6; T979-980
[32]The franchisee fee also went down: see Mr Elston at T399 (he did not take part in the promotion)
[33]T1008
From soon after the commencement of the promotion almost all diff locks were supplied in a ‘Lokka’ box[34]. After March 1999, any ‘franchisee’ who ordered the ‘Powertrax’ or the ‘Lock Right’ or a diff lock from the first respondent, was supplied with the product in the ‘Lokka Lock Right’ box. The relevant product was either a US sourced product exactly the same as that previously supplied in the ‘Powertrax’ box, or, from July 1999, could be the distinguishable Australian made product[35]. I note in this regard that some of the evidence of, and some of the pleadings for, the respondents seemed to suggest that the product supplied after March 1999, was different from that provided before it because the box was different[36]. Of course, the product being purchased was the product in the box. As already noted the change in the packaging did not mean that the product inside had changed.
[34]T1034; contrast Exhibit R 24, par 9.46
[35]T980, 989
[36]See e.g. T1498
For various reasons all of the ‘franchisees’ called as witnesses by the applicant discontinued their dealing with the first respondent during 1999 or 2000.
The Witnesses
As is common practice in this Court, the evidence called in chief had been reduced to writing and was in the form of affidavits. Prior to trial orders had been made for the production and exchange of those written statements. Orders had also been made limiting the evidence in chief that could be called by any party to that evidence which was contained in the written statements and to documents which had been annexed to those written statements.
These orders had some effect upon the way the trial proceeded. Most importantly they reduced the extent and number of issues between the parties. For example, although the statement of claim filed by the applicant seeks damages for the losses suffered by the ‘franchisees’ under various heads, in fact the witness statements generally only deal with the ‘franchise fees’ they had paid. The orders that had been made effectively precluded the applicant from seeking to prove any other damage. Obviously this limited the issues.
The orders as to further evidence also meant that many of the apparent disputes between the parties as reflected both in the pleadings and in the witness statements as to the relative causes of the financial failure and/or losses suffered by various of the ‘franchisees’ were no longer relevant or, even if relevant, no longer capable of being proved. Similarly, much of the respondent’s case seems to have been directed to the question whether the franchisees had sufficient stock on hand to meet their customer’s requirements. It may be true that at least some of the franchisees were undercapitalised and had inadequate stock on hand to meet the needs of their customers. This issue may have been relevant if the task before me was to apportion blame between the respondents and the franchisees for any delay suffered by the ultimate customers. However, in the absence of evidence as to what loss was suffered, the issue before me is whether the first respondent breached any representations it made in respect of the time it would take to supply goods to the franchisees. Notwithstanding the time spent on it, the question whether the franchisees had sufficient or appropriate stock on hand for them to trade successfully is not a question that I need to deal with.
A related issue which took up considerable time was the suggestion made by the respondents that at least part of the reason for any delay in supply by the first respondent to the ‘franchisees’ was that they were on ‘stop credit’. To a certain extent this suggestion, even if true, would still have required analysis as to whether the reason for any cashflow problems being experienced by the ‘franchisees’ which resulted in their being on ‘stop credit’ was the delay in supply by the first respondent. However, the factual basis for the suggestion was not made out[37].
[37]T1086-1093, 1378-1380
The end result was that the financial position of the ‘franchisees’ was not established. It will be necessary to return to this matter in relation to whether compensation is payable, but otherwise the issue of the financial position of the franchisees does not need to be further analysed in these reasons.
Other issues which were dealt with at some length in the written statements were ultimately not relevant. For example, a number of the statements filed and tendered by the respondents apparently dealt with the issue of whether the first respondent had various intellectual property rights to the ‘Powertrax’ Lock Right diff lock. This may have been the result of a lack of clarity in some paragraphs of the statement of claim, although there also seems to have been some misunderstanding by the respondents as to the nature of the case they had to meet. In any event it was clear that there was, in fact, no relevant dispute about the first respondent’s intellectual property rights. Again this meant that some witnesses did not need to be called.
Notwithstanding the orders that were made and the attempts made by the Court and the parties to limit the extent of the dispute, the hearing still took 18 days. Almost all of this time was taken up in cross-examination of the various witnesses who gave evidence.
Much of that cross-examination was directed to credit, but with limited success. It is unnecessary to discuss in any detail the demeanour or credibility of most of the witnesses. All witnesses appeared to me to be seeking to tell the truth about the facts as they remembered them[38]. Some of them had better memories than others. None of them had an absolutely accurate memory – indeed none of them claimed that they did. Almost all witnesses disavowed some aspects of their written statements. In all cases the written statements seem to be expressed with a degree of precision and exactness of recall that the witnesses disowned when under cross-examination. I did not find this surprising. Nor does it lead me to doubt their honesty. I have generally preferred their oral evidence to their written statements where they differ. In relation to all witnesses I have made some allowance for forgetfulness. Given the length of the hearing there is surprisingly little disagreement about material facts. Where I have thought it necessary to analyse any such disagreement I have expressly dealt with it below. Where I have not done so I have preferred the witness whose evidence is consistent with my findings.
[38]As Mr Hewitson said of the ‘franchisees’: ‘I thought they were all honest gentlemen’: T1103
The only witness that it is necessary at this stage to say something about is Mr Hoberg, the third respondent. The applicant’s submissions involved the allegation that he was ‘deliberatively manipulative and using dishonest means’ for the purpose of his own private gain. This is reflected in the express pleading by the applicant that the respondents had made ‘fraudulent misrepresentations’. I reject any such allegation. I do not find that Mr Hoberg was deliberately dishonest or manipulative in his dealings with the ‘franchisees’. Mr Hewitson described him as a ‘sales type person’ who had an optimistic approach to issues[39]. This would seem to me to be a fair comment which is generally borne out by the evidence. Some of Mr Hoberg’s statements and comments both orally and in writing to the franchisees and to others were optimistic or they contain hyperbole. A good example of this in a relatively neutral context is an e-mail that Mr Hoberg sent to a Mr Cole in which he refers to the first respondent being in ‘dire need of stock’[40]. Mr Hoberg explained that this was merely his manner – the company was not, in fact, in ‘dire need’[41]. Given the circumstances in which the company was placed at that time, being in the midst of a major promotion of the Lock Right, it is plain that its needs to obtain stock were real and significant. Nevertheless, I accept Mr Hoberg when he says that the need was not ‘dire’ and that this exaggeration was part of his manner. One can see the same exaggeration and hyperbole in some of the representations made to the prospective franchisees. Some of this exaggeration can be treated as being mere puffery, notwithstanding that the applicant has brought proceedings in relation to it. Indeed, Mr Elston referred to Mr Hoberg as a ‘man with a dream’[42]. Some of Mr Atkin’s evidence was to the same effect[43]. And, of course, mere puffery is not misleading: see Sanders v Glev Franchises Pty Ltd [2002] FCA 1332. On the other hand, there is an obvious danger that some of the prospective ‘franchisees’ may have been misled by comments and statements made by Mr Hoberg which reflect his manner and which were optimistic and exaggerated. It will be necessary to return to this in due course.
[39]T1015; contrast 1439
[40]Exhibit ACCC 36
[41]T1520
[42]T343-344
[43]T234
The actions of Mr Hoberg came closest to being ‘deliberately manipulative’ and dishonest in relation to the ‘secret’ development of the Australian made Lock Right. This is discussed in more detail below. However, even in this case the actions of the respondents can be explained by their belief that they were legally entitled to do what they did. As I find below, the respondents were wrong in that belief, but the belief they held refutes the allegation of fraud made by the applicant.
Mr Hoberg’s evidence was not assisted by his continual habit of seeking to put a submission rather than to answer the question he was being asked[44]. But as he said, that also was his ‘manner’[45] and I do not make any finding against his honesty on that ground. On the other hand, given that it was his manner, I have taken that manner into account in determining what actually happened in relation to events in which he was involved.
[44]See, as examples, T1239-1240, 1266, 1404, 1543
[45]T1319
Having considered his affidavit evidence and his oral evidence I have concluded, however, that Mr Hoberg is a person who, having reached an opinion, continues fixedly to hold it no matter what evidence may be produced to show the contrary. His evidence concerning the poor payment record of the franchisees as a justification for delays in delivery was just one example of this[46]. Another was his evidence of what was said to whom and when about the change from the ‘Powertrax’ to the Australian manufactured diff lock. His affidavit was clearly based on his view that the US and the Australian made product was exactly the same. His oral evidence was that it was not exactly the same. One of the important ramifications of this change was that statements that Mr Hoberg was said to have made that the product was the same could only still have been true if the statement was made prior to July 1999. As might be expected Mr Hoberg had considerable difficulty in trying to reconcile the evidence in his affidavit with his oral evidence[47]. Nevertheless, having come to the view that his evidence was the truth, he did not resile from it notwithstanding its inconsistency. This is to be contrasted with Mr Hewitson. Faced with the same difficulty, he admitted that his affidavit evidence was wrong[48].
[46]See T1336-1338, 1349 ff
[47]T1543-1545
[48]T1042-1043
Having concluded that at least some of Mr Hoberg’s evidence involved the dogged maintenance of fixed opinions, I have made even greater allowance in relation to Mr Hoberg’s evidence than in relation to other witnesses.
It is also sensible here to discuss some issues in relation to Mr Vickers’ evidence. He had considerable experience in the sale of accessories for four-wheel drive vehicles. He worked for the first respondent between April 1998 and September 1999. He handled much of the contact between the first respondent and the ‘franchisees’. He left the employment of the first respondent to take up a position with one of the ‘franchisees’, Mr Tucker. Like other witnesses, his recollection of matters of detail was not always accurate.
One issue which was dealt with in Mr Vickers’ evidence and which was apparently controversial was the cause of some of the problems being experienced by the first respondent. Mr Vickers ascribed this cause to inadequate cash flow in the first respondent’s business[49]. Although I am certain that Mr Vickers honestly believed that this was the cause, I am satisfied that Mr Vickers would not have had a sufficient understanding of the financial details of the business of the first respondent for him to be aware of its cash flow position. I return to the issue of the causes of the problems being experienced by the first respondent later in these reasons.
[49]Exhibit ACCC 1, pars 23, 30
Much of Mr Vickers’ evidence, both in his affidavits and in cross-examination, related to the change in the packaging and place of manufacture of the diff lock. By the end of the trial the parties were basically in agreement on that issue. That agreement was generally consistent with Mr Vickers’ evidence. The only factual issue in relation to this topic on which there is still disagreement is the claim by Mr Vickers that the packaging or repackaging of US based Lock Right diff locks was done by the third respondent at his home. The third and fourth respondents say it was done by them at the factory after hours[50]. I am not satisfied that Mr Vickers was in a position to know what the third and fourth respondents did out of hours or where they did it. On that issue I accept the evidence of the third and fourth respondents. However, I do not think that the issue is of any particular relevance to the case at hand. I only mention it because of the time spent on it.
[50]T953, 980-981, 1550 ff
The Business System of the First Respondent
The action pleaded against the respondents independently recites the representations made to each of the ‘franchisees’ (including Mr Werner) called by the applicant. The question then arises whether the evidence of each of the ‘franchisees’ can be used to reinforce and support the evidence of the others. It would appear that that would have been possible at common law: Grivas v Brooks (1997) 69 SASR 532. However, s 97 of the Evidence Act1995 (Cth) (‘Evidence Act’) provides:
‘(1)Evidence of the character, reputation or conduct of a person, or a tendency that a person has or had, is not admissible to prove that a person has or had a tendency (whether because of the person’s character or otherwise) to act in a particular way, or to have a particular state of mind, if:
(a)the party adducing the evidence has not given reasonable notice in writing to each other party of the party’s intention to adduce the evidence; or
(b)the court thinks that the evidence would not, either by itself or having regard to other evidence adduced or to be adduced by the party seeking to adduce the evidence, have significant probative value.
(2)Paragraph (1)(a) does not apply if:
(a)the evidence is adduced in accordance with any directions made by the court under section 100; or
(b)the evidence is adduced to explain or contradict tendency evidence adduced by another party.’

