Backyard Concepts Corporation Pty Ltd v Jim's Group Pty Ltd
[2010] QSC 129
•29 April 2010
SUPREME COURT OF QUEENSLAND
CITATION:
Backyard Concepts Corporation Pty Ltd v Jim’s Group Pty Ltd [2010] QSC 129
PARTIES:
BACKYARD CONCEPTS CORPORATION PTY LTD (ACN 109 746 107) as trustee for BACKYARD CONCEPTS UNIT TRUST
(plaintiff)
v
JIM’S GROUP PTY LTD (ACN 101 925 268)
(defendant)FILE NO:
BS5616 of 2007
DIVISION:
Trial Division
PROCEEDING:
Application for summary judgment
DELIVERED ON:
29 April 2010
DELIVERED AT:
Brisbane
HEARING DATE:
9 December 2009
JUDGE:
Mullins J
ORDER:
Application filed on 15 September 2009 is dismissed
CATCHWORDS:
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – SUMMARY JUDGMENT – where plaintiff brings an application for summary judgment – where plaintiff purchased businesses from third parties of Australian and New Zealand divisional franchisor and a regional franchise of the franchised business of which the defendant was the national franchisor – where third parties surrendered their franchises to enable the defendant to grant franchise agreements to the plaintiff – where plaintiff alleged defendant liable for breaches by the third parties of the Franchising Code of Conduct in relation to the sale of the franchises to the plaintiff – where plaintiff’s claims against the defendant were based on alleged representations and warranties given by the defendant to the plaintiff and breaches of the franchise agreements – where plaintiff relied on two issues only to pursue summary judgment – where there were deficiencies in the statement of claim that required amendment – where if the facts relating to the issues relied on by the plaintiff on the application were proved, the causation of the alleged damages flowing from those issues was in dispute and the issues should be tried
Trade Practices Act 1974 (Cth), s 51AD, s 75B
Uniform Civil Procedure Rules 1999 (Qld), r 149
The Cheesecake Shop Pty Ltd v A&A Shah Enterprises Pty Ltd [2004] NSWSC 625, consideredCOUNSEL:
T Matthews for the plaintiff
J K Meredith for the defendantSOLICITORS:
Cusack Galvin & James for the plaintiff
Ron Clark for the defendant
At the conclusion of the hearing of the application for summary judgment on 9 December 2009, the parties consented to a mediation order which had the effect of staying the proceeding. As the mediation on 10 February 2010 was unsuccessful, it was necessary for the application for summary judgment (and alternative claim to strike out the defence) to be determined. Both parties provided further written submissions in early March 2010.
During the hearing on 9 December 2009, Mr Matthews of counsel for the plaintiff confined the issues on which the plaintiff relied as justifying summary judgment to two issues: the defendant’s breach of the obligation of disclosure under the Franchising Code of Conduct (FCC) made under the Trade Practices Act 1974 (Cth) (TPA), as pleaded in paragraphs 11 and 11A of the statement of claim (the disclosure issue), and the defendant’s involvement in the grant of the South Perth regional franchise without reference to the plaintiff, after the plaintiff became divisional franchisor for Australia (the South Perth franchise issue).
Background to the plaintiff’s claim
Pavemart Pty Ltd (Pavemart) was the holder of divisional franchise rights for Australia and New Zealand to a business known as Jim’s Irrigation from the defendant as the national franchisor. The plaintiff, as an existing franchisee from Pavemart as divisional franchisor, became interested in May 2004 in developing its concept of integrating its existing retail stores into the Jim’s Irrigation franchise system. The plaintiff’s director, Mr Macklin, was referred by the managing director of the defendant, Mr Penman, to the managing director of Pavemart, Mr Hone, to discuss the plaintiff’s franchise concept. The outcome was that Pavemart was willing to sell its business to the plaintiff.
