Body Bronze International Pty Ltd v Fehcorp Pty Ltd
[2011] VSCA 196
•1 July 2011
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2009 3832
| BODY BRONZE INTERNATIONAL PTY LTD (ACN 078 442 645) and SCOTT MENEILLY and BRIAN JOHN MITCHELL | Appellants |
| v | |
| FEHCORP PTY LTD (ACN 123 989 051) | Respondent |
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| JUDGES | HARPER and HANSEN JJA and MACAULAY AJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 10 May 2011 |
| DATE OF JUDGMENT | 1 July 2011 |
| MEDIUM NEUTRAL CITATION | [2011] VSCA 196 |
| JUDGMENT APPEALED FROM | Fehcorp Pty Ltd v Body Bronze International Pty Ltd & Ors [2009] VCC 1001 (Judge Saccardo) |
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TRADE PRACTICES – Unconscionable conduct in business transactions - Misleading or deceptive conduct – Accessorial liability for contraventions – Trade Practices Act 1974 (Cth) ss 51AC, 51A, 52 and 75B – Representation with respect to future matters – Whether evidence established reasonable grounds for representation – Representations as to future conduct or events are not misleading or deceptive merely because the conduct or events do not come to pass – Section 51A does not facilitate proof against those alleged to be involved in a contravention – Not every intentional breach of contract will amount to unconscionable conduct as understood in s 51AC – Appeal allowed.
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| Appearances: | Counsel | Solicitors |
| For the Appellants | Mr P J Cosgrave SC with Ms R N Annesley | McKean Park |
| For the Respondent | Mr T R Messer | Brennan Georgiou Eaton |
HARPER JA:
I agree with Macaulay AJA.
HANSEN JA:
I agree with Macaulay AJA.
MACAULAY AJA:
Introduction
After a trial in the County Court of Victoria, Fehcorp Pty Ltd (‘Fehcorp’), the plaintiff below and the respondent to this appeal, obtained an award of damages for $325,851.26 together with interest of $38,594.91, and costs. The judgment was given against Body Bronze International Pty Ltd (‘Body Bronze’), the first appellant; its chief executive officer, Scott Meneilly (‘Meneilly’), the second appellant; and its sole director and shareholder, Brian John Mitchell (‘Mitchell’), the third appellant.
The damages were awarded against Body Bronze for breach of contract, but also for contraventions of s 52 (misleading or deceptive conduct) and s 51AC (unconscionable conduct) of the Trade Practices Act 1974 (Cth) (‘the TPA’).[1] Meneilly and Mitchell were held to be liable as being ‘involved’ in Body Bronze’s contraventions of the TPA, pursuant to s 75B of the Act.
[1]Fehcorp also relied upon the cognate provisions in the Fair Trading Act 1999 (Vic), namely s 8A and s 9. Since there was no relevant difference in the provisions for the purposes of the analysis of the decision appealed from, for ease of reference I will only refer in my reasons to the TPA provisions.
This appeal is brought only by Meneilly and Mitchell.[2] They challenge the finding of their liability, first, by attacking the finding that Body Bronze contravened either s 51AC or s 52 of the TPA. Secondly, and whether or not Body Bronze did so
contravene the TPA, they challenge the finding that they were involved in any such contraventions.
[2]Although Body Bronze is listed as an appellant on the Notice of Appeal, counsel for the appellants informed the Court that the appeal was only being pursued by Meneilly and Mitchell.
No challenge is mounted to the finding that Body Bronze was in breach of contract. Nor is there any challenge to the award of damages for that breach.
I am of the view that the appeal should succeed. I explain my reasons below.
Background
At all relevant times throughout 2007 and 2008 Body Bronze carried on the business of a franchisor of body tanning salons. In early 2007 it agreed to grant a franchise to Fehcorp in connection with a new tanning salon to be opened at premises over which Body Bronze had secured a lease at the Chadstone Shopping Centre, Chadstone, Victoria.
Two documents were executed to give effect to this arrangement. The first was a document titled ‘Heads of Agreement’ (‘the Heads’) executed on 6 February 2007 between Body Bronze and David Fehrer who shortly thereafter caused Fehcorp to be incorporated and who became its sole director. The second document was a Franchise Agreement (‘the Franchise Agreement’) executed between Body Bronze and Fehcorp on 29 March 2007.
The Heads contained all the essential terms of the franchise arrangement and bound the parties … ‘[o]n the basis of this executed Agreement … to proceed in accordance with their respective obligations and establish the Body Bronze Business …’ at the Chadstone premises. It also obliged the parties to use their best endeavours to prepare a franchise agreement which included the terms set out in the Heads, which is in fact what the parties did shortly thereafter.
The Heads contained a particular term, clause 15, which reflected an undertaking given by Body Bronze in conversations and by email preceding the execution of that document. It was to the effect that if the salon fit-out costs, which were to be met by the franchisee, exceeded $250,000, Body Bronze would lend the franchisee additional funds required for the fit-out at a flat interest rate of 10 percent per annum. At trial and on appeal this was referred to as the ‘finance arrangement’.
When the parties came to execute the Franchise Agreement about seven weeks later the finance arrangement was not incorporated in that agreement. Moreover, as is not uncommon in agreements of its kind, the Franchise Agreement, which bore the appearance of a standard form agreement, contained an entire agreement clause. By that clause the parties agreed that the terms of the Franchise Agreement constituted the entire agreement on the subject matter of the franchise and superseded all prior representations and agreements in connection with that subject matter.
Fehcorp initially conducted the tanning salon from temporary premises, beginning in April 2007, due to a delay in the availability of the leased premises at Chadstone. In September 2007, the permanent tanning salon was established at Chadstone. Body Bronze was the head lessee of the Chadstone premises, and Fehcorp the sub-lessee. Colonial First State Asset Management Pty Ltd (‘Colonial First State’) was the lessor or the lessor’s agent.
Fehcorp proceeded to fit out the Chadstone tanning salon. In doing so it exceeded the $250,000 sum referred to in the finance arrangement. From about October 2007 onwards Fehcorp called upon Body Bronze to advance moneys to allow it to complete the fit-out. Body Bronze did advance some moneys. Fehcorp said it needed more.
Arguments developed as to whether the amount of $250,000 had in fact been exceeded, and whether the sums for which Fehcorp wanted the money were all in respect of fit-out as opposed to operational costs.
Body Bronze received an invoice issued by Colonial First State on 14 February 2008 for $22,207.08 in respect of the Chadstone premises. It demanded that Fehcorp pay the invoice on the basis that it was Fehcorp’s responsibility under the Franchise Agreement. Fehcorp did not dispute that the invoice was its responsibility under the terms of the Franchise Agreement, but contended that the costs payable under the invoice were excess fit-out costs and that Body Bronze was obliged by the finance arrangement to lend money to Fehcorp to meet the invoice.
