Damages and compensation - Trade practices - Misleading or deceptive conduct - Causation - Appropriate relief under s 87(2) of the Trade Practices Act 1974

Legislation:

Fair Trading Act 1987 (WA) s 9, s 10, s 77, s 79
Trade Practices Act 1974 (Cth) s 51A, s 52, s 82, s 87

Result:

Judgment for the plaintiff

Representation:

Counsel:

Plaintiff:     Mr A P Hershowitz
First defendant             :     Mr S R Sirett
Second defendant         :     Mr S R Sirett

Solicitors:

Plaintiff:     Holborn Lenhoff Massey
First defendant             :     Downings Legal
Second defendant         :     Downings Legal

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

Akron Securities v Iliffe (1997) 41 NSWLR 353
Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41‑043
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367
Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31
Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
Kewside Pty Ltd v Warman International Ltd (1990) ATPR 41‑012
Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281
Lezam Pty Ltd v Seabridge Australia Pty Ltd [1992] FCA 206; (1992) 35 FCR 535
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494
Oraka Pty Ltd v Leda Holdings Ltd (1997) ATPR 41‑558
Petera Pty Ltd v EAJ Pty Ltd [1985] FCA 277; (1985) 7 FCR 375
Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324
The City of Sydney v Streetscape Projects (Australia) Pty Ltd [2011] NSWSC 1214
Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514
Warwick Entertainment Centre Pty Ltd & Anor v Alpine Holdings Pty Ltd & Ors [2005] WASCA 174
Watson v Foxman (1995) 49 NSWLR 316

STAVRIANOU DCJ:

Introduction

This action arises out of an agreement entered into by Heather Mary Campbell with Kiss Café Franchising Pty Ltd (KCF) on or about 1 August 2008 for the grant to her of a franchise to establish and operate a Kiss Café business.
Rosal Tania Mullins was at all relevant times a director of KCF.
Ms Campbell pleads against KCF and Mrs Mullins causes of action arising under s 52 and s 82 of the Trade Practices Act 1974 (TPA). She seeks an order under s 87 of the that the franchise agreement be rescinded ab initio and the price paid refunded to her. Claims are also made pursuant to similar provisions of the Fair Trading Act 1987 (FTA).
Ms Campbell's case is that she entered into the franchise agreement because of representations made to her by Mrs Mullins on behalf of KCF.
The representations relied upon are:
1.The profit margin of the franchise would be 72%.
2.Ms Campbell could expect to derive takings Mondays to Fridays from the franchise of $600 per day.
It is the making of these representations which is said to have constituted misleading and deceptive conduct in contravention of the TPA and the FTA.
KCF and Mrs Mullins deny making the alleged representations and that any statements made were relied upon. The principal factual controversy concerns what Mrs Mullins said to Ms Campbell.
KCF counterclaims $1,857 pursuant to the franchise agreement.

