BAILEY -v- TONE 'n' TAN PTY LTD [2008] WASCA 226

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2008] WASCA 226
Court:	THE COURT OF APPEAL (WA)
Case No:	CACV:104/2007	Heard:	5 SEPTEMBER 2008
Coram:	WHEELER JA MILLER JA BEECH AJA	Delivered:	9/11/08
No of pages:	32	Judgment Part:	1 of 1
Result:	Appeal dismissed
Category:	B
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Parties:	GAIL MARIE-THERESE BAILEY NEIL JAMES WILLIAM BAILEY TONE 'n' TAN PTY LTD (ACN 009 996 880) BRADLEY RODMAN HANKINSON CARMEL MAREE JAMES
Catchwords:	Appeal Findings of fact based on credibility Whether appellate intervention justified Turns on own facts Contract Damages for repudiation Clause permitting termination on notice without cause Whether damages should be reduced to amount of loss incurred in period of notice Turns on own facts
Legislation:	Nil
Case References:	Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 Lackovic v Insurance Commission of Western Australia [2006] WASCA 38; (2006) 31 WAR 460 TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101; (2006) 233 ALR 687

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : BAILEY -v- TONE 'n' TAN PTY LTD [2008] WASCA 226 CORAM : WHEELER JA

MILLER JA

BEECH AJA

HEARD : 5 SEPTEMBER 2008 DELIVERED : 10 NOVEMBER 2008 FILE NO/S : CACV 104 of 2007 BETWEEN : GAIL MARIE-THERESE BAILEY

First appellant

NEIL JAMES WILLIAM BAILEY

Second appellant

AND

TONE 'n' TAN PTY LTD (ACN 009 996 880)

First respondent

BRADLEY RODMAN HANKINSON

CARMEL MAREE JAMES

Second respondents

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ON APPEAL FROM:

Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA

Coram : YEATS DCJ

Citation : TONE 'n' TAN PTY LTD -v- BAILEY & ORS [2007] WADC 97

File No : CIV 501 of 2004

Catchwords:

Appeal - Findings of fact based on credibility - Whether appellate intervention justified - Turns on own facts

Contract - Damages for repudiation - Clause permitting termination on notice without cause - Whether damages should be reduced to amount of loss incurred in period of notice - Turns on own facts

Legislation:

Nil

Result:

Appeal dismissed

Category: B

Representation:

Counsel:

First appellant : Mr A P Hershowitz

Second appellant : Mr A P Hershowitz

First respondent : Mr J G Hanly

Second respondents : Mr J G Hanly

Solicitors:

First appellant : Holborn Lenhoff Massey

Second appellant : Holborn Lenhoff Massey

First respondent : Hotchkin Hanly

Second respondents : Hotchkin Hanly

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Case(s) referred to in judgment(s):

Fox v Percy [2003] HCA 22; (2003) 214 CLR 118
Lackovic v Insurance Commission of Western Australia [2006] WASCA 38; (2006) 31 WAR 460
TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130
The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64
Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101; (2006) 233 ALR 687

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1 WHEELER JA: I agree with Beech AJA.

2 MILLER JA: I have had the opportunity of reading in draft the reasons of Beech AJA. I agree with those reasons, and agree that the appeal should be dismissed.

BEECH AJA:

Introduction

3 The primary issue in this appeal is whether findings of fact made by the trial judge should be overturned.

4 In 2002 the second respondents, Bradley Hankinson and Carmel James, owned a business known as Tone 'n' Tan Morley. By a business agreement dated 3 May 2002 the second respondents (the sellers) sold the Morley business to the appellants, Gail and Neil Bailey.

5 By a franchise agreement dated 3 May 2002 the first respondent (Tone 'n' Tan) granted a franchise to the Baileys in respect of the Morley business.

6 By letters in late 2003 and January 2004, the Baileys purported to dissolve all connection between them and Tone 'n' Tan, and asserted that no franchise had ever operated in respect of the Morley business.

7 Tone 'n' Tan sued the Baileys on the franchise agreement, claiming damages in the sum of $36,000. That sum was calculated by reference to the annual franchise fee of $12,000, payable for the three-year balance of the term of the franchise agreement.

8 The Baileys defended Tone 'n' Tan's claim, and made a counterclaim, on the basis of alleged misrepresentations by the sellers as to the profit of the Morley business. The Baileys claimed that the sellers had, on their own behalf and on behalf of Tone 'n' Tan, made representations orally and in writing as to the profitability of the Morley business, and that those representations were misleading. The Baileys claimed that they entered the franchise agreement and the business sale agreement in reliance on the representations, and had thereby suffered loss.

9 On appeal, the Baileys did not press the original claim that was based on oral representations.

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10 The trial judge dismissed the Baileys' claims that they were induced by misrepresentations made by the sellers in deciding to enter into the franchise and business sale agreements. Her Honour found that no representations were made by the sellers to the Baileys as to the profitability of the Morley business. She determined that the Baileys had repudiated the franchise agreement, and awarded damages of $36,000 to Tone 'n' Tan.

11 The Baileys' grounds of appeal are divided into two parts. The first, part A, alleges errors by the trial judge in making findings of fact and credibility against the Baileys in relation to their counterclaim. The second, part B, relates to the award of damages in favour of Tone 'n' Tan.

12 The liability issues at trial were essentially factual. The critical issues were whether the sellers made representations to the Baileys as to the earnings or profitability of the Morley business, and whether the Baileys had relied on those representations in entering into the two agreements.

13 The versions of events advanced by the two parties at trial were, in important respects, in stark conflict. In large part, the trial judge resolved those conflicts in favour of the sellers. Her Honour made a series of findings of fact based upon her view of the credibility of the various witnesses.

14 That being so, there are limits on when appellate intervention is appropriate. Those limits arise from the fact that the appeal, although by way of rehearing, is conducted on the basis of the record. I will refer to the relevant principles later in these reasons.

15 The Baileys' grounds of appeal and submissions did not readily fit within the framework of the relevant principles. Many of the grounds assert that the trial judge erred in making certain findings of fact. With one exception, nothing is said in the grounds as to why it was an error for the judge to have made the relevant finding of fact.

16 The main issues on this appeal are:

(a) Should the trial judge have found that the sellers made a written representation to the Baileys by sending a profit and loss statement to the Baileys' banker, who in turn passed it on to the Baileys?

(b) Was certain of the sellers' evidence glaringly improbable, and should the trial judge have rejected it on that ground?

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(c) Did the trial judge err in making credibility findings adverse to the Baileys and their bank officer, and favourable to the sellers?

(d) Did the trial judge err in her assessment of damages?

17 For reasons to be developed, I am not persuaded that the trial judge's findings of fact should be interfered with, or that the trial judge erred in her assessment of damages.

18 Because the Baileys' grounds attack the trial judge's findings of fact and credibility findings, it is convenient to begin by outlining some of the evidence and conflicts in evidence at trial, before turning to the trial judge's reasons. I will then deal with the grounds of appeal challenging the findings of fact on liability and, finally, with the grounds of appeal challenging the award of damages.