Where evidence is admissible for some other purpose it cannot be used to prove a tendency unless it complies with the requirements and conditions of s 97: see s 95 of the Evidence Act.
The effect of s 97 of the Evidence Act was explained by the Full Court of this Court in Jacara Pty Ltd v Perpetual Trustees WA Ltd (2000) 106 FCR 51 (‘Jacara’). That case involved the question whether a landlord had misrepresented the attributes of a certain shopping centre to the plaintiff. The plaintiff sought to call evidence of statements made to other prospective tenants of the shopping centre in an attempt to prove that it was more likely than not that the landlord had made the same statements to the plaintiff. The Full Court held that the evidence should not have been admitted for that purpose. In the leading judgment of Sackville J he drew attention to the difference between the use of evidence so as to establish a propensity or tendency and its use to establish how a business system operated in practice. (See at [62]‑[67]). In particular Sackville J warned of the danger of using tendency evidence to establish a business practice. At [65]-[67]:
‘In my view, evidence of conduct does not become relevant for a purpose other than proving that a person had a tendency to act in a particular way merely by asserting that the evidence tends to establish a system or business practice. Whether it is relevant for another purpose depends on whether or not proof of the tendency of a person to act in a particular way is a necessary link in the reasoning making the evidence relevant to a fact in issue.
In the present case, the evidence of the five tenants was relevant only to the fact in issue because it tended to show that Ms Kelly had a tendency to make representations to prospective tenants of the kind alleged by Mr Williams. In the absence of an assumption that Ms Kelly had such a propensity, the evidence of the five tenants could not establish a system or business practice whereby such representations were made by or on behalf of Perpetual. The tendency of their evidence to establish propensity on the part of Ms Kelly was a necessary link in the reasoning leading to the conclusion that Ms Kelly made the alleged representations during her meeting with Mr Williams.
By contrast, there will be cases where evidence of conduct is relevant to a fact in issue independently of its tendency to show that a person had a propensity to act in a particular way. If, for example, the evidence in a shopping centre misrepresentation case shows that the lessor’s agent gave instructions that particular representations should be communicated to prospective tenants, that evidence would be admissible independently of s 97(1) of the Evidence Act. The evidence, if accepted, would go beyond proving that the agent had a propensity to make representations of the kind alleged. Rather, it would establish that the agent had set in place a system which, if implemented in the particular case, would have resulted in the representation being made to the applicant. The existence of the system, in the absence of evidence to the contrary, readily supports an inference that it was implemented in the particular case. The evidence of the system makes it more likely that the fact in issue (the making of the representation to the applicant) occurred, independently of the agent’s propensity to act in a particular way.’
The effect of this is that the evidence of the individual ‘franchisees’ as to what happened to them and as to what they observed cannot be used to establish that the respondents had a business system.
However, in this case it is unnecessary to use the evidence in that way. This is because there is ‘non-tendency’ evidence which goes to establish the relevant business systems. Both Mr Hoberg and Mr Hewitson accepted that the respondents had a business system involving the ‘franchisees’, albeit one that was in development[51]. In particular, Mr Hoberg gave evidence that he had been responsible for, and was actively involved in developing a ‘franchise business system’ during 1996-1999 for the first respondent. This included the development of standard documentation. The representations they made to each of the prospective franchisees were said by him to form part of the reasonably standard approach that he had developed as part of that system[52].
[51]See e.g. T886-887
[52]Exhibit R 45, pars 22-40
Of course, I can use the evidence of the individuals who dealt separately with the first respondent in order to ascertain whether the evidence from Mr Hoberg that there was a system is correct, and, if it was, in order to determine what the system consisted of. This is not using the evidence as ‘tendency evidence’, but rather as evidence of the first respondent’s business systems.
It is clear that the system developed considerably from the time that Mr Atkins first inquired of the first respondent about franchise systems in early 1998 until the time that Mr Carroll and Mr Werner did so in late 1999. However, it is possible to observe and identify that development. The system, as it developed, consisted of at least the following:
(a)The ‘prospective franchisee’ (not including Mr Werner) was invited to visit the premises of the first respondent at Gilles Plains[53]. All except Mr Tucker did so. They were spoken to by the third respondent. The nature and some of the detail of the operations of the first respondent and of the franchise system was explained. The products manufactured or distributed by the first respondent were explained. Although Mr Hoberg claimed that what he said to each prospective franchisee was basically the same and was related to the material contained in his ‘franchise folder’, I find that there were variations between what each of them were told, depending upon the circumstances and their individual interests. This is only to be expected. In any event Mr Hoberg accepted that his ‘franchise folder’ was a work in progress – what was in it continued to develop throughout the period.
(b)There was various correspondence between the first respondent and the prospective franchisee. It is clear that Mr Hoberg continued to develop the ‘template’ letters of 4WD Systems throughout the period[54]. Unfortunately there is no obvious consistency in the use of these templates. Some prospective franchisees seem to have received letters that reflect an earlier form of correspondence. And, in any event, it is clear that Mr Hoberg did make some changes to the letters to reflect the individual interests and position of each franchisee. This means that even though there was a system which is reflected in the correspondence it is again not possible to avoid the individual consideration of what was said or written to each individual prospective franchisee.
[53]T1050
[54]T1277
However, there are some issues which can be conveniently dealt with as forming part of the franchise system, if only to assist in a better understanding of the individual representations discussed below.
It is clear from all of the correspondence and the evidence that all parties described the arrangement between them as a franchise. It is also clear that it was always contemplated that the arrangement would be formalised by formal agreements in due course. In actual fact only two of the witnesses – Messrs Carroll and Werner - gave evidence that they ever received the formal documents[55]. As discussed below, only Mr Carroll actually signed it.
[55]T1262. Mr Elston apparently received the disclosure document after the ACCC intervened: see Exhibit ACCC 5, par 69; T1263
Notwithstanding the use by all parties of the term ‘franchise’ it was the respondents’ contention, at least until final written submissions, that only Mr Carroll actually received a franchise – every one else only received what was described as a licence[56]. It is understandable that the respondents might argue that the word ‘franchise’ has a specialised meaning under the relevant Code. This issue is discussed below. What relevance the argued distinction between a licence and a franchise might have in other contexts is not clear to me. In any event I reject it. The word ‘franchise’ in this context simply means the right, usually exclusive, of a retailer or distributor to sell the products of another, usually a manufacturer. This is the sense in which the word was used in the correspondence. It is the sense in which it was understood by the ‘franchisees’. It is the sense in which it was understood by the respondents[57]. The actual rights conferred on each of the ‘franchisees’ is discussed below. But, with the exception of Mr Werner, it is clear that each of the ‘franchisees’ had a franchise at least as the word is commonly understood[58]. The various parties were right to so describe the arrangement in their correspondence and discussions. This was finally accepted at least by counsel for the respondents, in final oral submissions. Given that the contrary was unarguable it may have been preferable if his clients had accepted it in 1999 when it may have mattered to their understanding of their obligations.
[56]See e.g. Exhibit ACCC 12-GRP 6, GRP 7; T1399-1401
[57]T1052, 1057, 1242-1245, 1248-1249, 1427
[58]T1401
It is clear that it was a term of the franchise of all franchisees other than Mr Carroll that the agreement would be replaced in due course by a written agreement which was being developed. Clearly enough terms would need to have been implied into the initial oral agreement in relation to what would or could be contained in the subsequent written agreements. An implied term that the written agreement would bear some similarity to the initial agreement might be an example. It is unnecessary to explore these issues. The only person who had entered into initial negotiations with the respondents and who was then asked to execute the formal written agreement was Mr Carroll and he did so. No complaint is made in relation to the terms of the written agreement.