By 5 March 2008 Body Bronze had already paid invoices for Fehcorp for amounts totalling in the order of $19,250, and acknowledged, by letter of that date, that those monies had been provided to Fehcorp on a loan basis at a flat interest rate of 10 per cent per annum. However, it denied it had lent that money pursuant to any obligation to do so, contending that any such obligation in the Heads had been superseded by the Franchise Agreement which contained no such obligation. It refused to lend any more money to Fehcorp but nonetheless paid the invoice itself, no doubt to avoid losing the premises. It then demanded that Fehcorp reimburse it for the sum so paid by issuing an invoice to Fehcorp for $22,207.08 (‘the March 2008 invoice’).
When Fehcorp refused, relying on the finance arrangement, Body Bronze responded on 27 March 2008, through its lawyers, by serving Fehcorp with a formal notice of breach of the Franchise Agreement. The notice demanded payment, amongst other things, of the March 2008 invoice within 14 days and stated that, if not paid, the Franchise Agreement would be terminated in accordance with its terms.
Fehcorp still did not pay. Body Bronze took possession of the Chadstone tanning salon on 14 April 2008. A dispute then arose as to which party had repudiated the Franchise Agreement, although it was not disputed that it had come to an end.
Fehcorp’s claim
By its claim in the County Court, in addition to alleging breach of contract (that is, breach of the finance arrangement), Fehcorp alleged that Body Bronze engaged in misleading or deceptive conduct, in breach of s 52 of the TPA, by the making of a representation orally and in writing in February and March 2007, before entry into the Franchise Agreement. The representation was that Body Bronze would lend to Fehcorp any excess above $250,000 required to fit-out the new tanning salon. Insofar as the representation was in writing it was alleged to consist of an email dated 5 February 2007 from Meneilly to Fehrer, the Heads signed on 6 February 2007 and a further email from Meneilly to Fehcorp’s lawyers dated 9 March 2007.
Fehcorp further alleged that it relied upon that representation to enter the Franchise Agreement on 29 March 2007 and pay fees thereunder, purchase equipment from Body Bronze, and carry on the business from the Chadstone premises. The representation was alleged to be ‘false and untrue’. Alternatively, it was alleged that the representation was with respect to future matters, for the making of which Body Bronze lacked any reasonable ground.
To support the contention that the representation was false and untrue, Fehcorp alleged three facts: first, that its expenditure on establishing the tanning salon exceeded the sum of $250,000; secondly, that Body Bronze had only lent it $19,253.05 which did not account for the whole of the excess; and, thirdly, that Body Bronze had refused to lend any more money.
In relation to the absence of any reasonable grounds for making the representation, Fehcorp relied upon s 51A of the TPA, appearing in the same Division as s 52, which provides:
(1)For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2)For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.
Fehcorp also alleged that Body Bronze had engaged in unconscionable conduct contrary to s 51AC. In doing so it relied upon allegations that on or about 27 March 2008 Body Bronze served upon Fehcorp the notice of breach of the Franchise Agreement; that on 14 April 2008 Body Bronze took possession of the business at the Chadstone premises; and that Body Bronze breached the Heads by denying it was liable to lend any more money for fitting out the tanning salon.
It was finally alleged that Meneilly and Mitchell each:
•aided, abetted, counselled or procured;
•were knowingly concerned in, or a party to, whether directly or indirectly.
each of the statutory contraventions. Those allegations drew upon s 75B(1)(a) and (c) of the TPA[3] which designates such a person to be ‘involved’ in the contravention. In turn, s 82 of the TPA provides the right of recovery for a person who suffers loss or damage by conduct in contravention of (amongst other things) ss 51AC and 52, against any person ‘involved’ in the contravention.
[3]And the cognate FTA provision.
The loss which Fehcorp claimed to have suffered as a consequence of the breach of contract and the statutory contraventions was, in each case, the loss of any money spent in establishing the tanning business as well as trading losses.
The arguments below
Body Bronze’s pleaded position prior to trial, in answer to the claim for breach of contract and for contravention of s 52 of the TPA, was that it did not admit making any representation, or enter any binding legal agreement, to the effect that it would lend Fehcorp the money required to establish the business in excess of $250,000. Further, it expressly pleaded and relied upon the entire agreement clause in the Franchise Agreement as its answer even if it had made such representation or agreement.
Despite its pleaded position, at trial Body Bronze did not dispute having made the representation. Nor did it dispute the binding effect of clause 15 of the Heads which embodied the finance arrangement and made it legally enforceable. In addition it disavowed any reliance upon the entire agreement clause in the Franchise Agreement.
In the result, it was conceded that Body Bronze was always obliged to lend Fehcorp, at 10 per cent interest, whatever money was required to fit-out the tanning salon at Chadstone after Fehcorp had first spent $250,000 in doing so. In fact, it was its position at trial that it had never denied its legal obligation to honour the finance arrangement, explaining the various written communications in 2008, and its pleadings, either as a mistake or simply the position taken by its lawyers.
The arguments raised in defence by Body Bronze at trial were, instead, that the trigger for the obligation to lend the money simply had not arisen. This was put on the basis of a combination of several arguments: that is, first that the agreed sum of $250,000 was to be construed as $250,000 plus GST; secondly, that Fehcorp had wrongly included operational costs in its list of fit-out and establishment expenditure.
In support of its argument, Body Bronze contended that the fact that it did make some payments by way of loan, totalling more than $19,000, did not signify that it had accepted that the trigger had been reached and that it was obliged to do so. Rather, it contended that it made the loans only because it had its own commercial interest in relieving the financial strain upon Fehcorp.
The learned trial judge devoted some time to considering and resolving the issue as to whether or not Body Bronze had been satisfied that the trigger point of $250,000 expenditure had been reached by March 2008. Body Bronze argued that it had not been so satisfied; Fehcorp argued that it must have been. His Honour found that Body Bronze had been satisfied the trigger was reached. It is not entirely clear to which issue this point was related. It seems to me it may have had more bearing on the issue of unconscionable conduct as I discuss below.
It followed that the arguments put in respect of the breach of contract claim largely revolved around whether or not the $250,000 had in fact been spent on fit-out by Fehcorp by March 2008 so as to trigger Body Bronze’s obligation to fund Fehcorp’s liability to pay Colonial First State the invoice for $22,207.08.