The evidence at trial

Background - Negotiations

19 The sellers commenced business in partnership with each other as Tone 'n' Tan Riverton in about 1998.

20 In February 2000 the sellers opened the Morley business.

21 Mrs Bailey received treatment at the Morley salon in December 2001 and January 2002. She told her husband that it looked like a good business because it was a busy place and she was impressed with the results of her treatment.

22 Mr Bailey contacted the Morley salon and left a message asking for the sellers to contact him. Later, he contacted the Riverton salon and left another message. Eventually he spoke with Mr Hankinson.

23 Mr Hankinson and Mr Bailey had different recollections of their initial conversations, however it is not necessary to recount the detail of their evidence of these exchanges.

24 A little later, the Baileys and the sellers met to discuss the possible purchase by the Baileys of a franchise for the Morley salon. Again, the parties had differing recollections of what occurred at that meeting. According to the sellers, Mr Hankinson told the Baileys that the cost of the franchise would be $60,000, and in response Mr Bailey said, in effect, that the Baileys would not have any problem in funding the $60,000 price. There was also a discussion of the sellers' requirement that there be a $1,000 per month franchise fee. The upshot of the discussion, according

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to the sellers, was that the sellers agreed to waive the fee for the first two years of the franchise agreement. The Baileys said that during this meeting Mrs Bailey stated that she was earning $52,000 per annum and would need to replace that salary by the takings from the salon, to which the sellers said that there should not be any problem in the business making that much or more. The sellers denied that Mrs Bailey ever said how much she earned or that she would need the business to earn no less than that figure.

Document 1 - 2000 Profit and Loss Statement

25 Two documents, both appearing to be profit and loss statements, were central to the Baileys' case at trial. The first document is headed Tone 'n' Tan Riverton, Profit and Loss, January through June 2000 (exhibit 1 page 1). This document was referred to at trial as 'Document 1'. I will do the same.

26 Document 1 is dated 25 March 2002. It was not in dispute that the sellers provided Document 1 to the Baileys at around that date. However, there was substantial disagreement as to the circumstances in which the sellers gave it to the Baileys.

27 The evidence of Mr Hankinson was that Document 1 was provided by him to Mr Bailey as a guide to assist Mr Bailey as to how the books of the business were set up, and to show the various headings that he (Mr Hankinson) used. Mr Hankinson's evidence was that he wrote on the side of the document the words 'Headings only', signed and dated the document, and then handed it to Mr Bailey. The photocopy of Document 1 in exhibit 1 did not include any signature of Mr Hankinson or the words 'Headings only'. On the right-hand side of the document there is a vertical 'squiggle', which Mr Hankinson said was the tail of his signature which must have been whited out.

28 Thus Mr Hankinson's evidence was that Document 1 was not a real profit and loss statement, but was given to Mr Bailey to assist him in the conduct of the finances of the business.

29 Ms James gave evidence that at around this time Mr Hankinson was training her to use the business' accounting system. Ms James said that she had, at Mr Hankinson's suggestion, put figures for Morley into the accounting system by way of practice and subsequently generated Document 1.

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30 The sellers' evidence was that Mr Hankinson gave them Document 1 as being a profit and loss statement for Morley for the period January to June 2000. They say that when questioned as to why the document was headed 'Riverton', Mr Hankinson crossed out the word 'Riverton' and wrote 'Morley'. Document 1 does have the word 'Riverton' crossed out and the word 'Morley' handwritten on it. Mr Hankinson said in evidence that he did not make this amendment, and denied that it was his writing on the document.

31 The Baileys tendered exhibit 5 at trial as the original of Document 1. Exhibit 5 did not contain the words 'Headings only', the date, or Mr Hankinson's signature. Nor did it show any sign of any whiting out having occurred.

32 Document 1 showed the net income for the six-month period as $50,388.91. However, it did not include any entries for various expenses, including wages. At trial, the Baileys relied upon Document 1 as giving rise to a representation as to the profit of the business for the period January to June 2000. However at the appeal, counsel for the Baileys conceded that, given the evident absence of any expense for wages, Document 1 could not be relied upon as giving rise to the pleaded representation that the net profit for the six months was $50,388.91. Counsel for the Baileys submitted that Document 1 was, however, relevant to the trial judge's fact finding exercise and the credibility of the competing versions advanced by the parties.

33 The Baileys provided a copy of Document 1 to Mr Damien Pougnault, a business banking manager with Westpac Banking Corporation. The Baileys applied to Westpac for an overdraft to assist with working capital requirements and to help fund the day-to-day costs of the Morley business. The following evidence of Mr Pougnault (ts 170 - 174, 191 - 193) was unchallenged, and was supported by exhibit 10 which was a number of documents from the bank's records:

(a) in April 2002 Mr Bailey sought a loan from Westpac and provided a copy of Document 1 to Mr Pougnault;

(b) on 23 April 2002 a diary memo of another bank officer records that Mr Bailey's application was declined. It referred to deficiencies in the financial information provided (namely Document 1), and stated: 'Happy to reconsider on accountant prepared (current) accounts which show a true picture';

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(c) Mr Pougnault told Mr Bailey of this decision, and told him that the bank wanted 12-month figures for the Morley business and more information as to working hours and wages;

(d) Mr Pougnault was given a phone number by Mr Bailey to contact someone who could assist with this information;

(e) Mr Pougnault rang the number and spoke with a person whose name he could not recall. He explained who he was and requested a profit and loss statement for the Morley business, with a detailed set of expenses and details of the breakdown of the wages expense and hours worked; and

(f) following that conversation, the document referred to at trial as 'Document 2' was faxed to Mr Pougnault on 1 May 2002.

Document 2 - 2001 Profit and Loss Statement

34 Document 2 purports to be a profit and loss statement for the Morley business for the period July 2000 through to June 2001. The document has the name Damien (misspelt Daimian) Pougnault written at the top with the phone number '9366 4216' and 'fax 9366 4088' written underneath Mr Pougnault's name. At the bottom of the document, the ribbon of information derived from the sending facsimile machine states that the document was sent on 1 May 2002 at 1703 from the number 08 9259 4444. The respondents accept that this is the fax number of the Tone 'n' Tan salon in Riverton. That ribbon of information also identifies the sender in capital letters as 'TONE "N" TAN SALONS'.

35 On the second page of the document there is some specific information as to GST, wages and superannuation. That information accorded with what Mr Pougnault said he had asked for in the telephone conversation already referred to.

36 Mr Pougnault's evidence was that Document 2 was used by the bank in approving the overdraft facility. That was supported by the credit approval summary in exhibit 10 which stated:

Accountant has provided Profit and Loss for Morley for 30/06/01 to verify new business income.

[Accountant] has also provided working to show calculations of GST and Wages income.

37 Mr Bailey's evidence was that on 2 May 2002 Mr Pougnault faxed Document 2 to him, and that he and Mrs Bailey relied on the figures in
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that profit and loss statement in deciding to proceed with the purchase of the franchise for the business.