By an agreement in writing dated 30 June 2004, the plaintiff purchased Pavemart’s business as divisional franchisor for the sum of $200,000. The plaintiff also purchased from an associated entity of Pavemart, Paveman Pty Ltd (Paveman) the South Australian regional franchise business of Jim’s Irrigation for the sum of $113,000. It appears that the sales were organised quickly. The plaintiff relies on the documents disclosed in this proceeding which it submits show that the defendant’s staff prepared the sale agreements for execution by Pavemart and Paveman. That allegation is disputed by the defendant, although there was evidence from the managing director of the defendant, Mr Penman, in his affidavit filed on 11 September 2007 (document 5) to the effect that the sale agreement dated 30 June 2004 (referred to in paragraphs 2 and 3 of the statement of claim) was prepared by an employee of the defendant.
The sale agreement for Pavemart’s business was in basic terms. It designated the settlement date as 30 June 2004, although the date of execution of the agreement was shown as 1 July 2004. It provided for the sale and assignment of the business from Pavemart to the plaintiff as at the date of the final payment and the parties must perform all obligations by the settlement date unless otherwise indicated. Clause 11 of the agreement (which is the last clause in the agreement) provided that the sale of the business was dependent upon the national franchisor granting a divisional franchise to the plaintiff as from the settlement date.
At the request of both vendors, the plaintiff paid $332,636.71 to Pavemart’s bank account on 30 June 2004 on account of the purchase prices and adjustments of $19,636.71 in favour of Pavemart for promotional expenses, stationery and uniforms. On that same day each of Pavemart and Paveman entered into a deed of surrender with the defendant in respect of the existing franchise agreements, so that the same franchises could be granted by the defendant to the plaintiff. The plaintiff was not a party to the deeds of surrender, but the intention of Pavemart and Paveman and the defendant that the deeds of surrender would facilitate the granting of the franchise agreements to the plaintiff was recited in the deeds of surrender. The defendant granted the divisional franchise and the South Australian regional franchise agreement to the plaintiff on 15 July 2004, which allowed for at least 14 days to elapse after a disclosure document dated 28 June 2004 in relation to the regional franchise and a disclosure document dated 29 June 2004 in relation to the divisional franchise had been given by the defendant to the plaintiff.
It is therefore arguable whether the plaintiff can maintain its allegation in paragraph 10 in the statement of claim that it completed the purchases of the businesses from Pavemart and Paveman on payment of the purchase prices on 30 June 2004, when the sale of the businesses was dependent on the grant of the franchises by the defendant to the plaintiff which was not achieved until 15 July 2004. Payment of the purchase price under a contract does not necessarily equate to settlement of the purchase when the subject matter of the purchase is not transferred in exchange for the price.
The plaintiff had a number of complaints about the support of the defendant as the national franchisor and the operation of its divisional franchise and South Australian regional franchise. Eventually the defendant terminated the plaintiff’s franchise agreements. This proceeding was commenced on 29 June 2007.
The plaintiff’s statement of claim
During the hearing of the summary judgment application, the plaintiff filed by leave an amended statement of claim that incorporated an additional allegation against the defendant based on s 75B of the TPA. The defendant filed an amended defence on 18 December 2009. The application for summary judgment therefore has to be determined by reference to these amended pleadings.
The plaintiff’s claim is prosecuted against the defendant only, even though the plaintiff relies on aspects of the conduct of Pavemart and Paveman in putting together its claim against the defendant and pleads the agreements that it reached with Pavemart and Paveman to purchase their businesses as the critical transactions for its claim.