Prior to taking up the franchise all of the prospective franchisees, save for Mr Werner, were required to pay a flat fee in addition to the purchase of ‘opening stock’. The flat fee was described in the correspondence as both a ‘franchise fee’ and an ‘establishment fee’. Again for reasons which remain unclear to me the respondents sought to argue that the flat fee was not a franchise fee, but was an ‘establishment fee’[59]. By this the respondents apparently meant that the amount of the fee actually charged reflected some of the costs incurred by the first respondent in establishing and servicing the franchise. It did not reflect, or at least did not fully reflect, the value of any goodwill[60]. So much might be accepted although as some of the correspondence set out later in these reasons makes plain, the distinction drawn by the respondents between services and goodwill may not have always been strictly observed. But however the fee was calculated, this does not mean that the fee cannot properly be characterised as a fee payable as a condition of entering into the franchise[61]. Such a fee can properly be described as a ‘franchise fee’. The parties did so.
[59]T1051, 1245-1246
[60]T1403; see Exhibit R 45-RJH 67
[61]T1053, 1230, 1246
Mr Hoberg did explain in his evidence how the franchise fee was determined[62]. He suggested that for each of the franchisees other than Mr Carroll the franchise fee solely reflected the establishment cost to the first respondent[63]. Mr Hewitson gave evidence to the same effect[64]. I cannot accept this, at least in the absolute terms in which it was stated. To give a simple example, if consideration is only given to the expenses incurred by the respondents then the franchise fee paid by Mr Tucker in Rockhampton of $7,500 was relatively cheaper than the cost of the franchise fee paid by Mr Page in Sydney of $25,000. One only has to look at the respective time and cost spent in travelling to Rockhampton as against Sydney for the respective opening days. As Mr Hoberg accepted, some element of the amount charged to Mr Tucker as a franchise fee reflected the respondents’ perception of the value of the franchise and perhaps of the franchisee’s capacity to pay[65]. And in this regard Mr Hoberg accepted that the franchise fee charged in relation to a capital city franchise was higher than for a country franchise[66].
[62]T1402-1403, 1476
[63]T1246-1247, 1403
[64]Exhibit R 24, par 4.17; T1055-1056, 1390
[65]T1392-1393
[66]T1284. See also T1229 re the Bridgetown franchise
On the other hand, some of the cross-examination on behalf of the applicant seems to have been directed to an argument that the franchise fee charged was somehow inappropriate or too high[67] or was an inappropriate means of making profits[68]. Again I am not sure why this argument has been pursued. Maybe it had something to do with the complaints made by Mr Elston who (as is discussed below) seems to have been primarily concerned about the amount of the fee. Whatever the reason it does not have any obvious relationship with the TPA. In any event I reject it. However the franchisee fee was calculated it is obvious that the fee in each case was not very much greater, if at all, than the costs incurred by the respondents in establishing the franchise. This was a deliberate business strategy of the respondents – to provide a low cost entry for franchisees (who generally were operating existing small businesses) so as to establish a national franchise system[69]. At least initially the respondents intended to make their profits and growth from the increased trade in their products as a result of the expansion of the franchise system, rather than from the receipt of franchise fees.
[67]T958-959, 1125-1127, 1385-1394
[68]T961, 1120-1122
[69]T441, 1389, 1437
When the franchise system became established on a national basis the respondents intended to double the price charged for new franchises so as to take greater account of the value of the goodwill in the trading name. This is reflected in some of the statements made by the respondents about the ‘normal’ or ‘standard’ franchise fee which is referred to later in these reasons. But even then the proposed normal or standard franchise fees would seem to have been relatively modest. Such examples as there were given in the evidence of equivalent franchise fees were very much larger than those charged or proposed by the first respondent[70].
[70]T532
I note that a similar argument was pursued in relation to the requirement of the respondents that orders for the Lock Right promotion would only be accepted if accompanied with full payment. The applicant pleaded that this was somehow improper. Indeed, the pleading was that this was fraudulent. The implication from the pleading seems to be that the moneys received were held on some sort of trust. It was not. There is nothing whatever in the TPA which prevents a person from requiring payment in advance before orders for goods are filled. If there was a problem in the Lock Right promotion it related to the delay in delivery of the goods, not to the requirement for payment in advance. I will consider the issue in that context.
Although it will be necessary to consider the representations made to each franchisee individually there is sufficient consistency in some of them to discuss them in the context of the system.
In relation to some franchisees, such as Mr Tucker, there were express and direct representations made in relation to the time for supply or the quality of goods. However, with at least some of the franchisees there were no direct representations dealing with the time of supply. On the other hand in relation to each of them there were representations made which favourably compared the present and future performance of the first respondent with that of its major (and larger) competitors. Further, there were other representations made by the respondents as to the expected performance of at least some of the franchisees if they entered into a franchise. That expected performance was predicated upon the assumption that the first respondent would itself perform to the same level as those competitors[71]. In the absence of any express representation as to time of supply or quality it was necessarily implicit within the representations that were made that the first respondent would meet the usual industry standards both as to time of supply of goods and as to the quality of goods supplied. As discussed later in these reasons, if the respondent was not intending to comply with that implication, it was incumbent upon the respondent to reveal the true state of affairs.
[71]See e.g. T1438-1439
Representations were made to at least some of the franchisees that the respondents would ‘refer’ to the franchisee sales up to specified values. Many of the franchisees gave evidence that they were not aware of any cases where anyone had been ‘referred’ to them. This raises the question of what ‘referred’ means in this context. Both Mr Hewitson and Mr Hoberg gave evidence as to their understanding of the word[72]. Clearly enough it included any situation where a potential customer contacted the first respondent and was referred to the franchisee. It may be inferred that some of the sales in relation to the diff lock promotion would have fallen into this category because the advertising for that promotion only gave the first respondent’s telephone number. It might also include a circumstance where a particular advertisement directed a potential customer to a specific franchisee, although there was no evidence of any such advertisements. Accepting this meaning then it is not surprising that the franchisee was not necessarily informed that there had been a referral. Further, it must follow that the value of sales referred to in the representation was not the value of actual sales achieved, but the value of potential sales in respect of which persons had been referred. I do not accept that the word ‘referral’ would be understood as including any inquiry from a potential customer generated as a result of the national advertising of the brand name, as Mr Hoberg claimed[73]. Not only is this inconsistent with the usual meaning of the word, it is also inconsistent with the context of the representations, which distinguish between ‘referrals’ and ‘advertising’. I also do not accept that the value of referrals, even if construed as the value of potential sales, was necessarily in accordance with the representation. This will need to be discussed in more detail in relation to individual representations. On the other hand, I have considerable difficulty in understanding how these representations as to referrals could be treated as other than puffery: see Kenny J in Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 (‘Sanders’) at [270]-[272] and [347]. Indeed, although the complainants’ affidavits referred to these representations and claimed reliance upon them, I did not obtain any sense from any of their oral evidence that any of them had in fact relied upon the representation or treated it as other than puffery. There was no evidence, for example, that anyone did a calculation of expected cash flows in reliance upon the representations. More importantly there was no suggestion that any of the franchisees had complained to the respondents about any lack of referrals. In contrast the franchisees did complain about the failures of the respondents in other contexts, most particularly in relation to the time of delivery and the quality of goods. This is not meant to suggest that reliance is necessary to establish a breach of s 52 TPA. That section applies to conduct that is ‘likely to mislead’ whether or not it did mislead (contrast s 87 TPA in relation to compensation). But the fact that there was no reliance in circumstances such as these does suggest that the words were understood as puffery and that they were not likely to mislead.
[72]T1131-1137, 1371-1375, 1382
[73]T1396