38 The Baileys did not adduce any documentary evidence that supported their case that Document 2 had been sent by facsimile from Mr Pougnault to Mr Bailey on 2 May 2002. Document 2 did not contain any ribbon of fax information to the effect that it was sent by Mr Pougnault from Westpac. Further, there was no evidence of any facsimile transmission document on the bank's file, which file was produced under subpoena.

39 Mr Pougnault was asked, in his evidence-in-chief, whether he gave a copy of Document 2 to Mr Bailey 'at some stage', to which he responded in the affirmative. Mr Pougnault was not asked to elaborate on that evidence by either counsel.

40 Mr Hankinson denied preparing or sending Document 2. He denied having had any contact with Mr Pougnault at Westpac. As to the words 'TONE "N" TAN SALONS' which appear on the ribbon of Document 2, Mr Hankinson said that Tone 'n' Tan have never used a capital N, and have only ever used one inverted comma on each side of the n. However, the sellers did not lead evidence of any other documents sent by facsimile from Tone 'n' Tan which showed a fax ribbon of a lower case n contained by one inverted comma on each side.

41 Mr Hankinson's evidence was that the layout of Document 2 was different from documents produced by the computer programme used by the sellers. He said that the computer programme created documents in the form of Document 1 (which is evidently different to the form of Document 2).

42 Mr Hankinson said that the writing at the top of the Document 2 was 'very similar' to his own handwriting, but that he did not believe it was his writing. Mr Hankinson specifically disavowed any suggestion that Mr Bailey had faxed Document 2 to the bank from the Tone 'n' Tan Riverton office (ts 82).

43 Ms James gave evidence that she had not spoken to or heard of Mr Pougnault until the proceedings in the District Court began. She says that she did not write the name and numbers on the top of the Document 2, and says further that she did not send the document to Mr Pougnault or anyone at Westpac. Ms James said the only person who could generate a profit and loss statement for Tone 'n' Tan was Mr Hankinson.

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44 Mr Clive Leeman was the accountant for the Baileys. He gave evidence that the Baileys provided him with a copy of Document 1 at some stage early in 2002. When the document was provided to him, he said he told Mr Bailey that accounts were needed up to 30 June 2001 to ascertain a position as to the viability of the business. No further financial information was provided to Mr Leeman. In particular, Document 2 was not provided.

The Agreements

45 On 3 May 2002 the parties entered into the business sale agreement and franchise agreement.

46 The term of the franchise agreement was five years, commencing on 30 April 2002 and terminating on 29 April 2007.

47 By the franchise agreement the Baileys agreed to pay an annual fee of $12,000 inclusive of GST. The agreement provided that the annual fee was waived for the first two years.

48 Under the business sale agreement, the purchase price was $60,000, comprising $33,600 for plant, $4,000 for fixtures and fittings, and the balance of $22,400 for goodwill.

Events from May 2002 to April 2004

49 On 22 December 2003 Mr Bailey delivered an undated letter to Mr Hankinson. The letter purported to bring to an end the franchise agreement with effect from 22 December 2003, and suggested that a franchise agreement did not exist 'either in intent or practice'.

50 The solicitors for the sellers and Tone 'n' Tan wrote to the Baileys on 16 January 2004, stating that the conduct of the Baileys amounted to a repudiation of the franchise agreement and inviting them to reconsider their position.

51 The Baileys replied to the respondents' solicitor's letter by letter dated 19 January 2004, stating that 'no Franchise has ever operated in respect of the business we purchased free of encumbrances in May 2002'.

52 Up to January 2004, none of the letters written by the Baileys made any mention of a concern about the level of income generated by the Morley business.

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53 Tone 'n' Tan commenced proceedings on 9 March 2004. Following that, the Baileys raised, by way of defence and counterclaim in the action, the complaint that the sellers had made misrepresentations to them as to the income and profit of the Tone 'n' Tan Morley salon.

54 I turn to the reasons for decision of the trial judge.

The trial judge's reasons

55 The reasons of the learned trial judge commenced with an overview of the issues in the action. Her Honour then summarised the evidence and conflicts in evidence, referring to many of the matters I have outlined above.

56 Her Honour made findings as to the credibility of witnesses that were adverse to the Baileys and favourable to the sellers [41] - [55]. They are the subject of grounds A6 - 9. I will summarise them in detail when I deal with these grounds.

57 Her Honour then proceeded to make findings on the misrepresentation claims of the Baileys [56] - [71]. Those findings are the subject of grounds A1 - 3. I will summarise the trial judge's findings in more detail when I deal with those grounds. By way of overview, her Honour found that Document 2 was faxed to Mr Pougnault on 2 May 2002, but was not satisfied that Mr Pougnault provided the documents to the Baileys on that day, or before the Baileys entered into the agreements on 3 May 2002.

58 For that reason, the Baileys' case based on misrepresentations and misleading or deceptive conduct was dismissed.

59 Her Honour found that the Baileys had breached the franchise agreement in the various ways claimed by Tone 'n' Tan, and that the Baileys had wrongfully repudiated the franchise agreement by their letter delivered on 22 December 2003.

60 Her Honour recorded the submission of the Baileys that Tone 'n' Tan's claim for damages for loss of annual fees should not exceed the fees payable through to 22 June 2004, the date six months after the effective date of termination of the franchise agreement. Her Honour rejected that submission on the basis that Tone 'n' Tan was not claiming fees under the contract, but rather was claiming for damages. Her Honour referred to the basic principle that damages for breach of contract are awarded to the innocent party so as to place them in the same position as

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if the contract had been performed. Her Honour concluded that Tone 'n' Tan's expectation of receiving the annual fee for the final three years of the franchise agreement was protected by law, and accordingly awarded damages of $36,000. That award of damages is challenged by grounds B3 - 5.

Grounds of appeal

61 The Baileys' grounds of appeal are as follows:

As to the Appellants' counterclaim in the primary court:

1. The learned primary Judge erred in fact in finding that no representation was made by the Respondents as to the profitability of the business sold.

2. The learned primary Judge erred in fact in finding that exhibit 1, document 2, being a profit and loss statement of the business for the financial year ended June 2001 ('the June 2001 P&L Statement') was not provided by the Respondents to Mr Pougnault of Westpac and in turn to the Appellants.

3. The learned primary Judge erred in fact in finding that the June 2001 P&L Statement was not prepared by the Respondents.

4. The learned primary Judge erred in fact in holding that the Appellants never requested any financial documents of the business from the Respondents verifying the earnings of the business and never inquired as to the profitability and/or turnover of the business.

5. The learned primary Judge erred in fact in not finding that the Respondents' evidence that the Appellants never asked about the profitability and/or turnover of the business to be purchased was inherently implausible and improbable.

6. The learned primary Judge erred in fact and in law in making credibility findings against the Appellants and in so doing rejected the Appellants' evidence that they never sought any documents verifying the earnings of the business.

7. The learned primary Judge erroneously accepted evidence which cast doubt upon whether a representation as to profitability was made. Such finding was permeated by erroneous credibility findings not open to the learned primary Judge.