Insofar as the unconscionable conduct claim was concerned, and consistently with its pleaded position, Fehcorp contended that Body Bronze’s conduct in –
•failing to advance Fehcorp the money to meet the invoice from Colonial First State for $22,207.08, as it was obliged to do; and
•enforcing its contractual right to enter possession of the premises upon Fehcorp’s default in paying the same invoice.
was conduct that contravened s 51AC of the TPA.
It is not clear whether and to what extent Fehcorp, at trial, relied upon any factors relating to positional inequality between Fehcorp and Body Bronze (of the kind enumerated under s 51AC(3)). Evidence appears to have been led concerning David Fehrer’s relative youth, and lack of experience in business compared to that of Body Bronze and its officers. As I will show below, the learned trial judge referred to that evidence[4] as a factor relevant to his conclusion that Body Bronze engaged in unconscionable conduct.
[4]Fehcorp Pty Ltd v Body Bronze International Pty Ltd & Ors [2009] VCC 1001 (hereafter referred to as ‘Reasons’) [111].
Finally, in respect of the issue of Meneilly’s and Mitchell’s involvement in the statutory contraventions, the arguments put on behalf of Fehcorp appear to have gone no further than that Mitchell, as the sole director of Body Bronze, was the natural person who ultimately made decisions on its behalf, and that Meneilly, as its chief executive officer, was the person who made the relevant representations and was responsible for drafting the relevant agreements. In this way, both were said to have had full knowledge of, and participated in, the activities of Body Bronze which amounted to the misleading or deceptive conduct, and the unconscionable conduct.
The trial judge’s decision and reasons
(a) Breach of contract
Regardless of the concession made by Body Bronze at trial, because it was not legally represented[5] the learned trial judge proceeded to make his own determination on the question of the efficacy of the entire agreement clause. His Honour concluded that it was not effective to preclude the finance arrangement operating as a contractual obligation. Unsurprisingly, this conclusion is not challenged on appeal.
[5]Although Body Bronze, Meneilly and Mitchell were represented by solicitors prior to the trial, at trial Meneilly and Mitchell represented themselves, and Mitchell was given leave to represent Body Bronze.
Upon the critical factual issue of whether the $250,000 expenditure was exceeded so as to trigger Body Bronze’s obligation to fund Fehcorp’s liability to pay the Colonial First State invoice, his Honour found in favour of Fehcorp. Upon that basis it followed that Body Bronze’s refusal to advance money to Fehcorp to meet that invoice breached clause 15 of the Heads.
It also followed that Body Bronze’s reliance upon the supposed ‘default’ on the part of Fehcorp in failing to reimburse Body Bronze for the $22,207.08 it had paid to Colonial First State, as the basis for Body Bronze entering possession and terminating the Franchise Agreement, could not be sustained. It could not be sustained because Fehcorp’s failure to reimburse Body Bronze for the sum paid to Colonial First State could not amount to a default under the Franchise Agreement given that Body Bronze was contractually bound to advance the money to Fehcorp to enable it to meet the very payment for which Body Bronze was seeking reimbursement. Alternatively, on the principles discussed by the High Court in Park v Brothers,[6] because the breach by Body Bronze of its contractual obligation to lend money to Fehcorp prevented Fehcorp’s performance of a contractual condition in the Franchise Agreement, such prevention by Body Bronze may be reckoned as equal to performance by Fehcorp of the condition.[7]
[6](2005) 80 ALJR 317, [43].
[7]See further N C Seddon & M P Ellinghaus, Cheshire & Fifoot’s Law of Contract (LexisNexis Butterworths, 9th Aust Ed, 2008) [21.27]; J L R Davis (Ed) Contract: General Principles: The Laws of Australia (Thomson Lawbook Co, 2nd ed, 2006) [7.6.1570].
Accordingly, his Honour had an ample and proper basis upon which to conclude, as he did, that Body Bronze breached clause 15 of the Heads in failing to advance the monies the subject of the Colonial First State invoice, and that Body Bronze’s subsequent purported reliance upon the Franchise Agreement to enter possession of the Chadstone tanning salon was unjustified.[8] Indeed so much is not disputed. This then brings me, however, to the question of how his Honour concluded in the circumstances that Body Bronze had contravened s 52 and s 51AC of the TPA.
[8]Reasons [79].
(b) Breach of s 52
The learned trial judge appeared first to conclude, without recourse to the provisions of s 51A, that Body Bronze breached s 52 of the TPA. In coming to that conclusion his Honour initially considered evidence regarding the intention of Body Bronze (through the intentions of Meneilly and Mitchell) with respect to honouring the finance agreement.
His Honour made a finding, the importance of which will become apparent shortly, that:
I accept the evidence of Meneilly and Mitchell that, at the time at which the representation which led to the finance arrangement was made, they intended to honour the representation and they believed that [Body Bronze] possessed the means by which the representation could be honoured.[9]
[9]Reasons [89].
As to the latter belief, his Honour explained (in a footnote to the above passage):
In this regard, I accept the evidence of Mitchell, that although funds may have been tight by reason of a downturn in the industry, both Mitchell and [Body Bronze] had available to them sources of funding which they could access for the purpose of honouring the finance arrangement.[10]
[10]Reasons n 81.
The reference to the ‘evidence of Meneilly and Mitchell’ appears to be a reference to evidence which his Honour had extracted earlier in his reasons, namely:
At paragraph 29 of his Witness Statement, Meneilly said:
Despite the fact that there was no mention at all of financial assistance in the final version of the Franchise Agreement (which was signed by both parties in March 2007), the intent was made very clear to me that if David [Fehrer] exceeded $250,000 on setting up of the store, [Body Bronze] would support him financially.
At paragraph 30, when referring to the Heads of Agreement Financing Clause, Meneilly said:
The omission in the Franchise Agreement was not intentional.
Mitchell adopted a similar position to Meneilly. In his Witness Statement at page 2, Mitchell said:
… I did not want to run the risk of the franchisee running out of funds because the $250,000 had all been spent on fit out costs, with further fit out costs being incurred and no more money available to finish the fit out. My intentions were at all times to honour this commitment and promise. A little later, on the 29th March 2007 the Franchisee Agreement was signed by both parties. … I did not realise at the time that the loan agreement between [Body Bronze] and Fehcorp was not included in the franchise agreement, but even if I had, it would have made no difference to me because in my mind I had made a promise to David [Fehrer], and if the conditions of the agreement were reached then I would definitely fulfil my side of the agreement.[11]
[11]Reasons [28]-[30].