Factual background

In 2002 Mrs Mullins began operating a mobile coffee van under the style of 'Kiss Café'. On weekdays workplaces were the primary source of custom. On weekends it was patrons attending fetes, shows and sporting events.
In about 2004 KCF commenced granting franchises for the operation of Kiss Cafés within Western Australia. By about 2008 when Mrs Mullins first met Ms Campbell, there were eight franchises operating. At that time Mrs Mullins was operating a Kiss Café in a combined area of Belmont and Redcliffe. KCF and Mrs Mullins were looking to expand the franchise business.
In 2002 Ms Campbell ceased employment as a school teacher and began working with her partner Matthew Purser on his farm. Together they also operated an ice cream van.
Ms Campbell and Mrs Mullins first met at a weekend fair. At the time Ms Campbell was assisting Mr Purser with the ice cream van. Mrs Mullins was operating her Kiss Café van. Ms Campbell was interested in the Kiss Café and spoke to Mrs Mullins about the possibility of acquiring a franchise.
Ms Campbell asked about the franchise business, the franchise areas available, whether the franchise business was easy to operate and what would be involved in making further investigations. Mrs Mullins told her that a franchise for the Redcliffe area was available and it was a potential area to be taken over. When Mrs Mullins offered Ms Campbell the Redcliffe area as a possible franchise, it was not a new area in the sense that it had not been previously serviced. Mrs Mullins told Ms Campbell the franchise was a business that could easily be operated by one person, primarily on weekdays with some extra work on weekends. Ms Campbell was interested and when Mrs Mullins suggested she accompany her on rounds to view the operation of the business she took up the opportunity. It was during the rounds (in Belmont and Redcliffe) in April 2008 that Ms Campbell says the representations were made.
On 21 April 2008 Ms Campbell and Mrs Mullins had a general discussion at Mrs Mullins' home in relation to the franchise business. On that date Ms Campbell signed a confidentiality undertaking at the request of KCF and Mrs Mullins. The undertaking related to information to be supplied in relation to the KCF system. The document in its terms refers to a request for information having been made 'regarding the Kiss Café franchise system and the principals and managers of the franchisor in order to evaluate the merits of purchasing a Kiss Café franchise business'. Ms Campbell's evidence was that it was a document she was 'just given to sign'. After she signed it she went on further rounds with Mrs Mullins in Redcliffe and Belmont and subsequently attended with another franchisee (Joanna) on one of her rounds. She was also provided with some documentation by KCF's solicitors. However none of the documents contained information as to potential turnover or earnings. Subsequent to the meeting Ms Campbell did go on further rounds.
On 22 May 2008 Ms Campbell met with her accountant, Bradley Robert Woodgate in relation to the proposed purchase. She subsequently sought legal advice in relation to the franchise agreement.
On 14 June 2008 Mrs Mullins produced a document particularising her takings for Redcliffe and Belmont for the period from 12 November 2007 to 14 June 2008. The document was forwarded by her to Ms Campbell's financier, Creditflex, to enable her to obtain finance. Ms Campbell did not ever see the document.
On 19 June 2008 Ms Campbell sent a fax to Mrs Mullins thanking her for the suggestion that she attend with Joanna on her rounds.
At about that time Ms Campbell decided to proceed with the franchise and on 24 June 2008 Ms Campbell sent a fax to Mrs Mullins indicating a start date of 14 July 2008. The van and equipment were prepared by KCF and by about mid July 2008 Ms Campbell began operating the van on her own account as a franchisee. This was within the territory of Redcliffe. At that stage she had not paid the purchase price or signed the franchise agreement.
On 19 July 2008 Ms Campbell signed a document entitled 'Franchisee Certificate'. Thereafter the franchise agreement was signed.
On or about 1 August 2008 KCF sent an invoice in the sum of $129,584.06 to Ms Campbell in relation to the franchise business. Of that sum $35,000 plus GST of $3,500 was described as a franchise fee and $70,000 was described as the 'Kiss Café Mobile Café'. There was also an amount of $2,500 plus GST described as an 'initial marketing fund contribution' and $2,500 plus GST for 'launch promotion amount'. The price was paid by Ms Campbell to KCF in about October 2008.
After she commenced operating the franchise business the daily takings were not as Mrs Mullins had predicted. Nevertheless Ms Campbell continued in the operation. She spoke to Mrs Mullins about the position. By about late 2008/early 2009 Ms Campbell's financial position had significantly deteriorated. She found it difficult to meet her commitments.
On 20 February 2009 she sent an email to Mrs Mullins in relation to the operation of the business. She stated:
Matthew will be paying my fees for the next few months as I am simply not making enough myself to cover franchise commitments and day to day running costs …
Mrs Mullins replied on the same day stating that it was 'time to talk about your business and how you are going'.
On 24 February 2009 Mrs Mullins sent an email to Ms Campbell stating that she should attempt to reach a target of $500 per day.
On 27 May 2009 and 28 May 2009 there was an exchange of emails between Mrs Mullins and Ms Campbell concerning a meeting to discuss the operation of the business.
On 29 May 2009 Ms Campbell wrote to Mrs Mullins concerning the business. The letter referred to Ms Campbell having provided $130,000 in good faith to purchase a profitable business. There was no mention of the representations.
On 10 June 2009 there was a further exchange of emails in relation to a possible meeting.
On 26 June 2009 Ms Campbell sent an email to Mrs Mullins in which she referred to her takings not being improved and that she was 'very worried about them'.
On 14 August 2009 Mrs Mullins sent an email to Ms Campbell in which she referred to having a meeting and 'your plans with Kiss Café and what you see as your future within the franchise'. On 14 August 2009 Ms Campbell responded that she was seeking 'professional advice regarding my business and as soon as I am fully informed I will get back to you'.
On 27 August 2009 Mrs Mullins sent an email to Ms Campbell seeking confirmation of a proposed meeting. Ms Campbell's response the next day was that she was waiting for advice from 'my accountant etc'.
In September 2009 Ms Campbell sought advice from Mr Jules Lewin, a solicitor. She wrote to him on 8 September 2009 and attached a document setting out her 'financial concerns'. In the document she recorded what she had been told as to the profit and expected daily takings of the business.
On 9 September 2009 Mrs Mullins sent an email to Ms Campbell suggesting that 'the best way to discuss your expectation would be face to face or you can bullet point your expectations so I can at least address them'.
On 9 September 2009 Mr Lewin wrote to KCF requesting a cancellation of the agreement on the ground of Ms Campbell's ill health. A medical certificate was attached. There was no mention in the very short letter of representations having been made by Mrs Mullins. In her evidence Ms Campbell said that she was looking for a resolution and for that reason the representations were not referred to. She was unable to continue with the franchise business because she was not making enough money to cover her costs and her health was being affected. The request to cancel was rejected by KCF.
On 2 October 2009 Ms Campbell wrote to Mrs Mullins stating that she would be taking extended leave from her round for health reasons 'effective as of Monday 5 October 2009'. Ms Campbell thereafter made arrangements with the franchisee of the Belmont area, Mr Larcombe, to operate in Redcliffe in her absence.
On 14 October 2009 Mrs Mullin's solicitors sent an email to Ms Campbell's solicitors indicating that she was agreeable to Mr Larcombe operating the franchise on an interim basis up to and including 31 October 2009.
On 4 November 2009 the solicitors for KCF and Mrs Mullins wrote to Ms Campbell's solicitor alleging breach and repudiation of the franchise agreement.
On 19 November 2009 KCF served a written notice of termination of the franchise agreement on Ms Campbell. Thereafter on an unknown date the van and equipment were sold.