8. The learned primary Judge erred in not making credibility findings against the Second Respondents.

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Particulars

(a) Having rejected the first named Second Respondent's evidence concerning the writing on exhibit 1, document 1, the learned primary Judge found him to be a reliable and truthful witness;

(b) Having held that what the first named Second [Respondent] said concerning the June 2001 P&L Statement detracts from the weight the learned primary Judge was able to give his oral evidence on this important point, the learned primary Judge found him to be a reliable and truthful witness;

(c) The finding that the Second Respondents gave their evidence in a direct and forthright manner without trying to avoid difficult questions was not open to the learned primary Judge;

(d) The evidence of the Second Respondents concerning the request for information and financial documents as to the profitability of the business and the evidence concerning exhibit 1, document 1 and the creation and faxing of the June 2001 P&L Statement is so inherently improbable and implausible that it should be rejected;

(e) The evidence of the Second respondents that they were not aware that the Appellants required loan finance from a financier to purchase the business, prior to them reading the pleadings, is so glaringly improbable and contrary to compelling inferences that it should be rejected.

(f) The evidence by the second named Second Respondent that the Second Appellant did not inquire about the profitability of the Business because she had seen the diary of the Business when she attended as a client was demonstrated to be false.

9. The learned primary Judge erred in fact and in law in making credibility findings against the Westpac representative, Mr Pougnault.

10. The learned primary Judge erred in fact and in law in not fining that:

(a) a representation as to profitability of the business was made;

(b) the representation was false and misleading;

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(c) the representation was relied upon by the Appellants and induced them to enter into the Business Sale Agreement and Franchise Agreement;

(d) the representation caused the Appellants to suffer loss and damage;

entitling the Appellants to set aside the Franchise Agreement and Business Sale Agreement to claim loss and damage.

B. As to the Respondents' claim in the primary court:

1. The learned primary Judge erred in fact and in law in finding that the Appellants had breached the Franchise Agreement.

2. The learned primary Judge erred in fact and in law in not finding that a declaration should be made that the Franchise Agreement and Business Sale Agreement is to be set aside as a result of the Respondents' misleading and deceptive conduct, the subject matter of the Appellants' counterclaim in the primary court.

3. The learned primary Judge erred in law in assessing damages to be paid to the Respondent in the sum of $36,000 represented by an annual fee for a 3 year period.

4. The learned primary Judge erred in law in failing to find that the annual fee was only payable up to the date of termination of the Franchise Agreement and the Business Sale Agreement.

5. The learned primary Judge erred in fact and in law in holding that the Respondents' had discharged their evidentiary onus to prove on a balance of probabilities that they had suffered damages.

62 The Baileys' grounds of appeal on liability (part A) seem to me to involve the following primary contentions:

(a) her Honour should have found that Document 2 was prepared by the sellers, sent by the sellers to Mr Pougnault, and in turn provided by Mr Pougnault to the Baileys (grounds A1 - 3);

(b) her Honour should have rejected the sellers' evidence on the ground that their case, that no requests for financial information had been made by the Baileys, was inherently implausible (grounds A4, 5 and 6);

(d) her Honour should have made adverse credibility findings against the sellers (grounds A7 and 8); and

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(e) her Honour erred in making adverse credibility findings against Mr Pougnault (ground A9).

63 It is convenient to set out, in a summary way, some of the principles relevant to appeals against factual findings based on credibility, before turning to the merits of the grounds of appeal.

Legal principles

64 The appeal is by way of rehearing. Because the appellate court considers the appeal on the basis of the record there are natural limitations in the rehearing before the appellate court. Within those constraints, the appellate court is obliged to conduct a real review of the trial. Appellate courts must weigh conflicting evidence and draw their own inferences and conclusions, although they must always bear in mind that they have not seen or heard the witnesses. An appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or found by the trial judge. A finding of fact by a trial judge based on the credibility of a witness may be set aside on appeal only where incontrovertible facts or uncontested testimony demonstrate that the trial judge's conclusions are wrong, or where it is concluded that the finding of the trial judge was glaringly improbable or contrary to compelling inferences. See Fox v Percy [2003] HCA 22; (2003) 214 CLR 118 [23] - [29]; Lackovic v Insurance Commission of Western Australia [2006] WASCA 38; (2006) 31 WAR 460 [65] - [67].

65 That brings me to a consideration of the merits of the grounds of appeal.

Grounds A1 to 3: Should the judge have found that the second respondents prepared and sent Document 2 to Mr Pougnault, who sent it to the appellants?

66 This issue must be considered by reference to the judge's findings. Her Honour's findings may be summarised as follows.

Grounds A1 - 3: Judge's findings on misrepresentation claim

67 Her Honour accepted the sellers' evidence that there was no discussion of replacing Mrs Bailey's salary of $52,000 with profits from the Morley salon.

68 Her Honour did not accept the Baileys' evidence about Document 1. She found that, having regard to exhibit 5, she did not accept Mr Hankinson's evidence that he wrote 'Headings only', and signed and

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dated the document before giving it to Mr Bailey. However, her Honour did accept Mr Hankinson's evidence that he gave Document 1 to Mr Bailey for the purpose of showing the bookkeeping headings that he used, and Her Honour also accepted Ms James' evidence that Document 1 was prepared by her as a practice document. Accordingly, her Honour did not accept the Baileys' evidence that Document 1 was given to them by the sellers as a representation of the Morley business's earnings.

69 Her Honour then moved to consider Document 2, upon which, she observed, the Baileys' case depended to a large extent.

70 Her Honour referred again to Mr Hankinson's evidence that the information on the ribbon of the facsimile was not consistent with the sellers' practice but said that, in circumstances where the sellers had not produced any document faxed from their machine to prove the point, she should not rely on Mr Hankinson's evidence about that topic.

71 Mr Pougnault's notes stated that Document 2 was received from an accountant. Because Mr Hankinson is not an accountant, her Honour derived some support from this evidence for Mr Hankinson's denial of knowledge of Document 2, his denial of being contacted by Mr Pougnault, and his denial of sending the document.

72 Her Honour accepted Mr Hankinson's evidence that he did not prepare profit and loss statements in the format of Document 2. Her Honour found that she was unable to determine who prepared the document, but was satisfied that it was not Mr Hankinson [65].

73 Paragraphs [66] - [70] appear to me to be central to her Honour's reasoning in rejecting the Baileys' case. In those paragraphs her Honour found as follows:

In order to prove a misrepresentation, the [Baileys] must show that Document 2 was presented to them by the [respondents]. The faxed details appear to show that the document was faxed to Mr Pougnault, and I accept that he did receive that document on 1 May 2002, and that he relied on it to obtain approval for finance for the [Baileys]. That is confirmed in Exhibit 10, the bundle of bank documents recording what Mr Pougnault did. But there is no evidence before me as to how Mr Bailey ever obtained any copy of Document 2 other than Mr Bailey's evidence that Mr Pougnault faxed the document to him on 2 May 2002. If Mr Pougnault did that, I would have expected a copy of the document with the bank's ribbon of fax information displayed on it to be before the Court. There is no such document. There is no support of Mr Bailey's evidence about this. There is certainly no evidence before me that Mr Hankinson ever provided Document 2 to the Baileys.