The plaintiff seeks to hold the defendant liable for the losses it suffered, as a result of purchasing the divisional franchise rights and the South Australian regional franchise rights on the basis that:
(a) the defendant made representations and gave warranties to the plaintiff prior to the plaintiff’s purchase of the businesses which were relied on by the plaintiff to complete its purchases (paragraphs 6 and 8 of the statement of claim);
(b) the defendant breached the FCC (and therefore was in breach of s 51AD of the TPA) on the basis that it failed to ensure that Pavemart (and Paveman) gave a disclosure document for each of the businesses purchased by the plaintiff or was knowingly concerned in breaches by Pavemart and Paveman in failing to give proper disclosure under the FCC in relation to each of the businesses (paragraphs 11 and 11A of the statement of claim);
(c) the disclosure documents provided by the defendant for the respective businesses were false or deceptive and misleading or gave rise to express or implied representations by the defendant which were false or deceptive and misleading (paragraphs 15, 16 and 17 of the statement of claim);
(d) the defendant breached the terms of the franchise agreements granted to the plaintiff and/or the warranties alleged in paragraphs 8 of the statement of claim (paragraph 18 of the statement of claim);
(e) the conduct of the defendant pleaded in paragraphs 15, 17 and 18 of the statement of claim was conduct in breach of the duty that the defendant owed the plaintiff to act honestly and with good faith in its dealings with the plaintiff with respect to the purchases and grants of franchise (paragraph 19 of the statement of claim).
In paragraph 20 of the statement of claim, the plaintiff claims to have suffered loss and damage that it attributes to the conduct of the defendant that is related to the inflated price which the plaintiff alleges it paid to Pavemart and Paveman for the purchase of the businesses. An all encompassing claim for loss and damage is then alleged in paragraph 21 of the statement of claim which arises from the failure of the franchise businesses and whereby the plaintiff seeks to recover from the defendant the total amount paid for the purchase of the businesses of $332,636.71, additional expenses incurred in attempting to continue the franchise businesses (comprising $70,000 working capital and $60,000 overdraft and debt finance) and loss of the value of the businesses as going concerns.
The plaintiff also relies on the extensive further and better particulars of the statement of claim that were filed on 7 February 2008 (document 16). These particulars became relevant during the summary judgment application hearing, as paragraph 7 of the particulars sets out in greater detail than paragraph 11 of the statement of claim the facts and matters on which the plaintiff relies to allege that the defendant was a party to the breaches by Pavemart and Paveman of the FCC in relation to the provision of a disclosure document applicable to the purchase of each of the businesses.
Neither the statement of claim nor the particulars formalise the allegation made in the affidavit of Mr Macklin filed on 15 September 2009 (documents 32 to 35) that was relied on by the plaintiff in support of its application for summary judgment based on the disclosure issue. The allegation is apparent from paragraphs 75 and 76 of the affidavit:
“75. In consequence of the contents of the documents as produced by the Defendant as referred to in parts B and C of the exhibit bundle as part of the Defendants supplementary disclosure, as previously stated, with respect to the date and circumstances of the Plaintiff’s completion of the respective purchases (under the direction of the Defendant and its staff) and the date and circumstances in which the new franchises were granted, I do verily believe the Defendant was well aware that Pavemart and Paveman did not provide disclosure documents and that the disclosure documents which the Plaintiff received from the Defendant were completely ineffective so far as related to the business purchases and were completely academic so far as related to the grant of new franchises as the Plaintiff was already committed and had completed the purchases from Pavemart and Paveman by the payment of $332,636.71 by the date upon which the new franchise agreements were actually granted on 15 July 2004.
76. As previously mentioned, I say and the Defendant’s documents confirm that the Defendant’s staff overviewed, monitored and directed the procedures to be taken in relation to completion of the respective sales and I am in a position to verify this from my own direct knowledge as previously mentioned. And further and as previously mentioned, I do verily believe that the manner in which the Defendant’s staff directed that the sale should be effected (surrender of existing franchises and sale conditional upon the grant of new franchises) avoided the need or requirement for Pavemart and Paveman to provide disclosure documents on the basis that the sales were not sales of existing franchises but new franchises were granted directly by the Defendant as opposed to Pavemart and Paveman’s existing franchises being assigned to the Plaintiff.”