Although his Honour made that express finding as to the intentions of Meneilly and Mitchell at the time the representation was made (in late February and early March 2007), he went on to consider whether that intention continued up to the time when the Franchise Agreement was entered into (on 29 March 2007). His Honour rejected Meneilly’s explanation that his failure to incorporate the finance arrangement in the Franchise Agreement was innocent, but declined to finally decide the issue of whether Body Bronze’s intention continued, saying:
Whether the intention of [Body Bronze] to honour the finance arrangement continued at the time at which the Franchise Agreement was entered into, [footnote omitted] is of little relevance if the cause of action under s.52(1) of the TPA is established by virtue of the findings which I have already made, and the intention of [Body Bronze] is of no relevance.[12]
[12]Reasons [96].
After citing some general propositions concerning the construction and operation of s 52,[13] his Honour concluded that the intention of Body Bronze when it made the representation was also irrelevant in determining whether a breach of s 52 had occurred.[14] Having so determined, his Honour then said:
[13]Namely, ‘The section should be understood as meaning precisely what it says and as involving no questions of intent upon the part of the corporation whose conduct is in question’, Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre (1978) 140 CLR 216, 228 (Stephen J); and, ‘… A corporation which has acted honestly and reasonably may therefore nevertheless be rendered liable to be restrained by injunction, and to pay damages, if its conduct has in fact misled or deceived or is likely to mislead or deceive … ‘, Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 197 (Gibbs CJ).
[14]Reasons [101].
In the circumstances in which I have found that:
(i)The representation was made by [Body Bronze] that it would honour the finance arrangement;
(ii)Fehcorp relied upon the representation and was induced by it to enter the Franchise Agreement;
(iii)The finance arrangement was not honoured by [Body Bronze] in circumstances in which it was obliged to do so;
I am satisfied that Fehcorp has established that [Body Bronze] has been guilty of misleading and deceptive conduct as defined by s.52(1) of the TPA.[15]
[15]Reasons [102].
In reaching this conclusion, his Honour fell into error.
It has long been held that the mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive even though the plaintiff has relied upon them and has altered his position on the faith of them.[16] Insofar as his Honour concluded that s 52 was contravened solely on the basis that Body Bronze failed to lend the money it said it would lend, after Fehcorp was induced to enter the Franchise Agreement on the faith of the representation, the conclusion was erroneous.
[16]Bill Acceptance Corporation Ltd v GWA Limited (1983) 78 FLR 171, 179 (Lockhart J).
Nevertheless, the representation relied upon is a representation as to future conduct, namely, that Body Bronze would, at some future point in time, lend funds to Fehcorp should a certain expenditure level be exceeded. A representation as to future conduct may contain an implied statement of existing fact, namely, that the promissor has a present intention to make good the promise, or that he has the means to do so. If such a representation is made when no intention or means to make it good exists, the representation may be misleading or deceptive.[17] In this context the intention and belief of the representor is relevant.
[17]HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640, 649 [13].
In this case the relevant representation carried with it the implication that Body Bronze had a present intention to lend the monies if the fit out cost exceeded $250,000, and had the means to make good that undertaking. His Honour’s findings extracted above explicitly deal with each of those two elements. He found that, at the time of the making of the representation, Body Bronze had the intention to lend the monies and the means to make good that promise.
Section 51A of the TPA facilitates the proof of a contravention of s 52 in respect of a representation as to future conduct by stipulating that such a representation made without reasonable grounds is taken to be misleading, and that unless the representor adduces evidence to the contrary it shall be deemed not to have had reasonable grounds for making the representation.
Therefore, unless his Honour’s declining to decide whether Body Bronze’s intention continued to the moment when the Franchise Agreement was entered into, undermines the position, the findings that Body Bronze intended to honour the promise and had the means of doing so, at the time the representation was made, establishes that Body Bronze had reasonable grounds for making the representation. In such circumstances there would be no basis for concluding that the representation was misleading or deceptive.
In my view his Honour’s failure to decide the continuing intent does not undermine the conclusion that Body Bronze had reasonable grounds for making the representation. That is so, first, because the character of the representation is determined at the time when it is made, even though that character may be determined by reference to later events.[18] Secondly, even if the representation is to be considered as a continuing representation, and its reasonable basis to be judged at the time that the relevant inducement occurred, in this case Fehcorp became contractually bound to enter the Franchise Agreement when it became party to the Heads on 6 February 2007. It was the Heads which bound Fehcorp to enter the Franchise Agreement, which it did on 29 March 2007. Accordingly, the relevant time of inducement was the time of entry into the Heads. His Honour’s positive findings as to Body Bronze’s intention and belief apply to that point in time.
[18]Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171, 178-179.
Thirdly, even if the relevant point in time to judge the reasonable basis for the representation was at the point of entry into the Franchise Agreement, on 29 March 2007, there was no evidence upon which his Honour could have displaced his conclusion that Body Bronze intended to honour the promise. Whatever doubts his Honour might have had about Meneilly’s intent, in this case the relevant intent of Body Bronze was that of its sole director, Mitchell. As his Honour concluded[19] Mitchell was the person through whom Body Bronze operated and by whom Body Bronze’s decisions were effectively made.
[19]Reasons [115].
On appeal Fehcorp sought to uphold his Honour’s conclusion that Body Bronze had breached s 52 by putting the following propositions:
•In analysing whether conduct is misleading or deceptive, the conduct of the defendant must be viewed as a whole;[20]
•Body Bronze’s representation that it would provide finance for excess fit out costs was unqualified and unconditional;
•Viewed from the perspective of Body Bronze’s later statements and conduct, its intention to honour its undertaking was in fact conditional because it did not regard itself as legally bound, but only morally bound, so that in truth the financing of excess fit out costs was at its discretion (or, at least, considered to be at its discretion);
•By failing to qualify its unconditional representation to give financial support by stating that it was only discretionary, Body Bronze engaged in misleading or deceptive conduct.
[20]Reference was made to BMW Australia Finance Ltd v Miller & Associates Insurance Broking Pty Ltd [2009] VSCA 117, 135 (Robson AJA).
In my view there are a number of flaws in these contentions.
The first is that there is no evidentiary support for the proposition that, at the time it made the representation, Body Bronze considered itself only to be bound in ‘honour’ and not at law, or that it believed the future funding of excess fit out costs was to be at its discretion. Indeed, such a conclusion flies in the face of his Honour’s express findings as set out above. His Honour’s conclusions were based upon the evidence of Mitchell, also set out above, which was expressed in the language of ‘promise’ and ‘agreement’. Secondly, it was found as a fact (on Fehcorp’s case) that Body Bronze was contractually bound by the finance arrangement. In those circumstances, it would have been a misrepresentation of the fact to say otherwise.