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If Document 2 had been provided to him as Mr Bailey claims, I find it very surprising that there is no evidence of the [Baileys] ever complaining to the [respondents] about the low income generated by the Morley salon during the period the [appellants] operated the salon as a Tone 'n' Tan franchise from May 2002 until December 2003. If, as the [Baileys] maintain, they were provided with Document 2 and relied on it in deciding to enter into the franchise agreement and expected to make an annual profit of $60,000 from the Morley salon, then it is very surprising that they did not complain to the [respondents] when instead, they suffered losses of $16,643 according to the calculations of Mr Thompson, the business valuer (Exhibit 11 and Exhibit 17). Yet there is no record of any such complaint in the correspondence from the [respondents] in May 2002 or in the undated letter given to Mr Hankinson by Mr Bailey in December 2003, purporting to end the franchise agreement (Exhibit 1, pp 106 - 109 and pp 110 - 111). Nor is there any mention of any such complaint in the [Baileys'] letter to the [respondents'] solicitors dated 19 January 2004. Nor is there any mention of any complaints by the [Baileys] of a failure to make expected profits from the Morley salon in Ms James' chronology of events (Exhibit 8). The [Baileys] documented complaints to the [respondents] centred on the failure to train Mrs Bailey and the failure of the franchisor to advertise.

Under cross-examination, Mr Bailey admitted no complaint was made of misrepresentation until after the writ was issued in this matter (T235). He admitted he never wrote to the [respondents] complaining the income was lower than expected, but he claimed he told the [respondents] all along that 'it was very quiet' (T235). Mr Bailey claimed he had telephone conversations to that effect with Ms James on several occasions (T235). Mr Bailey's failure to answer questions put to him under cross-examination caused me to intervene (T235) and he agreed he never said to the [respondents] that profits coming from the salon were different from what had been represented to him.

I do not accept Mr Bailey's evidence that he complained to Ms James on several occasions that it was very quiet. If he had done so I would have expected Ms James to have noted it in her chronology (Exhibit 8). It is not mentioned.

This lack of complaints about profit levels supports the [respondents'] case that they never made any representations to the [Baileys] about the profits of the Morley salon. The [Baileys] have failed to satisfy me that Document 2 was provided to them shortly before they entered into the agreements. The [Baileys] have failed to satisfy me that the [respondents] ever represented to them that the Morley salon would generate profits of $60,000 per year.

74 In essence, her Honour found that Document 2 was faxed to Mr Pougnault on 2 May 2002, but that she was not satisfied that Document 2 was provided by Mr Pougnault to the Baileys on that day or
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before they entered into the agreements on 3 May 2002. Thus the appellants failed to satisfy her Honour that the respondents represented

to the Baileys

that the Morley salon would generate profits of $60,000 per year. (Of course, in a different case, a representation may be made to a party by sending the document containing the representation to the party's banker or other agent.)

Grounds A1 - 3: Analysis

75 By these grounds the Baileys contend, in substance, that the trial judge should have found that the sellers prepared and sent Document 2 to Mr Pougnault who, in turn, provided it to the Baileys. The last element of that contention is and was critical to the Baileys' case. It was essential for the Baileys to establish that they received Document 2 from Mr Pougnault before they entered into the business sale agreement and franchise agreement on 3 May 2002. In my opinion, a reading of the trial judge's reasons [63] - [71] demonstrates that her Honour focused on the critical issue: was she satisfied that Mr Pougnault sent the document? Her Honour was not satisfied of that.

76 The Baileys' submissions fix on the question of the provenance of Document 2. The Baileys submit that upon a review of all the evidence at trial, the only conclusion open to the trial judge was that Document 2 was prepared and sent by the sellers. In my opinion, the proper conclusion from the evidence was that Document 2 was prepared and sent either by the sellers or by someone with the knowledge and authority of at least one of them. The reasons for that conclusion are as follows.

77 Document 2 contained some accurate financial information (ts 90) and included a spelling mistake also evident in Document 1.

78 The question of who created and sent Document 2 was to be considered in light of the uncontested evidence of Mr Pougnault, summarised earlier in these reasons at [34]. At trial, there was no suggestion by evidence, questions in cross-examination, or submissions, that the Baileys had played any part in creating or transmitting Document 2 to Mr Pougnault. Given Mr Pougnault's uncontested evidence about the conversation he had before Document 2 was sent to him, only the sellers or someone with the knowledge and authority of at least one of them would have been in a position to have the conversation with Mr Pougnault, prepare or obtain the document, and transmit it to Mr Pougnault in accordance with his request. In my opinion, on the whole of the evidence, the conclusion that one of the sellers or someone

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with the knowledge or authority of at least one of them must have done these things was irresistible.

79 Does that conclusion assist the Baileys?

80 As I have said, the trial judge did not draw any conclusion to this effect. Her Honour found that she was satisfied that Mr Hankinson did not prepare Document 2, but was unable to determine who prepared it. Her Honour did not make findings as to who sent Document 2 by facsimile to Mr Pougnault. Her Honour did not, in her reasons, canvass the possibilities in that regard.

81 The Baileys submitted that her Honour's failure to determine who sent the document to Mr Pougnault, or even to canvass the possibilities as to who sent the document, revealed error in her reasoning calling for appellate intervention. I do not accept that submission. In short, that is because the possible provenance of Document 2 was irrelevant to her Honour's reasons for rejecting the Baileys' claim. I proceed to explain my reasons for that conclusion in more detail.

82 It is true that, with the exception of the finding in relation to Mr Hankinson referred to above, her Honour's reasons did not involve a consideration of the possible provenance of Document 2. Rather, her Honour focused upon the question of whether she was satisfied that Document 2 was sent by Mr Pougnault to the Baileys before they entered the agreements on 3 May 2002. No error is revealed by her Honour's focus upon that question. As I have said, it was an essential element of the Baileys' case at trial.

83 Moreover, the possible provenance of Document 2 was irrelevant to her Honour's reasons for being not satisfied that the Baileys received Document 2 before they entered into the agreements. In so concluding, her Honour relied upon two matters. The first was the absence of documents evidencing the sending by Mr Pougnault of Document 2 by facsimile to the appellants. The version of Document 2 sent in that way might have been expected to bear a ribbon of facsimile information as to the sender, but no such document was tendered. Further, no document was produced from the bank's file which evidenced the faxing of Document 2 by Mr Pougnault.

84 The second matter upon which the trial judge relied was the conduct of the Baileys from May 2002 until about April 2004. In particular, her Honour emphasised the absence of any complaint by the Baileys as to the level of revenue and profit of the Morley business, in circumstances

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where the Baileys wrote a number of letters to the sellers complaining about various other things.

85 There is, in my respectful opinion, no error revealed in the trial judge's reliance on these matters in support of her conclusion that she was not satisfied that the Baileys received Document 2 from Mr Pougnault by 3 May 2002. To the contrary, these matters provide cogent support for that conclusion. Consistently with the dictum in Fox v Percy [31], her Honour has determined the critical factual question by reference to 'contemporary materials, objectively established facts and the apparent logic of events'.