Ms Campbell appraises the business

Subsequent to their first meeting Ms Campbell telephoned Mrs Mullins about the proposed franchise business and expressed interest in it.
Ms Campbell as part of her research into the business looked at the website for Kiss Café. When she did this she saw that it said 'Typically we would expect a fully trained franchisee to earn around $100 per hour'. This was done before she went on the rounds.
Ms Campbell went on the rounds as she was interested to know what the earnings would be. She was involved in handling cash and selling product. However she had not remained for the entire duration of a round and was therefore was not in the position to assess takings. When she first went on the rounds she had not been provided with any documents relating to the operation of the business. Attendance on the rounds was an opportunity for KCF to progress a possible sale of a franchise business to Ms Campbell.
When Ms Campbell saw Mr Woodgate she asked him to prepare a budget for the proposed business. She gave him photocopies from the back of a disclosure document which outlined in general terms start‑up costs for the business. She told him how the business operated. This was based on information she obtained when she was on the rounds.
It was Mr Woodgate's evidence that Ms Campbell told him that she had been told by Mrs Mullins that she could expect daily takings of $600 per day, Monday to Friday and that the profit margin would be 72%. Ms Campbell said she told Mr Woodgate that weekend work was an option to earn extra income. They discussed fluctuations in earnings because of weather and holiday periods. It was his evidence he was told by her that the turnover for a low day was $550 and for a high day $800. Mr Woodgate made a diary note as to the range.
Mr Woodgate's evidence was that he discussed the takings figures with Ms Campbell and arrived at an average daily takings figure of $650. This was on the basis that there would be a change made by Ms Campbell in the product which would increase turnover.
When Mr Woodgate prepared the budget he did not rely upon the 72% profit which Ms Campbell told him Mrs Mullins had said. However he did note that 'the business was currently running at 28%'. He adopted a figure of 68% because he considered the effective product cost of 28% was too low. Mr Woodgate assumed that when Ms Campbell referred to a profit of 72% this meant a gross profit.
Mr Woodgate analysed the information provided and subsequently told Ms Campbell that he believed it was a sound business. The budget he produced was discussed with Ms Campbell. It was prepared on the basis of the information provided by Ms Campbell and received by her from Mrs Mullins. When he spoke to her he told her how the figures contained in the budget were arrived at. Mr Woodgate utilised a takings figure of $650 per day for 260 days to arrive at a turnover of $69,000. In her evidence Ms Campbell explained that the takings were not reduced because of the 'leeway in the profit margin'.
Mr Woodgate's evidence was clear and concise and his contemporaneous written record in the form of his diary note and the profit and loss statement containing the annotation of 28% supported his evidence.
Mr Woodgate's relationship with Ms Campbell was one of client and accountant. He had not gone over with her prior to giving evidence what had been said at the meeting on 22 May 2008. I have no hesitation in accepting his evidence.
Ms Campbell perused Mr Woodgate's budget and this provided her with confidence in moving forward with the purchase.
In early July 2008 KCF's solicitors sent a disclosure document and a draft franchise agreement to Ms Campbell. The disclosure document is dated 3 July 2008. Neither document contained any predictions as to daily takings. The draft franchise agreement described Mr Purser as a guarantor. He was not so included in the final form of agreement. Ms Campbell did obtain legal advice. She did this because this was a requirement imposed by KCF. She went through the documents with a lawyer to see if there were any problems. The purpose of seeking advice was not to decide if the business was profitable. She spent about an hour with the lawyer who advised her that it was 'a standard franchise document'. The lawyer had gone through the general structure of the document with her. He had not taken her through cl 50 which referred to there having been no representations made.
When Ms Campbell sought legal and accounting advice she did not have the franchise agreement which she ultimately signed. The franchise agreement she was provided with was a draft.