Representations were also made as to the training that the prospective franchisees would receive. This is discussed in more detail in relation to each franchisee later in these reasons. However, some of the arguments suggesting that these representations had been breached seemed to ignore the fact that some of the franchise arrangements lasted only a relatively short period of time. Clearly enough a representation as to what might or should occur in the course of a long term relationship may not be wholly met when the relationship only lasts 18 months or less.
At least two of the franchisees, Messrs Atkins and Elston, said that it had been represented to each of them that they would receive exclusivity in relation to the distribution of Lock Rights. This was denied by the respondents. The question of whether such a representation was made is considered in more detail later. But whether or not a representation was made to that effect, it would seem that they and the other franchisees in fact enjoyed exclusive trading rights, including as to the ‘Lock Right’ diff lock. Mr Hoberg explained the reason for this. The price that a franchisee paid for the goods supplied by the respondents was the ‘franchisee price’ plus the cost of freight. Similarly the price that the first respondent charged to retail or trade customers was the retail or trade price plus the cost of freight. This was also the price charged by the franchisee, but with the difference that for goods purchased within the local area the freight cost was likely to be nil. The practical result of the price structure put in place by the first respondent was that the total cost of goods purchased by a retail or trade customer from a franchisee was lower than the total cost when purchased from the first respondent. The result would seem to have been that the franchisees had practical exclusivity, whatever the representations may have been. This was reinforced by the fact that the Lock Right promotion which commenced in March 1999 was solely and exclusively through the franchisees. In any event, on those occasions when it did come to the attention of Mr Atkins or Mr Elston that the first respondent had made a direct sale within the franchisee’s area the first respondent accounted to the relevant franchisee so as to put him in the same position as if he had made the sale[74].
[74]T284-285, 1129-1131, 1269-1272, 1371-1373, 1376
There was some suggestion by some of the franchisees that they were bound to purchase their four-wheel drive products from the first respondent, at least if the first respondent had that product available. Certainly the first respondent hoped that the franchisees would purchase the first respondent’s products. However, I am satisfied that there was no requirement that they do so[75] save only for Mr Carroll where the relevant requirement was contained in the written franchise agreement. I note for example, that Mr Page continued to order most of his products from other suppliers. I also note that part of the ‘package’ provided to the franchisees was access to the goods of another supplier, ECB, at a discount price[76]. Those other franchisees who gave evidence that there was such an obligation were mistaken.
[75]T1232
[76]T1437-1438
Representations were made to all or most of the franchisees that they would be required to pay 2.5 per cent of the turnover of their business to meet the costs of the national advertising budget of the first respondent. This caused particular problems for at least Mr Werner, and is discussed in more detail later in these reasons. However, it is clear that during the period that I am considering the ‘advertising fee’ of 2.5 per cent was never sought by the first respondent from any of the franchisees (leaving aside Mr Werner) and was not paid by any of them[77].
[77]T462, 863
Other representations
The questions of ‘tendency evidence’ and of business systems are also relevant to the question whether the first respondent breached any of the representations that it had made or for which it was responsible. Following Jacara it is clear that the evidence of one complainant relating (for example) to delays in delivery to him by the first respondent cannot be used to establish that there were delays in relation to other complainants. This would be to use the evidence as ‘tendency evidence’. In order to establish that the delays were systematic it is necessary to identify evidence that is not ‘tendency evidence’ but which establishes such a system. In this case that is provided by the evidence of Mr Vickers, supported by the evidence of the third and fourth respondents. Relying on that evidence I am satisfied that none of the complainants was singled out for any special treatment or mistreatment. They were all treated the same. That treatment may have varied from time to time, but if there were problems with delays at a point in time then all complainants dealing with the first respondent at that time suffered the same delay, or at least the same risk of delay.
Mr Vickers gave evidence of the delays that occurred. As discussed below, he also may not have had a full knowledge of some of the matters about which he gave evidence. Nevertheless, Mr Vickers handled the complaints from the ‘franchisees’. His evidence confirms that the ‘franchisees’ were complaining about the quality of the goods produced by the first respondent and delays in supply. As to these:
(a)his evidence was that he would expect suppliers of four-wheel drive accessories to be able to provide relatively standard parts within a period of about one or two days plus delivery time from the date of the order. ‘Standard parts’ in this context means parts such as bull-bars, roof-racks, etc. for a popular model of four-wheel drive vehicle where that model has been in the market for a reasonable period of time. Even accessories that might be considered ‘non-standard’ were usually supplied within about 14 days plus delivery time from the date of the order[78].
(b)His evidence was that the first respondent often exceeded these times for ‘standard parts’. It had ‘unreasonable and unusual delays in supply’[79].
(c)His evidence also was that the finish on some of the product manufactured by the first respondent and supplied to the franchisees was ‘inconsistent and of varying quality’[80]. He particularly referred to problems with flaking on powder coated metal products fabricated by the first respondent such as bull-bars and roof-racks. There was also a problem with some products, particularly bull-bars, being poorly built in the sense that the holes for fitting were not always in the correct place[81].
[78]Exhibit ACCC 2, par 17; T91 ff, 135 ff
[79]Exhibit ACCC 2, par 17. NB Counsel for the respondents concedes that there were delays of this order: T156.
[80]Exhibit ACCC 2, par 25
[81]Exhibit ACCC 1, par 27; Exhibit ACCC 2, par 26
In general terms Mr Vickers’ evidence in relation to delay was confirmed by the experience of each of the franchisees. This is discussed further below. Indeed, the period of supply was not disputed by the first respondent. The dispute was not as to the time for supply, but the cause of it and whether that time involved any misrepresentation[82] or caused any loss.
[82]T1058-1061
The evidence of Mr Vickers was that the cause of the delay problems experienced by the first respondent was its problematic cash flow[83]. It is plain from the evidence of Mr Hewitson[84] and, to an extent, that of Mr Hoberg that the causes were more complex. For example:
(a)the delays in providing at least some models of Lock Rights for the period from September 1998 to at least July 1999, were caused initially by the problems in supply from the pre-existing US suppliers, compounded by the delays in the commencement of the Australian manufacture of the product[85].
(b)The expansion of the business in the period June 1998 to early 2000 (including the work involved in preparing to manufacture the Lock Right product in the first half of 1999[86] and the increase in the number of franchises) placed significant strain upon the capacity of the business. This included its cash flow, its credit position, its stock position and so on[87]. It also placed a considerable strain upon the third and fourth respondents[88]. The result was that the first respondent had very little stock on hand during this period[89]. All, or almost all, orders from the complainants and others had to be supplied by further ordering from external suppliers or by the manufacture of the product required[90]. This meant that ordered goods would usually take 3-4 weeks to be supplied as a matter of course – any problems with supply or manufacture could significantly extend this period[91]. As mentioned above, this time for delivery was not disputed[92].
[83]Exhibit ACCC 1, par 22
[84]T1118-1120
[85]Exhibit ACCC 36; Exhibit ACCC 37; T975-1003, 1007-1008, 1086, 1012, 1152-1153, 1502-1503
[86]T1002 ff
[87]Exhibit ACCC 57; Exhibits ACCC 59-61; Exhibit ACCC 65; Exhibit R 45-RJH 12; T964-967, 1002-1006, 1513-1519, 1525-1526
[88]T1523-1524
[89]T1060-1063
[90]T1006, 1351
[91]Exhibit ACCC 3-SWA 2, SWA 5; Exhibit ACCC 12-GRP 2; Exhibit ACCC 14-PLT 8
[92]Exhibit ACCC 41; T868, 1031, 1061-1064, 1071, 1351-1352
Mr Vickers’ evidence in relation to quality was also confirmed by that of the franchisees. The respondents accepted that there might be some problems in fitting some of their products, but that these problems were more or less what could be expected in the industry[93]. The respondents did not accept that the more serious problems alleged in relation to quality were real - at least in relation to any problems that the first respondent had been made aware of. They claimed that once they became aware of any problem it was fixed[94]. This included, at one stage, changing the contractor who did laser cutting for the first respondent for the purposes of metal fabrication[95]; on another occasion, changing the paint used for painting bull-bars and other products[96]. I accept that the respondents did attempt to correct the quality problems when they became aware of them. However, the reality was that they were a small business carrying on a small manufacturing operation, but attempting to provide a relatively full range of products. And the same problems that the first respondent was experiencing that explain the reasons for delay also explain why there would be difficulties in maintaining and addressing problems in quality. It is not at all surprising that there were occasional problems with quality and sometimes more than occasional problems. Consequently I also accept, at least in general terms, the evidence of Mr Vickers and the franchisees that there were problems with quality.