86 The Baileys also submitted that the trial judge's failure to find that Document 2 was prepared and sent by or with the knowledge of one of the sellers infected her Honour's assessment of the credibility of the witnesses. That is because, the submission continued, had her Honour concluded that Document 2 was prepared and sent by or with the knowledge of one of the sellers, this would have inevitably had a significant adverse impact on her Honour's assessment of the credibility of Mr Hankinson. For the reasons which follow, I do not accept that submission.

87 Her Honour explained in some detail, under the heading 'Credibility', why she preferred the evidence of Mr Hankinson and Ms James to the evidence of Mr and Mrs Bailey. For the reasons to be given in relation to grounds A6, 7 and 8, I think that no error is revealed in her Honour's reasons for making those findings.

88 A failure to accept the reliability of Mr Hankinson's evidence on one topic would, of course, not compel the rejection of his evidence on other topics. Her Honour approached the case consistently with that proposition. In various respects which she identified, her Honour did not accept all of Mr Hankinson's evidence.

89 To my mind, a conclusion that Document 2 was prepared and sent to Mr Pougnault by or with the knowledge and authority of at least one of the sellers, would not have compelled a conclusion that Mr Hankinson's evidence in relation to Document 2 was untruthful. The witnesses gave evidence in March 2007 about events which had occurred in April and May 2002. On the sellers' version of events, accepted by the trial judge, discussions between the Baileys, Mr Hankinson and Ms James did not centre upon profit levels. Any request for financial information related to

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the Baileys' bank's requirements and so might not necessarily loom large in the memory of the sellers years later.

90 Having reviewed Mr Hankinson's evidence as to Document 2 (ts 30 - 32 and 83 - 92, witness statement [72] - [75]), I am not persuaded that had the judge made the finding already referred to, it would have altered her assessment of Mr Hankinson's credibility generally.

91 Next, the Baileys submitted that a letter written by the respondents' solicitors dated 28 November 2005 demonstrated that the sellers' version of events respecting Document 2 was false. I do not accept that submission. Far from demonstrating the falsity of the sellers' version of events, to my mind the contents of the letter are entirely consistent with their case. The letter of 28 November 2005 was written in response to a letter dated 16 November 2005 from the Baileys' solicitors.

92 The Baileys' solicitors wrote on 16 November 2005 asking for discovery of certain documents including:

(a) a full profit and loss statement for the Hankinson and James partnership for 2000-2001; and

(b) a separate profit and loss statement for the Riverton store for 2000-2001 (stating that a profit and loss for the Morley salon was already held by them).

93 The respondents' solicitors replied by letter of 28 November 2005. That letter stated that:

(a) the partnership's profit and loss statement for 2000-2001 contains the financial records for the Morley salon, the Riverton salon and another partnership business;

(b) the partnership's profit and loss statement for 2000-2001 does not reveal figures for the Morley salon exclusively; and

94 In cross-examination of the sellers, it was suggested to them that the reference in their solicitors' letter of 28 November 2005 to the partnership's profit and loss statement for 2000-2001 was a reference to Document 2. Both of the sellers denied that suggestion, saying that the letter was referring to the 2000-2001 tax return for the partnership. The Baileys submitted that that evidence should have been found by the trial judge to have been false, because the only conclusion available was that the letter was referring to Document 2. In my opinion, it was well open to
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the trial judge not to have formed any such conclusion. The evidence of the sellers (ts 86 - 88, 149 - 150) was entirely plausible. Moreover, it would not have made sense to refer to Document 2 as being the partnership's profit and loss statement for 2000-2001. The partnership operated two salons and an additional business. Document 2 related to the Morley salon only.

95 Finally, the Baileys' written submissions contend that the finding by the learned primary judge that Document 1 was not a financial statement of the business was 'not supported by the evidence'. This appears to be a submission that the finding was one that was not open on the evidence. It was not developed in oral submissions. I do not accept the submission. The evidence of Mr Hankinson and Ms James supported the trial judge's finding, and it was open to her Honour to accept those aspects of their evidence.

96 For these reasons, in my opinion grounds A1 to 3 fail.

Grounds A4 and 5: Was the judge's finding glaringly improbable?

97 By these grounds, the Baileys contend that the trial judge erred in fact in finding that the Baileys did not request financial documents from the respondents verifying the earnings of the business, and never inquired as to the profitability of the business. The Baileys submit that the trial judge erred in making such a finding because it was so glaringly improbable that it should have been rejected.

98 I do not accept that submission. I do not doubt that it is unusual, as a general proposition, for a purchaser of a business not to make inquiries as to the revenue and profitability of the business proposed to be purchased. However that does not mean that, regardless of the particular facts and circumstances, a finding that no inquiry as to profits was made by a purchaser is one which is glaringly improbable.

99 On the sellers' evidence, the Baileys had come to them wanting to purchase the business. Mrs Bailey had been a customer of the business. Her visits to the business may have given her some indication of how busy the salon had been and to the effectiveness of the services provided by the salon. The amount being paid for goodwill was something just over $20,000. Moreover, Mr Hankinson gave evidence that others who had become franchisees of Tone 'n' Tan had not asked for financial information or, in one case, were satisfied that because of the franchise nature of the business no financial information would be provided.

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100 In the circumstances of the case, the finding of the trial judge that the Baileys did not ask for financial information as to the revenue or profitability of the Morley salon was not so glaringly improbable as to warrant appellate intervention. Accordingly, grounds A4 and 5 fail.

Grounds A6, 7 and 8: Did the judge err in her credibility findings?

101 By these grounds, the Baileys contend that the trial judge erred in making adverse credibility findings against them and erred in not making adverse credibility findings against the sellers.

102 At the hearing of the appeal it was not clear to me whether the Baileys pressed these grounds (transcript 5 September 2008, page 23), but I will deal with them nonetheless.

Grounds A6 - 8: Trial judge's reasons

103 The trial judge recorded the central contentions of the parties as to how the conflicts in evidence were to be resolved. The Baileys contended that no-one would purchase a business without information on the earnings of the business, so the sellers' position at trial that the Baileys never sought any information or documents about earnings was not believable. The sellers' case was that the Baileys had approached them and sought to purchase the business, so the question of the earnings of the business never arose in negotiations. The sellers contended that Mrs Bailey would have been aware of the success of the Morley salon, having been a client there, having seen how busy the salon was, and knowing how much a treatment cost. The sellers also relied on cl 19 and cl 20 of the disclosure document (mistakenly referred to by the trial judge as the business sale agreement).

104 Her Honour described cl 19.1 and cl 20 of the disclosure document attached to the business sale agreement as being important evidence. The disclosure documents included statements to the following effect.

(a) The franchisor (Tone 'n' Tan) does not give earnings information about a Tone 'n' Tan franchise.

(b) Earnings may vary between franchises.

(d) The franchisor was not in operation at the end of the financial year ended June 2001 and, as such, it has not needed to prepare profit and loss statements and balance sheets for the preceding two years.