The evidence and the submissions relied on by the plaintiff to seek summary judgment based on the disclosure issue attribute a role to the defendant in the structuring of the sale agreements entered into by Pavemart and Paveman respectively with the plaintiff to defeat the obligation of disclosure under the FCC in relation to the transfer of the businesses which is not reflected by the terms of paragraphs 11 and 11A of the statement of claim and paragraph 7 of the particulars. An example of such a submission is found in paragraph 19 of the plaintiff’s written submissions that were filed by leave on 9 December 2009 (document 46). The submission was made that the manner in which the transactions were documented and carried out enabled the defendant and Paveman and Pavemart to conceal from the plaintiff matters concerning the respective businesses and their value and profitability that are referred to in the particulars of paragraphs 15 and 17 of the statement of claim. It is not appropriate for the plaintiff to pursue summary judgment based on a case that is not reflected in the statement of claim.
There is also a significant deficiency in the statement of claim in that there is no pleading by the plaintiff that it entered into the franchise agreements with the defendant that were executed on 15 July 2004, even though the plaintiff alleges breaches by the defendant of the franchise agreements in respect of which the plaintiff seeks to prove that it has suffered loss and damage. It is not sufficient that it is alleged impliedly in paragraphs 13, 17, 18 and 20 of the statement of claim that the plaintiff entered into those franchise agreements. Although the defendant pleads that the defendant entered into the franchise agreements with the plaintiff on 15 July 2004, the plaintiff’s response to those allegations in paragraph 5 of the reply (document 17) merely admits those documents were provided by the defendant to the plaintiff and that they bear the dates alleged, without admitting that the plaintiff entered into the franchise agreements with the defendant.
Even without giving detailed consideration to the issues on which the plaintiff specifically relied to pursue its claim for summary judgment, the application for summary judgment must fail when the statement of claim does not allege the grant of the franchise agreements by the defendant to the plaintiff which is an essential aspect of the plaintiff’s claim against the defendant for damages. The plaintiff must therefore amend its statement of claim to make the allegation expressly about the role of the defendant in the structuring of the sale transactions and to deal with the grant of the franchise agreements.
Summary judgment issues
The extensive written submissions filed on behalf of the plaintiff for the purpose of the application reveal the frustration that the plaintiff has experienced in the proceeding by the approach of the defendant to its defence, in view of the content of documents disclosed by the defendant in connection with the proceeding. Bringing an application for summary judgment appears to have been part of the plaintiff’s strategy to persuade the defendant to review its defence and address the issues raised by the plaintiff’s claims. The plaintiff recognised the difficult task confronting it in pursuing summary judgment in a matter where the transactions had some complexity by endeavouring to confine the issues that were considered on the summary judgment application. The difficulty in that approach, however, is that the plaintiff’s claim for damages is a global claim that arises from its multiple allegations against the defendant. Even if the plaintiff could show that it should succeed (without a trial) on the facts that are alleged in respect of the disclosure issue or the South Perth franchise issue, the matter of causation of the damages arising from such alleged breaches (which is a question of liability) remains an issue to be tried and therefore must preclude summary judgment.
In relation to the disclosure issue, Pavemart and Paveman were required to comply with the disclosure obligation under the FCC, on the basis that the transfer of a franchise agreement is treated as a franchise agreement for the purpose of the FCC. This disclosure issue is only relevant in the plaintiff’s proceeding against the defendant, if the plaintiff is able to hold the defendant liable for the conduct of Pavemart and Paveman which is strongly contested on the part of the defendant. In considering the appropriateness of bringing a summary judgment application in reliance on the disclosure issue, it is relevant that any contravening conduct of the defendant which was in breach of the obligation to comply with the FCC and therefore a breach of s 51AD of the TPA must be shown to be a cause of the loss or damage claimed as a result of that conduct: The Cheesecake Shop Pty Ltd v A&A Shah Enterprises Pty Ltd [2004] NSWSC 625 at [38]-[41]. The plaintiff merely asserts that the losses particularised in paragraphs 20 and 21 of the statement of claim “are plainly attributable to the breaches of the FCC alleged.” The issue of the causation of the loss or damage claimed by the plaintiff arising from the disclosure issue is disputed by the defendant on the material. The disclosure issue therefore must proceed to a trial.