[93]T1117-1118
[94]T1095, 1098 ff
[95]T1102
[96]T1102-1103
This provides the general background against which the particular representations alleged by the applicant can be discussed. I will do so first by discussing in relation to each franchisee (including Mr Werner) the representations allegedly made in the context of the grant of the franchises which require consideration. I will then deal separately with the representations allegedly made by the respondents in relation to the change from the ‘Powertrax’ to the Australian made diff lock.
I have not dealt with the ‘extra’ representations identified in the applicant’s submissions that were not pleaded. And I have not expressly dealt with all of the representations or conduct alleged to be misleading in the pleadings. A number of these representations were simply not made out on the evidence at all. In relation to some there was simply no evidence that the conduct was misleading. And some others were simply trivial. To take just one example, the applicant has pleaded that representations were made to Mr Carroll about the ‘competitive pricing’ of the respondent’s products at retail level and that the franchisee would achieve ‘above average margins compared to the opposition’. There was some evidence from Mr Tucker about the comparative prices of products[97], but there was insufficient information in relation to comparisons to draw any conclusion from it. There was absolutely no evidence about competitive pricing in Western Australia where Mr Carroll was in business. This is merely an example of many allegations made in the pleadings and during the trial which were not made out. In order to avoid making these reasons more prolix than they already are I have not dealt with these allegations expressly.
[97]T528-529
Atkins Representations
Mr Atkins has owned his own mechanical workshop in Beresfield, New South Wales since 1992. He entered into a ‘franchise’ arrangement with the first respondent in July 1998. He operated ‘4WD Systems Hunter Valley’ under that franchise. The franchise fee was $7,500 payable on terms[98]. He discontinued dealing with the first respondent in August or September 1999[99].
[98]ACCC pars 13, 19-21; T270, 273
[99]Exhibit ACCC 3, pars 50, 52.
There was little dispute as to the representations made to Mr Atkins. In any event, I accept his evidence that:
(a)Initially there was some telephone contact between Mr Atkins and Mr Hoberg where the possibility of an exclusive franchise was discussed[100]. Prior to entering into the franchise he travelled to Adelaide and met Mr Hoberg who was acting on behalf of the first respondent. Subsequently he had telephone conversations with Mr Hoberg. The first respondent sent a letter to Mr Atkins dated 14 July 1998, which confirmed the arrangement[101]. That letter provided:
[100]T1296-1297
[101]Exhibit R 45-RJH 73
‘Many thanks for taking the time and making the effort to come to Adelaide and see what we are doing and confirming your intention to join 4WD Systems.
I suspect that you will become a very successful 4WD Systems franchisee based on your plans, attitudes and location and we hope to support you for many, many years to come.
Since we met, I have received two more confirmations of new franchises (one to be in Sydney the other an unhappy TJM distributor of 15 years in the country), plus another 4 firm enquiries like you started with - so we are growing rapidly.
At your request to secure the Beresfield franchise and based on your intentions to open your new retail showroom in the next few months and to make payment of the establishment fee in advance, please accept this as confirmation of your rights to the franchise and right to use the name 4WD Systems - Beresfield.
The licence and rights and conditions of the use of the name is subject to the final franchise documentation and the regulations provided therein, we will provide you with a disclosure document that complies with the latest regulations in due course. The 4WD Systems name is a registered and protected name, unauthorised use of the name and associated trade marks is illegal and would be the subject of both a civil claim and a breach of the Trade Practices Act. This means your business is protected from any unauthorised use of the name within your region.
As we discussed it is best for us to wait until everything is done properly rather than doing a makeshift start in your existing premises and then redoing it in the new premises, with the loss of excitement that a new opening creates and especially to avoid the potential problems that can occur with premature start before training and procedures.
All advertising and marketing use of the name is subject to written confirmation by 4WD Systems, to ensure that the name is used correctly and that no errors or misleading statements surrounding its use are made. This is not intended to be a restriction of use, but purely a protective and problem avoidance measure.
I have included some general information, a suggested opening stocks list and invoice for the establishment fee.
Please contact me if you have any further queries.’
(b)In the course of these conversations and correspondence it was represented to Mr Atkins by or on behalf of the first respondent:
(i)he could obtain a ‘franchise’ from the first respondent. The ‘franchise’ would give him an exclusive right to sell the first respondent’s products, including the Lock Right[102], within the franchise area[103]. He could purchase goods from the respondent at a low ‘franchisee’ cost[104]. He would have 30 day credit facilities provided to him by the first respondent[105].
[102]Exhibit ACCC 4 par 2; T282-283; contrast T1296-1297
[103]Exhibit ACCC 3, par 11; Exhibit ACCC 4, par 5; T228-229, 271
[104]T249
[105]Exhibit ACCC 3
(ii)The first respondent manufactured some of its own goods, including bull-bars, roof-racks and other metal fabricated products[106]. These goods were at least as good as those manufactured by the first respondent’s competitors. (The implications of this representation have already been discussed).
[106]Exhibit ACCC 3, par 9
(iii)The first respondent was the exclusive Australian distributor of the ‘Lock Right’ diff lock[107]. The first respondent understood this to be the product imported from the US in the ‘Powertrax’ box.
[107]ACCC par 17
(iv)The first respondent would provide sales and product training, would provide assistance at an Open Day to launch the new franchise, and would assist at trade shows[108].
[108]ACCC pars 17
(v)     He could trade under the name ‘4WD Systems – Hunter Valley’[109].
[109]    ACCC par 19
(vi)The first respondent was intending to grow to be a major competitor in the 4WD accessory industry. Its products would be sufficiently competitive that it could outsell its competitors[110].
(c)Mr Atkins understood that the first respondent had a plan for considerable growth. He understood the representations in that context. Indeed, one of the reasons for him entering into the arrangement with the first respondent was that he wanted to be part of that growth[111]. With that qualification I find that Mr Atkins entered into the franchise in reliance upon the representations that had been made to him.
(d)The representation as to exclusivity in relation to the first respondent’s products, including the Lock Right, was complied with. As mentioned above, Mr Atkins did receive exclusive rights of distribution.
(e)Mr Atkins was provided with satisfactory assistance at trade shows. Apart from the assistance of a sleepy Mr Vickers, he was not given assistance at an Open Day but he accepts that that was due to problems of timing for which he did not blame 4WD Systems[112]. He was given additional training at his ‘franchise’ premises for one day following a trade show[113]. Given the limited period of the franchise I am not satisfied that the first respondent breached any representations it gave in relation to training or like assistance.
(f)It was implicit in the representations made by the respondents that the respondents would at least meet industry standards. This has been discussed above. It is specifically confirmed by Mr Atkin’s own experience in the industry which was that goods ordered from suppliers are normally delivered within 1-2 weeks from the date of order[114]. In the case of the first respondent there were various delays in providing product to the ‘franchisee’[115]. In particular, there was a significant problem in delays in the period February to May 1999, with some products taking considerably longer than one month to be supplied. Some of those products, such as a bull-bar or a roof-rack for a Landcruiser, would seem to be reasonably ‘standard’ items. Reasonably standard Lock Right products seem to have taken at least 3-4 weeks for delivery during much of 1999[116]. In my view the representation as to the timing of supply in accordance with the usual standards in the industry was not met. The reasons for this have already been discussed.
(g)Some of the product supplied to Mr Atkins was of poor quality. This included bull-bars and roof-racks which were poorly finished so that they would rust and/or flake. It also included some fuel tanks which showed signs of rust. I am satisfied that the extent of poor quality product supplied to Atkins was greater than would be reasonable to expect in the industry. The reasons for poor quality products have already been discussed. However, I am not satisfied that the number of faulty products supplied by the first respondent was as high as the one quarter to one third estimated by Mr Atkins[117].
(h)Mr Atkins made at least one request to the first respondent to be given the franchise documentation for execution. The documentation was never provided[118].
[110]Exhibit ACCC 3, par 12; contrast T1323-1325
[111]T234, 267
[112]T252-253, 262
[113]T255
[114]Exhibit ACCC 4, par 14
[115]Exhibit ACCC 3-SWA 5
[116]Exhibit ACCC 3-SWA 7
[117]Exhibit ACCC 3 par 46; T295-296
[118]    Exhibit ACCC 3, par 64; T273