Mr Messer, who appeared for Fehcorp, argued that the true discretionary nature of Body Bronze’s undertaking could be seen from Body Bronze’s subsequent reliance upon the entire agreement clause in the Franchise Agreement as a means to avoid its obligation to lend more money. But, in my view, it is wrong to infer from that subsequent conduct a subjective state of mind, at the time when the representation was made, that Body Bronze did not intend to be legally bound by its undertaking. It merely denotes an attempt to avoid the contractual obligation to which it was subject. There was evidence which sufficiently explained Body Bronze’s change of mind and subsequent conduct. Body Bronze’s financial capacity changed as a result of a downturn in the industry when publicity was given to the death from skin cancer of a customer of tanning salons. Further, Fehcorp itself submitted that Body Bronze issued the March 2008 invoice because of its disenchantment with Fehrer taking a role in marshalling discontent amongst other franchisees towards Body Bronze.[21]
[21]Reasons [79] n 75.
In summary, the factual basis upon which Fehcorp sought to support the learned trial judge’s decision was lacking, and was contradicted by the learned trial judge’s own findings.
After concluding that Body Bronze had contravened s 52, without recourse to s 51A, the learned trial judge then separately considered the operation and impact of s 51A on the circumstances. This could only be done on the basis that the representation was with respect to future matters. There is no doubt that it was, but it is somewhat unclear why his Honour first analysed the conduct divorced from the facilitative provision of s 51A (except, perhaps, because that was the way Fehcorp pleaded its claim).[22]
[22]See above[20]-[22].
In any event the learned trial judge concluded:
On the basis of the findings of fact I have made, together with the reasons which I have given in support of my finding that [Body Bronze] was in breach of s.52(1) of the TPA, I am not satisfied in circumstances in which the TPA imposes an onus upon [Body Bronze], that it has discharged the onus to establish on the balance of probabilities that the representation which was made as to a future matter was not misleading as at the time at which the franchise agreement was entered into.
In these circumstances I am satisfied that the provisions of s.51A of the TPA operate so as to require a finding that as at the time the franchise agreement was executed, [Body Bronze] made a representation with respect to a future matter which was misleading because it did not have reasonable grounds for making the representation that it would honour the finance arrangement unconditionally, and as such that [Body Bronze] contravened the provisions of s.52(1) of the TPA.[23]
[23]Reasons [105]-[106].
With respect, it is difficult to follow this conclusion. His Honour does not explain which particular findings of fact, or reasons in support of his previous finding of contravention, led him not to be satisfied that Body Bronze had reasonable grounds for making the representation. It is particularly difficult to follow given that his Honour expressly found that Body Bronze did have genuine intent to fulfil its undertaking, and the means to do so, when it made the representation. Other than clause 15 in the Heads itself, and an email the day before its execution, the only other written basis for the representation was an email of 9 March 2007 when Body Bronze’s solicitors effectively repeated what clause 15 of the Heads had provided. There is no other finding of any further representation nearer to the date of executing the Franchise Agreement (29 March 2007). It was the combination of those three written communications which his Honour had characterised as the relevant representation when concluding, as he did, that Body Bronze had both the intent to honour it and the means to do so.
A non-finding as to the continuation of the intention to the point when the Franchise Agreement was executed does not explain why Body Bronze lacked reasonable grounds for the representation at the time of making it.
Furthermore, for reasons I have already explained, having made the express finding regarding Body Bronze’s intention and means at the time of making the representation, his Honour’s rejection of Meneilly’s explanation that his failure to incorporate the finance arrangement in the Franchise Agreement was innocent did not justify concluding that Body Bronze lacked reasonable grounds for the representation at the time of entering into the Franchise Agreement.
It follows from these considerations that the learned trial judge was in error in concluding that Body Bronze contravened s 52 of the TPA.
(c) Accessorial liability for breach of s 52
If there is no contravention of s 52 by Body Bronze, neither Mitchell nor Meneilly could be ‘involved’ in any such contravention so as to be liable to Fehcorp for damages under that Head.
Nevertheless, counsel for Meneilly and Mitchell also argued that there was no proper basis upon which his Honour could conclude that Meneilly or Mitchell were involved in a breach by Body Bronze of s 52, even if such breach was upheld. The relevant hypothesis for Body Bronze’s breach of s 52, in respect of which Meneilly’s and Mitchell’s involvement is to be evaluated, must be that Body Bronze lacked reasonable grounds for making the representation; that is, that it either did not intend to honour its promise, or had no means to do so, or both.
In this case, Fehcorp relies upon s 75B(1)(a) (aiding, abetting, counselling or procuring a contravention) and s 75B(1)(c) (directly or indirectly, knowingly concerned in, or party to, contravention) of the TPA. To be liable under s 75B(1)(a) it must be found that the defendant intentionally aided, abetted, counselled or procured a contravention and, to prove the requisite intent, it must be proven that the defendant had knowledge, not only of the making of the representation, but also of its falsity.[24] To establish whether a defendant is liable under s 75B(1)(c) it must be established that the defendant had knowledge of the essential facts constituting the contravention,[25] again requiring proof that the defendant knew of the falsity of the representation.
[24]Yorke v Lucas (1985) 158 CLR 661, 667.
[25]Ibid 670.
Furthermore, whilst s 51A assists proof in relation to a representation by a corporation with respect to a future matter by deeming lack of reasonable grounds unless that corporation adduces evidence to the contrary, the benefit of that provision does not apply in a claim against those said to be involved in the contravention.[26] As stated in Quinlivan v ACCC[27] by the Full Federal Court:
However, as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that
• the representation was made and
•it was misleading or
•the corporation had no reasonable grounds for making it.[28]
[26]Section 51A, by its terms, only applies to the provisions of Part V Division 1, whereas s 75B appears in Part VI of the Act.
[27]Quinlivan v Australian Competition & Consumer Commission [2004] 160 FCR 1.
[28]Ibid 15.
No findings were made by the learned trial judge that either Meneilly or Mitchell knew, when Body Bronze made the representation, that it had no reasonable grounds for making it. Put in more specific terms, there was no finding that either Meneilly or Mitchell knew that Body Bronze did not intend to fulfil its contractual obligation or that it did not have the financial means to perform it. Indeed, the evidence accepted by the learned trial judge was to the opposite effect.
Even if, contrary to my previously expressed view, Fehcorp could employ s 51A and the failure of Body Bronze to prove that it intended to fulfil its contractual obligation at the time of entering the Franchise Agreement, to establish a contravention of s 52 against Body Bronze, that does not assist Fehcorp in establishing that either Meneilly or Mitchell were involved in such contravention.