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105 Her Honour stated that when faced with these provisions, Mrs Bailey denied signing the agreement which was in exhibit 1. Mrs Bailey gave evidence that her signature in exhibit 1 was on a different document from the document involving cl 19 and cl 20 that she had signed. Thereafter, exhibits 20 and 21, being bound copies of the business sale agreement and its attachments (including the disclosure document) containing original signatures, were produced. Following that, Mrs Bailey accepted that her original signature did appear on exhibit 21 (see generally ts 371 - 381).

106 Next, the trial judge found that Mrs Bailey had deliberately misread the letter that she and her husband had signed and sent to the respondents' solicitor, being exhibit 13. The letter, dated 27 January 2004, stated with respect to the franchise agreement 'It is our position that no such document exists.'

107 Her Honour found that Mrs Bailey's evidence at ts 365 under cross-examination demonstrated that she was not an honest and truthful witness.

108 Her Honour also found that Mrs Bailey was unable to offer any explanation as to why the Baileys had never complained to the respondents about lower earnings than had been stated to them [47]. I take this to be a finding that the trial judge was unconvinced by the explanation offered by Mrs Bailey to the effect that she had been 'ripped off and had to wear it' (ts 359 - 360). Her Honour found that Mrs Bailey's explanation of why she and her husband kept the Morley salon operating in January 2004 when it was said to be losing money lacked credibility.

109 Her Honour recorded that one problem with the Baileys' evidence was that it was not consistent with contemporary documents [48]. Her Honour found that there was no explanation for why, in the Baileys' letters of 22 December 2003 and 19 January 2004, they made various complaints on other topics without any mention of a complaint that the Morley salon had not achieved the profits which, on the Baileys' evidence, the sellers had assured them would be achieved from the Morley salon.

110 Her Honour concluded that she had formed a very poor impression of the credibility of Mrs Bailey, whom she did not find to be a truthful witness [49].

111 Her Honour formed an unfavourable impression of the credibility of Mr Bailey [50]. She stated that his efforts to try to avoid questions continued throughout his cross-examination, referring in particular to three pages of the transcript.

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112 Her Honour found that, by contrast, both Mr Hankinson and Ms James gave their evidence in a direct and forthright manner and without trying to avoid difficult questions. She found the sellers to be well organised business people who put thought and care into running their business, and accepted that Ms James' chronology of events was a truthful and accurate contemporaneous record of what had taken place. Her Honour found that that chronology and Ms James' evidence generally was consistent with the correspondence between the parties at the time.

113 The trial judge made adverse credibility findings about Mr Pougnault [52] - [53]. Her Honour referred to differences between his evidence in re-examination and his evidence under cross-examination. The trial judge also referred to Mr Pougnault's inability to explain why the application for finance had not been put before the court in answer to the subpoena. Further, the trial judge observed that Mr Pougnault's re-examination left her with the impression that he 'was trying to give answers which the appellants wanted him to give rather than trying to tell the truth, the whole truth and nothing but the truth'.

114 Her Honour concluded that based on her findings on credibility, she was satisfied on the balance of probabilities that the appellants never sought any documents verifying the earnings of the Morley salon.

Grounds A6 - 8: Analysis

115 In support of those grounds, the Baileys submit that the adverse credibility findings made against them were not reasonably open on the evidence. Further, the Baileys submit, those findings were not based on the trial judge's impression of their conduct or demeanour as a witness. I do not accept either of those submissions.

116 Dealing first with the second of the Baileys' propositions, the reasons given by the trial judge for the adverse credibility findings she made seem to me squarely to involve her Honour's assessment of the way in which each of the Baileys responded to questions in the witness box. Whether a witness' failure to respond directly to a question is deliberate or not, and whether a witness is reading a document in a particular way deliberately to avoid making a concession, are matters which are capable of being influenced by the impression formed by the judge during the oral evidence of the witness.

117 In determining whether the adverse credibility findings should be interfered with it is, of course, important to bear in mind that the question for the appellate court is not whether, upon a reading of the transcript, it

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would form an adverse view as to the credibility of the witness. Nor is it sufficient to show that the evidence in question is open to a different interpretation to that taken by the trial judge. Rather, the question is whether, upon a review of the evidence, the adverse credibility finding was open to the trial judge.

118 It seems to me, on a consideration of the relevant evidence, that the matters referred to in the trial judge's reasons at [46] - [50] were capable of supporting the adverse credibility conclusions to which her Honour came.

119 The Baileys point to aspects of the evidence of the sellers which, it was submitted, should have led her Honour to form an adverse view of the credibility of the sellers. However, while those matters might have led a trial judge to form such a view, they are not, in my opinion, such as would have compelled a trial judge to that view.

120 The matters set out under the particulars to ground 8 do not justify a conclusion that a failure to make adverse credibility findings against the sellers reveals error on the part of the trial judge. As to the matters in subparagraphs (a) and (b), it was open to the judge not to accept Mr Hankinson's evidence in particular respects without making a general adverse credibility finding against him. The finding the subject of particular (c) was open to the trial judge. The matters referred to in subparagraphs (d) and (e) were not so glaringly improbable as to require rejection by the trial judge. Ms James' evidence as to the viewing by Mrs Bailey of the diary of the business was not of central significance.

121 For these reasons, grounds A6, 7 and 8 fail.

Ground A9

122 Ground 9 complains of the adverse credibility finding made by the trial judge in respect of the evidence of Mr Pougnault.

123 There is, in my respectful opinion, force in some of the criticisms made by the Baileys of the trial judge's reasons for finding Mr Pougnault not to be a reliable witness. For example, her Honour stated that Mr Pougnault was unable to explain why the application for finance was not among the documents produced under subpoena by the bank and therefore was not before the court. On my reading of the evidence (ts 187 - 189), the absence of the application for finance from the documents produced under subpoena does not seem to me to have been a

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matter which was capable of bearing adversely upon Mr Pougnault's credibility.

124 However, I am not persuaded that the trial judge's adverse comments as to Mr Pougnault's credibility made any difference to her Honour's reasoning and ultimate conclusions. At the hearing of the appeal, counsel for the Baileys was asked to identify any finding based on Mr Pougnault's evidence that the trial judge should have made but failed to make because of her adverse view of his credibility. Counsel was unable to identify any such finding. Accordingly, ground A9 fails.

Ground A10

125 As the appeal was argued, ground 10 is premised on the success of one of the earlier grounds. It does not provide a separate ground for impugning the trial judge's decision. Rather, it seeks to identify the consequences of success of earlier grounds of appeal.

126 I have found that grounds A1 to 9 fail. Consequently, ground A10 also fails.

Grounds B1 and 2

127 Similarly, these grounds are premised on the success of earlier grounds of appeal. Given the failure of the grounds seeking to overturn the judge's findings on the appellants' misrepresentation and misleading and deceptive conduct case, grounds B1 and 2 consequently also fail.

Grounds B3 and 4: Did the judge err in not limiting damages to a six-month period?