The applicant also pleads that the first and/or second respondents breached the Code in refusing to negotiate with the franchisees in relation to franchise agreements. The short answer again is that there was no obligation to do so. Indeed, the terms and requirements of the Disclosure Document seem to infer (although not require) that franchise agreements will be in relatively standard form.
Finally the applicant pleads that the first and second respondent breached the Code in that they failed to provide Messrs Tucker, Carroll and Werner with a Disclosure Document, failed to obtain from them a statement that they had received independent advice in relation to the franchise and failed to clearly disclose to the franchisee the name of the franchisor. I have already dealt with the position of each of Messrs Tucker, Carroll and Werner in relation to the obligation to provide the Disclosure Document and the written statement. In that respect the allegation is only true in relation to Mr Tucker. I have dealt with it above.
The suggested obligation to ‘clearly disclose the name of the franchisor’ seems to be based upon the assumption that the first and second respondent could agree amongst themselves which of them would be the franchisor at a particular point in time. Both parties seem to have assumed that the franchisor could be changed by the first and second respondents. However, the franchise agreement imposed ‘personal’ continuing obligations upon the franchisor. In the absence of any express agreement by the franchisees those obligations could not be transferred from the first respondent to the second respondent. On this understanding of the law it seems to me that there was no confusion about who the franchisor was. It is plain that the franchisor in relation to Mr Tucker was and remained the first respondent. Indeed, the second respondent did not even exist at the time that Mr Tucker commenced negotiating with the first respondent[296]. There is no evidence that he was ever told that there was to be a different franchisor. He was told that his franchise was part of a broader system of franchises – the first respondent was the franchisor in relation to that system. As to Mr Carroll and Mr Werner it is clear from the documentation that the franchisor (or proposed franchisor in relation to Mr Werner) was the second respondent. Whether this meant that the agreement between the first and second respondents (whatever its terms) was in some measure ineffective in relation to the other franchisees is not an issue that arises in this case. Consequently, to the extent that there is any obligation under the Code to ‘clearly disclose the name of the franchisor’ this was done. However, this should not be taken as any acknowledgement by me that the Code does impose any such obligation.
[296]T1252
By reason of the foregoing I am satisfied that the first respondent breached s 51AD TPA in not providing the Disclosure Documents to Mr Tucker as required by cl 6 and cl 10 of the Code and in not obtaining from him the written statement as required by cl 11 of the Code.
Remedies Against the First and Second Respondent
To summarise, I am satisfied that the first respondent has breached the TPA as follows:
(a) It engaged in conduct that was misleading in breach of s 52 TPA in that:
(i)As to Mr Atkins it failed to inform him that the first respondent it would not comply with the usual industry standard as to the time for supply.
(ii)As to Mr Elston it made representations to him as to time for supply and as to quality of goods which representations were misleading.
(iii)As to Mr Page it made representations that the problems that the first respondent had had as to time for supply and as to quality of goods were being fixed. These representations were misleading.
(iv)As to Mr Tucker it made representations to him as to quality of goods which were misleading.
(b)It breached s 53(1) TPA in:
(I)expressly representing to Mr Atkins on or after July 1999 that the Australian made product was the ‘exact same product’ as the US made product;
(II)advertising in various four-wheel drive magazines from July-December 1999 that the product being supplied by the first respondent was the ‘Powertrax’ product when an increasing proportion of the product supplied over that period was made by the first respondent in Australia and not made by contractors in the US;
(III)not informing the franchisees and others before July 1999 that as from July 1999 some of the product that the first respondent would supply in response to orders for Lock Right products would be made by the first respondent in Australia and not made by contractors in the US.
(c)It breached s 51AD TPA in not providing the Disclosure Documents to Mr Tucker as required by cl 6 and cl 10 of the Code and in not obtaining from him the written statement as required by cl 11 of the Code.
I am satisfied that the second respondent engaged in conduct in trade or commerce which was misleading in breach of s 52 of the TPA in that in the negotiations between the second respondent and Mr Carroll the second respondent failed to inform Mr Carroll that it did not and would not comply with the usual industry standards as to the time for supply.
What remedies are available against the first respondent? The applicant has sought nearly three pages of various remedies against the respondents. Given that these reasons are already too long and that there is no basis for most of the remedies sought I do not propose to detail each and all of the remedies sought. To summarise them, the applicant seeks declarations, injunctions, orders for compensation to the franchisees and orders to implement compliance programmes. In bringing the proceedings and in seeking these remedies the applicant relied upon ss 80 and 87(1A) TPA. Section 80 and s 87 provide, so far as is relevant:
‘80 Injunctions
1)Subject to subsections (1A), (1AAA) and (1B), where, on the application of the Commission or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute:
(a)     a contravention of any of the following provisions:
(i)    a provision of Part IV, IVA, IVB, V or VC;
  …
(b)     attempting to contravene such a provision;
(c)aiding, abetting, counselling or procuring a person to contravene such a provision;
(d) inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision;
(e)being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or
(f)conspiring with others to contravene such a provision;
the Court may grant an injunction in such terms as the Court determines to be appropriate.
…
(4)The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised:
(a)whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind;
(b)whether or not the person has previously engaged in conduct of that kind; and
(c)whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.
(5)The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised:
(a)whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing;
(b)whether or not the person has previously refused or failed to do that act or thing; and
(c)whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing.
(6)Where the Minister or the Commission makes an application to the Court for the grant of an injunction under this section, the Court shall not require the applicant or any other person, as a condition of granting an interim injunction, to give any undertakings as to damages.
…
87 Other Orders
(1)Without limiting the generality of section 80, where, in a proceeding instituted under, or for an offence against, this Part, the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subs) in contravention of a provision of Part IV, IVA, IVB or V, the Court may, whether or not it grants an injunction under section 80 or makes an order under section 80A or 82, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2) of this section) if the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.
(1A)Without limiting the generality of section 80, the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IVA, IVB or V or on the application of the Commission in accordance with subsection (1B) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage, or will prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.
(1B)Where, in a proceeding instituted for an offence against section 79 or instituted by the Commission or the Minister under section 80, a person is found to have engaged (whether before or after the commencement of this subsection) in conduct in contravention of a provision of Part IVA, IVB or V, the Commission may make an application under subsection (1A) on behalf of one or more persons identified in the application who have suffered, or are likely to suffer, loss or damage by the conduct, but the Commission shall not make such an application except with the consent in writing given before the application is made by the person, or by each of the persons, on whose behalf the application is made.
(1C)An application may be made under subsection (1A) in relation to a contravention of Part IVA, IVB or V notwithstanding that a proceeding has not been instituted under another provision of this Part in relation to that contravention.
(1CA) An application under subsection (1A) may be commenced:
(a)in the case of conduct in contravention of Part IVA - at any time within 2 years after the day on which the cause of action accrued; or
(b)in any other case - at any time within 3 years after the day on which the cause of action accrued.
(1D)For the purpose of determining whether to make an order under this section in relation to a contravention of Part IVA, the Court may have regard to the conduct of parties to the proceeding since the contravention occurred.
(2)      The orders referred to in subsection (1) and (1A) are:
(a)an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of a collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date before the date on which the order is made as is specified in the order;
(b)an order varying such a contract or arrangement in such manner as is specified in the order and, if the Court thinks fit, declaring the contract or arrangement to have had effect as so varied on and after such date before the date on which the order is made as is so specified;
(ba)an order refusing to enforce any or all of the provisions of such a contract;
(c)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage;
(d)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage;
(e)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at his or her own expense, to repair, or provide parts for, goods that had been supplied by the person who engaged in the conduct to the person who suffered, or is likely to suffer, the loss or damage;
(f)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, at his or her own expense, to supply specified services to the person who suffered, or is likely to suffer, the loss or damage; and
(g)an order, in relation to an instrument creating or transferring an interest in land, directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to execute an instrument that:
(i)varies, or has the effect of varying, the first-mentioned instrument; or
(iii)terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the first-mentioned instrument.
…’
In addition this Court has jurisdiction to make declarations of right in relation to a matter in which it has original jurisdiction: s 21 Federal Court of Australia Act 1976 (Cth). (I note that the jurisdiction to make declarations under s 163A TPA has no application in this case: see Westpac Banking Corporation v Northern Metals Pty Ltd (1989) ATPR 40-953 at 50, 417).
The applicant seeks various injunctions the effect of which is to restrain the respondents from making untrue statements in relation to franchises or in relation to goods and to restrain the respondents from breaching the TPA. It is clear from the terms of s 80(4) and (5) of the TPA that the jurisdiction to grant an injunction is wider under s 80 TPA than it would be under traditional equitable principles. An injunction can be granted under the TPA if it is in the ‘public interest’. So, for example, an injunction might be granted to mark the Court’s disapproval of the behaviour of the respondent: Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 496 at 299. Nevertheless, what is being sought is an injunction. The discretion to grant the remedy must be exercised judicially, taking account of the circumstances and the nature of the remedy being sought. Clearly enough the traditional rules in relation to the grant of injunctions remain relevant: see Lockhart J in ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 256-257. For example, the injunction should be capable of being expressed in sufficiently clear terms that it is capable of being complied with without the continual supervision of the Court: see Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 at 26 [60]; contrast 48-49 [121]-[122].
It is clearly inappropriate to make an injunction as broad as the ones sought by the applicant e.g. an injunction restraining the respondents from breaching the TPA. It is entirely inappropriate to use the enforcement powers of this Court effectively to add a further provision to Pt VI of the TPA.
Nor can I see any particular benefit or purpose to making an injunction requiring the respondent to carry on a compliance programme in the absence of some clear benefit that such a programme might deliver in terms of future behaviour by the respondents. In this case such an order would be entirely punitive. In particular there is no material before me to suggest that the respondents are still actively promoting a franchise system. Nor is there any evidence to suggest that such of their previous franchises that remain are not entirely satisfied with the service they are obtaining. The applicant did refer to cases where parties had consented to the making of injunctions containing compliance programmes where the effect would seem to have been punitive only. However, for my part consent orders in these circumstances are of little precedential value.
This still leaves the issue whether an appropriately drafted injunction should be granted. One objection that might be made to a more specifically drafted injunction is that it may not achieve what a reasonable bystander would consider to be a fair result in the particular circumstances. For example, the obvious solution for the respondents to adopt in order to comply with a more narrowly drafted injunction is to do that which they did do in relation to Mr Carroll - for Mr Hoberg to stop making exaggerated claims and instead to use cautiously drafted documents that comply with the Franchise Code. As I have already found in relation to Mr Carroll, if that procedure was adopted then there was no breach of the TPA. But this does not assist Mr Carroll very much.
However, such an objection would misunderstand the extent of the power to grant an injunction under s 80 TPA considered in the context of the statutory scheme. It is clear that injunctions can be made under s 80 TPA if it is in the public interest to do so: see e.g. Tamberlin J in Australian Competition and Consumer Commission v Top Snack Foods Pty Ltd (1999) ATPR 41-708 at [97]. As a general proposition the TPA leaves it to the market place to ensure efficient and appropriate commercial outcomes. What the TPA attempts to achieve is to ensure that the market operates fairly - but it does so by establishing norms in relation to the market processes, not market outcomes. Consequently it does not ensure that a particular person will obtain the best price or the best agreement. It does not even ensure that that person will obtain a fair agreement. What it does do is seek to ensure that that person has a fair opportunity to obtain that which the market should, over time, deliver (at least according to the philosophy on which the TPA is based). The relevant ‘public interest’ must be understood in the context of the role of the TPA in establishing normative processes in relation to the operation of the whole market: see Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd [2002] FCA 1548.
The purpose of an appropriately drafted injunction may be merely to reinforce to the market place that the restrained behaviour is unacceptable. A declaration may achieve the same result, but so long as it is otherwise appropriate that is no reason why an injunction should not also be made if it is in the public interest (as so understood) to do so. On this basis an injunction could still be made where (as here) there was little likelihood that the respondents might engage in the restrained behaviour.
In my view it is appropriate in this case to make an injunction directed to the first and second respondent restraining each of them from entering into franchise agreements without giving to the prospective franchisee detailed information both as to the quality of the goods that will be supplied and as to the time for delivery of such goods. Information should also be given of the orders made in these proceedings. I note that there are a number of examples where similar injunctions have been granted after full consideration. I refer, for example, to the injunction granted by Mansfield J in Australian Competition and Consumer Commission v Grant [2000] FCA 1564. I note that the order does not limit what further information the first or second respondents may provide. This could include, for example, information which explains, qualifies or even disputes the information that is required to be provided. So, for example, the injunction requires information about relevant complaints to be provided to a prospective franchisee. The order does not prevent the respondents from saying that the complaint is wrong or whatever. Indeed, if that information, considered by itself, was misleading then they would be obliged to disclose further information. So, for example, if they had received complaints from 80 per cent of their direct customers, but there were no existing franchisees, to disclose that there were no complaints by franchisees without also disclosing some details of the complaints from others might well be misleading. Similarly, if any further information that is provided is itself misleading then this might also be a breach of the TPA.