In relation to the South Perth regional franchise issue, Pavemart had negotiated the grant of a regional franchise for South Perth to a third party before entering into the sale of the divisional franchise to the plaintiff. The grant of the South Perth regional franchise was not completed by 30 June 2004 at the time when Pavemart surrendered its divisional franchise to allow the grant of the divisional franchise to the plaintiff. The defendant granted the South Perth regional franchise to the third party on 16 August 2004, but there was no accounting to the plaintiff as divisional franchisor for any part of the consideration paid by the South Perth regional franchisee for the grant of that regional franchise. The defendant relies on the material that shows that the plaintiff was aware that Pavemart had arranged the grant of the South Perth regional franchise to the third party prior to the sale by Pavemart of its business to the plaintiff. If that grant of the South Perth regional franchise can be characterised as a prima facie breach by the defendant of the divisional franchise granted to the plaintiff, the consequences that are claimed to follow from that are set out in paragraphs 17 and 20 of the statement of claim are disputed by the defendant on the basis of factual matters raised in Mr Penman’s affidavit filed on 29 September 2009 (document 37). The defendant pleads in paragraph 33(h)(ii) of the defence that the plaintiff had an opportunity to carry out due diligence with Pavemart prior to purchasing the business from Pavemart and, if it did not do so, or did not do so to an appropriate degree, the defendant is not liable for that failure. The issue of causation of any loss and damage as a result of the circumstances of the grant by the defendant of the South Perth regional franchise is not appropriate for summary determination.
The defence
The defence that was the subject of the hearing on 9 December 2009 was that filed on 22 October 2009. The defence that was filed on 18 December 2009 inserted paragraph 27A to plead to paragraph 11A of the statement of claim that was inserted on 9 December 2009.
The defendant’s supplementary submissions dated 4 March 2010 foreshadowed that the defendant wished to amend its defence, as the defendant now accepts that the FCC applied to the grant by the defendant of the divisional franchise and the South Australian regional franchise to the plaintiff. Amendments to the defence will also be required, if the statement of claim is amended as anticipated in these reasons.
The plaintiff made detailed written submissions on aspects of the defence that were described as objectionable or embarrassing. The plaintiff takes objection to the form of the defence. It is divided into two parts. The first is called “background” and is a pleading of facts relied on by the defendant relating to its transactions with the plaintiff which resembles an initiating pleading. The second part of the defence is responsive to the statement of claim. There is duplication between the first and second parts of the defence that makes the defence confusing which means that there are many aspects of the defence that do not comply with r 149(1)(a) of the Uniform Civil Procedure Rules 1999. For example, paragraph 3 of the background part of the defence pleads that “The plaintiff entered into a written contract with Pavemart to purchase Pavemart’s business dated 30 June 2004.” That allegation is also made in paragraph 2 of the statement of claim which is responded to in the second part of the defence by the defendant pleading in paragraph 11 that it admits that the plaintiff purchased the Pavemart business from Pavemart in 2004 “as pleaded in paragraphs 2-5 above.” Another example is paragraph 23 of the defence that repeats and supplements the allegations in paragraphs 4(b) and 8(b) that are set out in the background part of the defence. I will not deal at length with the plaintiff’s criticisms of the defence, as the defendant can address the deficiencies in its defence when it considers the amendment of the defence.
Orders
It follows that the application that was filed on 15 September 2009 must be dismissed.
Although the plaintiff has not succeeded in obtaining the relief which it sought in its application, the bringing of the application has advanced the proceeding to some degree. In any case, there were problems with the existing pleadings of both parties. Subject to hearing submissions from the parties, I am therefore inclined to make the costs of the application filed on 15 September 2009 each party’s costs in the proceeding. Directions should be made for the amendment of the pleadings.
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