128 These grounds complain of the assessment of damages by the learned trial judge. The Baileys submit that the terms of the franchise agreement, in particular clauses 15 and 17, mean that damages should have been limited to the amount payable as franchise fees up to the date six months after termination.

129 Clause 15 of the franchise agreement was in the following terms:

15. Termination by the Franchisee

15.1 The Franchisee may terminate this Agreement at any time by giving Tone 'n' Tan Salons not less than six (6) months written notice.

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15.2 The Franchisee shall, upon the giving of notice in accordance with Clause 15.1, perform its obligations in good faith for the duration of the notice period.

15.3 In the event that the Franchisee exercises its right to terminate pursuant to Clause 15.2 Annual Fees shall be paid by the Franchisee to Tone 'n' Tan Salons on a pro rata basis up to the date of termination.

15.4 Should the Franchisee cease to carry on the Business at the Premises for any reason other than a relocation of the Business (with the consent of Tone 'n' Tan Salons in accordance with Clause 7.8), this Agreement shall automatically terminate.

15.5 Termination pursuant to this Clause does not entitle the Franchisee to a refund of the Joining Fee or any part thereof.

15.6 Upon Termination the Franchisee will not operate a business in the type of business that it carried on under the Franchise.

15.7 After termination the Franchisee must give the Tone 'n' Tan System manuals back to the Franchisor and continue to keep the Tone 'n' Tan System absolutely confidential.

130 Clauses 17.1 and 17.8 were in the following terms:

17.1 The Franchisee agrees that upon termination of this Agreement:

(a) it will take such action as may be required to either (at Tone 'n' Tan Salons election) cancel all registrations relating to its use of the Business Name and transfer such registrations to Tone 'n' Tan Salons;

(b) it will cease to use the Business Name in any manner whatsoever and shall at its own expense execute and lodge all documents necessary to give full force and effect to the cessation of the use of the Business Name or transfer to Tone 'n' Tan Salons as the case may be;

(c) it will return to Tone 'n' Tan Salons all advertising and promotional materials provided to the Franchisee pursuant to this Agreement together with all [stationery], posters, labels, invoices, client database, dockets and other material of whatsoever kind bearing the Business Name and/or Tone 'n' Tan Salons Marks;

(d) it will notify the telephone company and all listing agencies of the termination of its right to use the Business Name or the Tone 'n' Tan Salons Marks;

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(e) it will arrange for any telecommunication lines and corresponding numbers used by the Franchisee in carrying on the Business under the Business Name or the Tone 'n' Tan Salons Marks to be transferred to Tone 'n' Tan Salons or any other person nominated by Tone 'n' Tan Salons;

(f) where Tone 'n' Tan Salons request, it will arrange for any listing of the numbers in the preceding Clause 17.1(e) in any public directory to be deleted;

(g) it will, at its own expense, remove and return all signs displaying the Tone 'n' Tan Marks from its Premises. In the event that the Franchisee maintains possession of the Premises subsequent to the termination of this Agreement it will immediately upon request from Tone 'n' Tan Salons, make such alterations to the Premises as Tone 'n' Tan Salons may reasonably request so as to distinguish effectively the Premises from other Tone 'n' Tan Salons locations. If the Franchisee fails to make such changes or remove such signs, then Tone 'n' Tan Salons may enter upon the Premises and remove the signs or make such changes at the Franchisees expense without such action constituting a trespass and without being liable to the Franchisee in any matter.

17.8 Without prejudice to the rights of any Party which have accrued up to and including the date of termination, including the right to claim damages in respect of any breach of this Agreement, then unless Clause 15.2 applies, Annual Fees shall be paid by the Franchisee to Tone 'n' Tan Salons for the period up to the first day of the month immediately following the effective date of termination.

131 I do not accept the respondents' submissions that the presence of these clauses is irrelevant to the assessment of damages. I also do not accept the Baileys' submission that damage is to be assessed as if it were assumed that the appellants had invoked the right to terminate pursuant to cl 15. The mere existence of a contractual right of a party to terminate does not operate automatically to restrict the damages that can be awarded. The court does not reach a conclusion by reference to an improbable factual hypothesis. The court must have regard to the facts and evaluate the prospect of the exercise of the right of termination in all the circumstances of the case: The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64, 93, see also 114, 132 - 133, 144 and 150; TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd
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(1989) 16 NSWLR 130;

Walker v Citigroup Global Markets Australia Pty Ltd

[2006] FCAFC 101; (2006) 233 ALR 687.

132 At the hearing of the appeal, counsel for the Baileys accepted, rightly in my opinion, that it was unlikely that the Baileys would in fact have invoked cl 15.1 to terminate the franchise agreement. Apart from anything else, the invocation of cl 15.1 gave rise to an express obligation, in cl 15.6, that upon termination the franchisee would not operate a business of the type carried on under the franchise. In this case, the Baileys commenced operation of a similar business to the Tone 'n' Tan salon at Morley as early as January 2004. It is, in my assessment, unlikely that the Baileys would have invoked a clause giving rise to an express obligation not to conduct such a similar business.

133 The likelihood of the Baileys exercising the right of termination under cl 15.1 would also have to take account of the consequential obligations to return manuals (cl 15.7) and other material (cl 17.1), none of which was actually returned by the Baileys.

134 Because it was unlikely that the Baileys would have invoked cl 15.1 to terminate the contract, grounds B3 and 4 fail.

Ground B5: Did the judge err in not bringing saved expenses to account in the assessment of damages?

135 By this ground, the Baileys contend that the trial judge erred in her assessment of damages in failing to bring to account expenses which would have been incurred by Tone 'n' Tan had the franchise agreement continued for its full term but which were saved as a consequence of the early termination of the agreement.

136 This ground fails because I am not persuaded that Tone 'n' Tan would necessarily have incurred any additional expenditure in performance of its obligations under the franchise agreement had it continued for its full term until 29 April 2007.

137 In support of their contentions, the Baileys made reference to cl 5.3 and cl 5.4 of the franchise agreement. Clause 5.3 makes it plain that if and when Tone 'n' Tan provided new services, additional fees would be payable by the Baileys in respect of those services. Clause 5.4 does not create any obligation on the part of Tone 'n' Tan to provide training courses. The Baileys' submissions also made reference to cl 7.2. That clause does not impose any obligations on Tone 'n' Tan in respect of the period after termination in December 2003.

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138 Finally, the Baileys refer to cl 8.1, which provided that Tone 'n' Tan agreed that it would undertake special advertising campaigns in respect of the Tone 'n' Tan brands or products and services from time to time. There was evidence of other franchisees of the Tone 'n' Tan business. In the circumstances, I am not persuaded that the trial judge should have found that damages should be reduced to take account of the expense on the part of Tone 'n' Tan in complying with cl 8.1 of the franchise agreement.

Conclusion

139 For the reasons given, I would not interfere with the trial judge's findings of fact or her assessment of damages. Accordingly, I would dismiss the appeal.

Bailey v Tone 'n' Tan Pty Ltd

[2008] WASCA 226

10 NOVEMBER 2008

BAILEY -v- TONE 'n' TAN PTY LTD [2008] WASCA 226