Given the background to the breaches of the TPA in relation to the Lock Right and the Franchise Code I am not prepared to make injunctions in relation to those issues. In particular, in the absence of any evidence as to the current market acceptance of the Australian product vis-a-vis the US product or of any confusion in that regard I am not prepared to make any orders which might affect the current operations of the respondents in the current manufacture and trading of the Lock Right products. Nor do I think it appropriate to try to develop by myself some injunction directed to what the respondents might do in the future if they found themselves in a similar situation to that which they were in 1998/1999. In this regard I note that the applicant has not made suggestions as to the terms of any specific injunction that it seeks.
The applicant seeks orders for the refunds of the franchise fees paid by the franchisees referred to above. The applicant seeks these orders pursuant to s 87 TPA. It is a pre-condition to the applicant making such an application that the persons who suffered the relevant loss or damage have consented to the Commission making an application on their behalf: see s 87(1B) TPA. At the close of the evidence there was no pleading and no evidence to establish that consent had been given. The applicant said that it was not required. The applicant also said that there had been no reported case where such a requirement had been mentioned. This has caused me to consider the question carefully. It may be that it was strictly unnecessary to plead that such consent had been given in light of the express pleading that the applicant was seeking orders under s 87 of the TPA. In those circumstances it may have been implicit that the applicant was claiming that it had complied with the necessary preconditions: see Order 11 rule 6 of the Federal Court Rules. Even so I would have thought it sensible to plead that the consent existed, if only to identify if the issue was likely to be one that was in dispute.
However, in the absence of any agreement by the respondent as to the existence of such consent then I have no doubt that it is an essential pre-condition to the applicant obtaining any order under s 87 TPA that the applicant establish that it has such consent. This is clear simply as a matter of establishing the entitlement of the ACCC to the orders it seeks. It is also clear if one considers the position of the persons who have suffered a loss. The effect of the consent may well be that that person is then at least estopped from taking further or inconsistent proceedings at a later time: see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. Indeed, it may go further. The person giving the consent may effectively be a party to the application being a ‘person on whose behalf the application is made’: s 87(1A)(c) TPA. In this case in light of the limited evidence called by the applicant in relation to damages the various franchisees might well be prejudiced if they are estopped in subsequent proceedings from pursuing any other compensation to which they might be entitled. I raised this matter expressly with counsel for the applicant who took instructions in relation to it. She informed me that the applicant still wished to obtain orders under s 87 TPA. In my view in order to do so it was necessary for the applicant to establish that such consent exists.
The applicant requested that I give leave for it to re-open its case for that purpose if I found that such consent needed to be proved. The respondent did not object to that course providing that the relevant consents existed before the application was, in fact, made. I gave leave on that basis. In response to it the applicant has sought to tender written consents made on 7 August 2003 and has applied to amend its application. Plainly enough it did not have the written consent when the application for relief on behalf of the franchisees was first claimed on 27 September 2001. In its covering submission accompanying the written consents the applicant attempted to argue that the affidavits made by the franchisees and the assistance provided by the franchisees to the applicant constituted “written consent” for the purposes of s 87(1B) TPA. They obviously are not.
Even more concerning, the applicant has attempt to include, as part of the written consent now obtained from the franchisees, evidence of the damage suffered by the franchisees. This was evidence which was not contained in the franchisees’ affidavits and not produced at all during trial. Indeed, in view of the orders made limiting the evidence that could be called in chief such evidence could not have been produced. It is plainly inappropriate to attempt to introduce this material by the ‘back door’. If the evidence of the written consents was otherwise admissible I would exclude it under s 135 of the Evidence Act 1995 (Cth). However, this is unnecessary. The agreement of the respondent for leave to re-open was plainly conditional upon the written consents having been in existence at the time that the application under s 87 was made. They clearly were not. In the circumstances there is no consent by the respondent for leave for the applicant to re-open its case and I do not give any such leave.
I note that the application made by the applicant may well have been premature in any event in that it is a precondition of such an application that there is a judicial finding of a relevant breach of the TPA: see Australian Competition and Consumer Commission v Shell Co of Australia (1997) 142 ALR 569 at 573-574. But, premature or not, the application has for refunds under s 87 TPA has been made and must be dealt with. It must be dismissed.
I also note that if written consents had been in existence at the time that the applications seeking refunds under s 87 TPA had been made and if I had jurisdiction to deal with those applications on the basis of the evidence properly then before me then I would have reached the following conclusions:
(a) As to the franchise fees themselves I have already discussed the basis upon which these were calculated. In broad terms the cost to the respondents of establishing the franchise was probably similar to and maybe exceeded the amount of the fee.
(b) The only means by which I could be satisfied that the franchise fee should be refunded is if the total business losses of each franchisee as a result of the breaches of the TPA were greater then the franchise fee paid by that franchisee.
(c) The only franchisee who gave any useful evidence of such losses was Mr Carroll[297]. Obviously there were other causes of the failure of his business, but I am satisfied that the failure of the respondents to deliver goods to him within the usual period that might be expected within the industry (about 14 days, although with some allowance for delivery to Perth) did cause a loss to the business which was greater than the amount of his franchise fee ($20,000).
(d) Given that I have found that there was a relevant breach of the TPA in relation to him it would be appropriate to order a refund to him if the pre-conditions for doing so under s 87(1B) of the TPA had been satisfied.
(e) In relation to the other franchisees there was either no evidence at all as to their losses or what there was was entirely inadequate to make any assessment of the loss, even in comparison with the relatively small size of the franchise fee. I would not be prepared to make an order for a refund for any of them even if s 87(1B) TPA had been satisfied.
[297]See e.g. Exhibit ACCC 19, pars 53-55
The applicant also seeks declarations. It agree that appropriate declarations should be made.
Mr Hoberg
Each of ss 51AD, 52 and 53 TPA are directed to the behaviour of corporations, not individuals. However, an injunction can be made unde s 80 TPA directed to a person who ‘aided, abetted, counselled or procured’ a corporation to contravene the above provisions. An order for compensation can be made under s 87 TPA against a person ‘involved in’ the relevant contravention. Mr Hoberg’s role generally in the management of the first corporation and his role in the relevant contraventions has already been discussed. I am satisfied that he has abetted and procured the relevant contraventions of s 52 and s 53 of the TPA discussed above. I am also satisfied that he was ‘involved in’ them. On the other hand, in light of the limited information as to why or how the first respondent breached the obligations under s 51AD TPA, I am not satisfied that Mr Hoberg was relevantly involved in the breach of that provision.
For the same reasons that I was prepared to make injunctions against the first and second respondent I am also prepared to do so in relation to Mr Hoberg. However, given the public purpose of making the injunctions I can see no reason to impose the same requirements upon Mr Hoberg that I have placed on the first and second respondents. It is not possible to say what Mr Hoberg may be doing in the future. It may be that he will continue as he is currently doing, but that is a matter entirely for him. I can make no assumptions about it. I think it sufficient for present purposes so far as he is concerned, that he should be required for a period to ensure so far as he is able that the terms of the orders that I propose to make be disclosed to any person to whom he is involved in selling a franchise or distributorship. The making of such an injunction is a public statement that Mr Hoberg has been involved in a breach of the TPA. The injunction should also mean that those dealing with Mr Hoberg in relevant circumstances are alerted that in the past he has been involved in a breach of the TPA. Hopefully the order will not unduly restrict whatever future activities he may be involved in.
For the same reasons as I have not made orders under s 87 TPA in relation to the first and second respondents it is inappropriate to do so against Mr Hoberg.
The power to make declarations under the Federal Court Act does not contain a provision extending the ambit to persons ‘involved in’ a contravention whether or not a declaration could be made directed to Mr Hoberg. I am not prepared to make any such declaration.
Mr Hewitson
It is obvious that Mr Hoberg had the prime role both in the establishment of the franchise system and in dealing with individual prospective franchisees. Mr Hewitson was responsible for other aspects of the business. I am not satisfied that Mt Hewitson ‘aided, abetted, counselled or procured’ the first or second respondents to contravene s 51AD, or s 52 TPA. I am also not satisfied that he was relevantly ‘involved in’ such a contravention.
The applicant has argued that Mr Hewitson was so involved in the companies as shareholder, director and employee that he was necessarily ‘involved’ in the contraventions identified above. However, the TPA does not have the effect that the corporate veil can be ignored. This is not surprising given that the primary source of the legislative power of the Commonwealth Parliament to enact the TPA is the corporations power in s 51(xx) of the Commonwealth Constitution. Some relevant evidentiary link between the particular breach and the acts of the particular person who is alleged to have aided, abetted etc must exist.
The evidence does establish that Mr Hewitson was relevantly involved in the breaches of s 53 TPA, although Mr Hoberg had the primary role. But in all the circumstances there seems to be little point whether in the public interest or otherwise in making further orders against him and I exercise my discretion not to do so.
Conclusion
In consequence declarations will be made that the first respondent breached ss 51AD, 52 or 53 TPA in the manner outlined above and that the second respondent breached s 52 TPA in the manner outlined above. Injunctions will be made restraining the first respondent, the second respondent and Mr Hoberg from behaving in a similar manner in the future. The application for refund of the franchise fees payable by the franchisees must be dismissed.
Even in relation to the first respondent this is a much more limited result than was pleaded against it. The respondent says that the claims made by the applicant are exaggerated and unrealistic. It says that the applicant has made an ambit claim. There is more than a little truth in this. As an obvious example, the pleaded allegation of fraudulent misrepresentation was not made out. In fact the applicant had no obvious basis for making such a pleading. In my view similar comments can be made in relation to the ambit of the claim for unconscionability; for the ambit of some of the remedies sought by the applicant and so on.
The respondents, on the other hand, whilst complaining of the exaggeration within the case made by the applicant, have themselves taken the unrealistic position that they are entirely innocent of each and every of the allegations made against them. The respondents have also made claims against the various complainants called as witnesses by the applicant. Those claims were largely irrelevant to the issues before me. In the result the trial of this case has been unnecessarily prolonged and the material requiring consideration has been unnecessarily extensive.
I will hear the parties as to costs.