The learned trial judge reasoned that Meneilly and Mitchell were each involved in Body Bronze’s contravention because each were closely involved in the negotiations giving rise to the making of the finance arrangement and the decision not to advance the loan to enable Fehcorp to pay the March 2008 invoice.[29] His Honour observed that Mitchell was the person who made decisions for Body Bronze and that Meneilly, as chief executive officer, was closely involved in the making of the finance arrangement and also supported Mitchell’s decision not to advance Fehcorp the loan in March 2008. Without more, his Honour concluded that Mitchell and Meneilly were ‘appropriately described as persons who have been involved’ in the contraventions.[30]
[29]Reasons [114].
[30]Reasons [117].
In my view, his Honour’s findings did not justify the conclusion that either man was relevantly involved in any contravention. Specifically, his Honour made no findings that either of them knew or believed the representation to be false either at the time it was made or at the time when the Franchise Agreement was entered into.
(d) Breach of s 51AC
Turning then to the learned trial judge’s conclusions with respect to contravention of s 51AC, that section provides:
(1) A corporation must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) …
engage in conduct that is, in all the circumstances, unconscionable.
Subsection (3) sets out a non-exhaustive list of matters to which the court may have regard in determining whether a corporation has contravened subsection (1). They include, in substance, the relative bargaining strengths of the parties; any requirement to comply with conditions not reasonably necessary for the protection of the supplier’s legitimate interests; the ability of the customer to understand documents; the use of undue influence or pressure or unfair tactics; the ability of the customer to source equivalent goods or services elsewhere; the extent to which the supplier’s conduct is consistent with conduct toward other customers in like transactions; the requirements of applicable industry codes; any unreasonable non-disclosure of intended conduct that might affect the customer’s interests, or of the risks to the customer associated with that conduct which would be known not to be apparent to the customer; any unwillingness to negotiate terms and conditions; any right to unilaterally vary terms and conditions; and the extent to which the conduct was in good faith.
Not only do these factors assist in comprehending the intended scope and meaning of unconscionable conduct prohibited by the section, but they also provide a useful, although non-exhaustive, set of factors by which to test the particular conduct in question.
Fehcorp’s case in respect of unconscionable conduct focused on the conduct of Body Bronze in March 2008 – that is, in refusing to lend money, serving the notice and taking possession of the premises. The learned trial judge summarised the claim in these terms:
In essence, it is Fehcorp’s position that [Body Bronze] in enforcing the strict contractual rights under the Franchise Agreement, in circumstances in which it had given an assurance that induced Fehcorp to enter the Franchise Agreement which involved the payment of the very invoice which [Body Bronze] relied upon in its Breach Notice, was guilty of unconscionable conduct.[31]
[31]Reasons [108].
In concluding that Body Bronze had engaged in unconscionable conduct his Honour relied upon three matters – first, Body Bronze’s knowledge of the importance of the finance arrangement to Fehcorp in deciding to enter the Franchise Agreement, and being able to operate the tanning salon business;[32] secondly, the relative strengths of Fehcorp and Body Bronze in terms of experience and financial resources;[33] and, thirdly, the circumstances in which Body Bronze came to exclude Fehcorp from the tanning salon business.[34]
[32]Reasons [110].
[33]Reasons [111].
[34]Reasons [112].
The first matter requires no further elaboration and was not disputed. In respect of the second matter, the relative strength of the parties, his Honour referred to the fact that Fehcorp conducted its business through Fehrer who was a young and relatively inexperienced businessman, that Body Bronze was aware he had extended his level of debt to the limit of his financial resources, and that Body Bronze was a large and well experienced franchisor with ready access to funds required by Fehcorp to complete the fit out.
Regarding the third matter, the circumstances of excluding Fehcorp from the business, his Honour referred back to various findings of fact which he had already made in the course of his reasons with respect to the s 52 claim. In substance they were:[35]
•By mid-October 2007 Body Bronze must have known that Fehcorp’s fit out expenses would probably exceed $250,000;
•When Body Bronze commenced providing loans to Fehcorp after October 2007 it was because Meneilly and Mitchell accepted that the trigger point had probably been reached;
•Body Bronze’s failure thereafter to continue to make payments was not related to any concern that the trigger point had not been reached; rather, there was considerable force in the submission that the reason for issuing the March 2008 invoice was its disenchantment with Fehrer’s activities amongst other franchisees of Body Bronze and preparing a letter containing certain demands;
•By insisting Fehcorp pay the March 2008 invoice Body Bronze breached the finance arrangement, and its conduct in taking possession of the salon premises was unjustified;
•The purpose of serving the notice of breach in March 2008 was not to bring Fehcorp to a negotiating position, as claimed, but must have been to bring the Franchise Agreement to an end.
[35]These findings are ascertained by referring back to the various paragraphs in the Reasons listed in the footnote to [112], and in some cases to footnotes to those paragraphs.
In this Court the appellants did not appear to take issue with these last mentioned findings, but they did challenge the trial judge’s conclusions on the relative strength of the parties as being both incomplete and inaccurate. In particular they pointed to the evidence before the learned trial judge, not apparently challenged, that -
•David Fehrer was a 27 year old, tertiary educated person who had worked as an IT professional for some years and had previously run a business for three years;
•Fehcorp retained a solicitor prior to entering the Heads, and that solicitor advised Fehcorp in relation to the Heads, the Franchise Agreement and continued to advise Fehcorp throughout February 2008;
•The original version of the Heads did not include the finance obligation (clause 15) which was added at the insistence of Fehrer;
•Body Bronze did not retain its own lawyers in respect of the Heads or Franchise Agreement;
•Mr Fehrer’s father attended a meeting with Body Bronze with David Fehrer prior to entering the Heads;
•There was a significant downturn in the industry from about 2007 onwards after the publicity given to the death of a tanning salon customer, resulting in funds being tight for Body Bronze;
•By February 2008 Body Bronze was finding David Fehrer very difficult to deal with such that the relationship between franchisor and franchisee was breaking down.
No real analysis was undertaken by the learned trial judge as to how the so-called positional strengths or weaknesses of the parties was relevant to any aspect of the conduct in 2008 or its consequences. Neither is it evident to me that there was any misuse of positional strength between the parties, either at the stage of negotiating the Heads and Franchise Agreement, or around the time of the service of the notice of breach and the entry into possession of the business.
Moreover, it is apparent from the correspondence that passed between solicitors for the parties immediately after Body Bronze took possession of the premises, in April 2008, that Fehcorp took the position that re-entry into the premises and business constituted a repudiation by Body Bronze of the Franchise Agreement, which repudiation Fehcorp accepted. That was a position it was entitled to take. It might have taken other measures, such as seeking injunctive relief. There is no suggestion that some positional disadvantage on the part of Fehcorp constrained it in its response to Body Bronze’s repudiation.