I certify that the preceding two hundred and thirty-seven (237) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Selway.
Associate:
Dated: 13 August 2003

Counsel for the Applicant: R Layton QC

Solicitor for the Applicant: Australian Government Solicitor

Counsel for the Respondent: R Sallis

Solicitor for the Respondent: McNamara Business and Property Law

Dates of Hearing: April 7-11, 14-17, 22-24, 26; May 27-30; July 31 2003

Date of Judgment: 13 August 2003

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY		S 170 OF 2001
BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	4WD SYSTEMS PTY LTD ACN 008 134 861 FIRST RESPONDENT 4WD SYSTEMS AUSTRALIA PTY LTD ACN 085 343 219 SECOND RESPONDENT RALEIGH JULIAN HOBERG THIRD RESPONDENT THOMAS DAVID HEWITSON FOURTH RESPONDENT

JUDGE:	SELWAY J
DATE OF ORDER:	13 AUGUST 2003
WHERE MADE:	ADELAIDE

JUDGE:	SELWAY J
DATE:	13 AUGUST 2003
PLACE:	ADELAIDE

‘Franchise Business’	‘Franchisee’	Date of Agreement
Four-Wheel Drive Systems Hunter Valley (NSW)	Atkins (Beresfield Automotive Services Pty Ptd)	July 1998
Four-Wheel Drive Systems Alice Springs (NT)	Elston (partnership t/a Elston On & Off Road Access)	September 1998
Four-Wheel Drive Systems Auburn (NSW)	Page (t/a GRP Automotive)	September 1998
Four-Wheel Drive Systems Rockhampton (Qld)	Tucker (partnership t/a P & G Customising)	February 1999; September 1998
Four-Wheel Drive Systems Canningvale (WA)	Carroll (HDR Associates Pty Ltd as trustee for J & J Trust)	September 1999

Counsel for the Applicant:	R Layton QC
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	R Sallis
Solicitor for the Respondent:	McNamara Business and Property Law
Dates of Hearing:	April 7-11, 14-17, 22-24, 26; May 27-30; July 31 2003
Date of Judgment:	13 August 2003