The circumstances which I have described do not, in my view, denote any misuse of bargaining positions between the parties, nor was there any relevant mismatch in their relative strengths. Indeed, in the appeal, counsel for Fehcorp expressly disavowed any reliance upon the relative strengths of the bargaining positions, experience or financial resources of the parties as a matter relevant, in this case, to whether unconscionable conduct had occurred. Accordingly, I do not consider that the positional strengths of the parties relevantly bear upon the question of unconscionable conduct in this case.
It is left then to consider whether the remaining facts to which his Honour referred, or any further relevant contextual facts, justify a conclusion that Body Bronze engaged in unconscionable conduct. Before doing so it is necessary to pay closer attention to the meaning of unconscionable conduct in the context of s 51AC of the TPA.
The meaning of unconscionable conduct under s 51AC has been contrasted with the meaning of the same phrase as it appears in s 51AA of the TPA where it is accompanied by the qualifying words ‘within the meaning of the unwritten law’. Those qualifying words are absent in s 51AC; rather, the proscribed conduct is conduct that is ‘in all the circumstances’ unconscionable.
Hence, whereas it has often been said[36] that the concept under s 51AA is confined in its operation by reference to specific equitable doctrines such as unconscientious exploitation of serious disadvantage,[37] undue influence,[38] equitable estoppel,[39] relief from forfeiture and penalties,[40] and contracts entered under unilateral mistake,[41] the concept under s 51AC is not so confined, and is ‘at large’.[42]
[36]Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491, [20]; Australian Competition and Consumer Commissioner v Simply No-Knead Franchising Pty Limited (2000) 104 FCR 253; Australian Competition and Consumer Commission v 4WD Systems Pty Limited (2003) 59 IPR 435.
[37]Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
[38]Louth v Diprose (1992) 175 CLR 621.
[39]Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Commonwealth v Verwayen (1990) 170 CLR 394.
[40]Legione v Hateley (1983) 152 CLR 406; Stern v McArthur (1988) 165 CLR 489.
[41]Taylor v Johnson (1983) 151 CLR 422.
[42]Australian Competition and Consumer Commissioner v Simply No-Knead Franchising Pty Limited (2000) 104 FCR 253, 266 [37].
Section 51AC prescribes a standard rather than a rule wherein the boundaries of its application are normative rather than logical.[43] In performing its task the Court is aided but not controlled by the factors listed in subsection (3).[44]
[43]Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd [2000] FCA 1376, [25].
[44]Australian Competition and Consumer Commissioner v Simply No-Knead Franchising Pty Limited (2000) 104 FCR 253, 266 [37].
In my view the relevant principles for the application of s 51AC have been most helpfully and concisely collected by Foster J in Australian Competition & Consumer Commission v Allphones Retail Pty Ltd (No 2)[45] in this way:
(a)The scope of s 51AC is wider than that of s 51AA. The meaning of unconscionable for the purposes of s 51AC is not limited to the meaning of the word according to established principles of common law and equity: per French J in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) [2000] FCA 2; (2000) 96 FCR 491 at [24] and [25] (p 503); per Sundberg J in Australian Competition and Consumer Commissioner v Simply No-Knead Franchising Pty Limited [2000] FCA 1365; (2000) 104 FCR 253 at [31] (p 265); per Selway J in Australian Competition and Consumer Commission v 4WD Systems Pty Limited (2003) 59 IPR 435 at [183] (p 487) and per Jacobson J in Pacific National (ACT) Limited v Queensland Rail (2006) 28 ATPR 46-268 (p 53,515) at [918] (p 53,527).
(b)The ordinary or dictionary meaning of unconscionable, which involves notions of serious misconduct or something which is clearly unfair or unreasonable, is picked up by the use of the word in s 51AC. When used in that section, the expression requires that the actions of the alleged contravenor show no regard for conscience, and be irreconcilable with what is right or reasonable. Inevitably the expression imports a pejorative moral judgment: per Heerey, Drummond and Emmett JJ in Hurley v McDonalds Australia Limited (2000) 22 ATPR 41-741 (p 40,578) at [22] (p 40,585). This helpful articulation of the meaning of the word when used in s 51AC was followed by Selway J in ACCC v 4WD Systems Pty Ltd (2003) 59 IPR 435 at [183]-[185] (pp 487-488) and by Sundberg J in ACCC v Simply No-Knead Franchising Pty Limited [2000] FCA 1365; (2000) 104 FCR 253 at [30] (p 264); and
(c)Normally, some moral fault or moral responsibility would be involved. This would not ordinarily be present if the critical actions are merely negligent. There would ordinarily need to be a deliberate (in the sense of intentional) act or at least a reckless act: per Selway J in ACCC v 4WD Systems Pty Ltd (2003) 59 IPR 435 at [185] (p 488).[46]
[45][2009] FCA 17.
[46]Ibid [113].
Picking up on the notions contained in paragraphs (b) and (c) of the extract above, it has also been said that the notion of unconscionable conduct requires ‘a high level of moral obloquy’.[47]
[47]Attorney-General (New South Wales) v World Best Holdings Ltd (2005) 63 NSWLR 557, [121]; Canon Australia Pty Ltd v Patton (2007) 244 ALR 759, 768 [43].
In applying these principles to conduct which involves the breach of a contract, it should be recognised that not every breach of contract, even a deliberate breach, necessarily involves the moral obloquy that the authorities suggest needs be present for unconscionable conduct in breach of s 51AC to be made out. Although it may be true that for an act to have that moral character it will usually be conduct that is intentional or at least reckless, it does not follow that any breach that is intentional necessarily has that moral character. As Weinberg J (as he then was) said in Macdonald v Australian Wool Innovation Ltd:[48]
Any promise that is deliberately broken could easily by characterised as ‘unconscionable’. That is not the sense in which the term is used in s 51AC.[49]
[48]Macdonald v Australian Wool Innovation Ltd [2005] FCA 105.
[49]Ibid [280].
A decision may be taken to break a contract because, upon rational commercial considerations, the burden of performance may be greater and more onerous than the liability to be incurred if the conduct amounts to breach. The party committing the breach may know that it will deliver to the opposite party an opportunity to exercise rights both under and outside the contract that flow from the breach, and that the opposite party has the means to exercise and enforce those rights. Those rights may include seeking injunctive relief to restrain the breach, accepting a repudiation of the contract so as to terminate executory obligations and seeking damages, or keeping the contract on foot and merely seeking damages. There may be nothing offensive to conscience in a commercial participant taking such a commercial decision in given circumstances. Whether or not it amounts to unconscionable conduct does not simply flow from it being a deliberate breach; it must be evaluated in ‘all the circumstances’.
The real question is what ‘more’ is required than conscious breach to convert it into unconscionable conduct. The answer to that question must, at least in part, lie in the value judgment of the particular decision maker. It means, of course, that minds can reasonably differ.
However some guidance in the exercise of that judgment is to be found in the list of matters to which s 51AC(3) directs the court to have regard. That judgment is not to be informed merely by a sense of distaste for the impugned conduct. No analysis was undertaken by the learned trial judge in this particular case of any of those considerations.
A survey of the full circumstances surrounding Body Bronze ‘enforcing the strict contractual rights’, identified by his Honour as constituting the unconscionable conduct, requires the following to be taken into account:
(a)Although the learned trial judge ultimately found that all of the costs claimed by Fehcorp as establishment costs were of that nature, the discussion by his Honour of the evidence[50] showed that there was genuine scope for debate – that is, whether they were establishment costs or merely operational. It could hardly be said that the issue was incontrovertible, especially in the absence of the full documentary picture which was available to the trial judge but not necessarily available to Body Bronze when being asked to pay;
(b)Body Bronze had lent a considerable amount of money before March 2008, some $19,000, indicating it had not been dismissive of its obligations or of Fehcorp’s needs;
(c)The relationship of franchisor/franchisee, a relationship where trust is notoriously important, had somewhat broken down. Without commenting on the merits of that breakdown, Body Bronze appears to have had some cause for concern about the future of that relationship given that Fehrer was becoming a channel of franchisee discontent;
(d)Body Bronze began to experience its own financial pressures, in part due to the market downturn already mentioned;
(e)Body Bronze’s conduct was not concealed, nor did its conduct deprive Fehcorp of time to act. Body Bronze foreshadowed its intention by serving a 14 day notice;
(f)Fehcorp was known by Body Bronze to have legal advisors, and it used them;
(g)Fehrer had shown himself to be somewhat astute towards his own interests and capable of acting to protect them – for example in March 2007 he ensured the Heads contained the finance arrangement and in October 2007 he successfully insisted upon Body Bronze lending monies when it was reluctant to do so;
(h)Fehcorp was not compelled to accept Body Bronze’s repudiation but presumably considered it to be in its ultimate commercial interests to do so.
[50]Reasons [43]-[53].
An analysis of all of the circumstances by reference to the considerations in s 51AC(3) tends against the conclusion that Body Bronze engaged in unconscionable conduct. That is to say:
•As previously discussed, there is no relevant mismatch of bargaining position or power;
•Body Bronze may not unreasonably have considered that the step of terminating the franchise, or at least resisting further loans, was necessary for its own legitimate commercial interests;
•Fehcorp had no difficulty in understanding the relevant documents (eg the Heads, Franchise Agreement, the notice of breach etc);
•There is no undue influence, and Body Bronze’s tactics, although amounting to breach, were not unfair in any sense of exploiting some disadvantage on the part of Fehcorp;
•Body Bronze’s intended conduct was not concealed, rather it was disclosed in the notice of breach as were the risks which its intended conduct carried for Fehcorp;
•This was not a situation where Fehcorp was reliant upon Body Bronze acting in good faith; rather, it had the benefit of a contractual promise. It had contractual remedies, which it has exercised effectively. I do not regard the consideration of good faith to be prominent in this circumstance.
In my view, Body Bronze’s conduct in declining to lend more money, issuing a notice of default, and taking the risk of breach by taking possession, is neither attended by a high degree of moral obloquy nor irreconcilable with what is right or reasonable, nor does it demonstrate that Body Bronze showed no regard for conscience. I say so particularly because of the looseness of the language of the promise to lend, the visibility (or lack of it) Body Bronze had of all the relevant information relating to the nature of Fehcorp’s expenditure, the scope for debate about the character of all the payments, Body Bronze’s own tight financial position, its concern about the workability of its relationship with Fehcorp, and that it foreshadowed its action to Fehcorp whom it knew had access to legal advice and a demonstrated capacity to employ such advice effectively.
I also hold that view notwithstanding the findings by the learned trial judge that Body Bronze believed that the trigger for its loan obligation had been reached at relevant times, and that the purpose in serving the notice must have been to bring the Franchise Agreement to an end.[51]
[51]Reasons [85].
Fehcorp placed particular reliance upon the joint judgment of Mason and Deane JJ in Legione v Hateley[52] who, in the context of considering relief against forfeiture of an interest in land, applied the principle that a party having a legal right should not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct.[53] Their Honours were there considering the principle that should apply when a purchaser under a contract for the sale of land fails to make a payment, breaching an essential term, giving the vendor the right to rescind and thereby causing the purchaser to forfeit the interest in the land. This, of course, is not such a case. Nonetheless, their Honours were of the view that specific performance of the contract, in favour of such a purchaser, should only be granted in exceptional circumstances. Such exceptional circumstances would hinge on the existence of unconscionable conduct which may exist when the vendor has caused or contributed to the purchaser’s breach.[54]
[52](1983) 152 CLR 406.
[53]Ibid 444.
[54]Ibid 449.
From what their Honours said, I do not derive any general principle that the termination of a contract by party A due to the breach by party B which has in fact been caused by party A, is in all cases unconscionable. Whilst it may be an example of a circumstance which, in a given instance, may be accompanied by conduct that is unconscionable, it will always depend upon the facts of the particular case.
Further, and in any event, the premise for the operation of any such principle does not apply to this particular case. Body Bronze did not ‘enforce its legal rights’ to terminate the Franchise Agreement. As already explained,[55] the learned trial judge was correct in holding that Body Bronze was not entitled to rely upon Fehcorp’s failure to meet the March invoice to enter possession and terminate the franchise. By purporting to do so Body Bronze repudiated the agreement, which repudiation Fehcorp accepted. Legione does not assist Fehcorp in this case.
[55]See above [40].
In my view, Body Bronze’s conduct was not of the kind that was, in all the circumstances, unconscionable in contravention of s 51AC.
In view of the conclusion I have reached that Body Bronze did not contravene s 51AC, it is unnecessary for me to consider the question whether Mitchell or Meneilly were involved in any such contravention.
Conclusion
It follows from my conclusion that Body Bronze did not contravene either s 51AC or s 52 of the TPA that neither Mitchell nor Meneilly were or could have been involved in the alleged contraventions. Accordingly, neither were liable for the damages assessed in favour of Fehcorp.
The appeal should be allowed.
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