Documents signed by Ms Campbell

Before Ms Campbell signed the franchise agreement she was provided by KCF and Mrs Mullins with documents described as a disclosure document and a franchise certificate. Each contained references to earnings and representations. KCF and Mrs Mullins rely upon each document as well as upon the agreement in support of the propositions that there were no representations made as alleged and that any representations made were not relied upon.
Clause 19 of the document provides:
19.Earnings Information
IMPORTANT

The Franchisor does not give earnings information about a Kiss Café Franchise.

Earnings may vary between Franchises.

The Franchisor cannot estimate earnings for a particular Franchise.

No representation is made by the franchisor or any person on its behalf as to the turnover, profitability or earnings of the franchised business. Turnover and sales may vary substantially between franchises. The franchisor does not know what turnover or sales will be achieved, particularly by an untested location for a franchise.
A franchisee must conduct its own enquiries and investigations with respect to the likely turnover of the franchised business.
The franchisee accepts that all businesses involve some element of risk and accepts the business risk associated with acquiring and operating the franchise.
The franchisor encourages the franchisee to make its own enquiries of existing Kiss Café franchisees (see item 6.2 of the disclosure document for contact details), with the purpose of coming to its own view as to the likely turnover of the franchise business. The franchisee should also seek the advice of a suitably qualified and experienced accountant and business adviser in this regard.

The disclosure document does not contain a definition of 'earnings'.
Ms Campbell was asked about cl 19. It was her evidence she did not expect Mrs Mullins to be able to predict the earnings because she would not have had a clear idea of personal business costs. In other words, her understanding of cl 19 was that Mrs Mullins and KCF could not estimate earnings because they did not have information as to her personal business costs. She repeated when asked about cl 19 her earlier evidence that she had been told she could expect to make $600 a day and the profit would be 72%. Ms Campbell was also asked about the reference to turnover. It was her evidence this was a reference to the turnover of a business in a financial year. She was also asked about the reference to profitability and said that 'profitability was what you're left with the end of your takings after having paid all your business costs'. It was put to Ms Campbell that the effect of cl 19 was that there was no representation as to profitability including gross profits. Her response was that she saw it 'to mean the end profitability' and Mrs Mullins had never said to her how much money Ms Campbell would be left with.

Annexed to the disclosure statement was a financial report for KCF for the year ended 30 June 2006. The profit and loss statement for KCF indicated that for the years ended 30 June 2005 and 30 June 2006 the KCF income was derived from two sources, franchise sales and franchise service fees. For the year ended 30 June 2006 the KCF net profit was $48,335. KCF's financial statements for the year ended 30 June 2008 show income from franchise sales of $90,000 and franchise service fees of $56,550 with a profit before income tax of $83,369.
The second document was the 'Franchisee Certificate'. In the certificate Ms Campbell acknowledged that she had received independent legal advice and independent accounting advice. The certificate contains in a box on the first page what is described as a 'warning'. There then follows a series of acknowledgements and statements requiring Ms Campbell to either tick yes or no. The certificate has annexed to it signed statements from a solicitor and from Mr Woodgate in which each acknowledge that they had provided advice in relation to Ms Campbell's entry into the agreement.
Under the heading of representations the certificate reads:
The franchisee acknowledges no promises or representations have been made to induce the franchisee to enter into the franchise agreement.
On the next page appears a question in relation to turnover as follows:
Was a representation made about your potential turnover of the franchise products or services?
There was a further question in relation to expected profit which read:
Was a representation made about expected profit for the sale?
Ms Campbell ticked the 'No' box in response to each question.
The franchise agreement is in writing and undated. It was signed on or about 1 August 2008. The term of the franchise is five years commencing on 23 July 2008. The geographical boundaries of the territory granted are shown in a plan which is a schedule to the agreement and is described as 'Redcliffe'. In addition to the price Ms Campbell was required by the franchise agreement to pay a monthly marketing levy of $375 and a monthly franchise service fee of $690.
Clause 48 of the franchise agreement contains a number of acknowledgements, warranties and covenants by Ms Campbell. Relevantly, there is an acknowledgement that she has read and understood the disclosure document and the franchise agreement. There is a covenant requiring her to produce a certificate from an independent legal adviser and independent accountant that she has received advice as to the franchise agreement.
Clause 50.1 reads:
Entire Agreement
The Parties acknowledge that, to the extent permitted by law, this Agreement contains the entire agreement between them and the Franchisee and the Guarantor each acknowledge that no representation, warranty, inducement, or promise, other than those set out in the Disclosure Document have been made whether by Kiss Café or its agents or employees, or relied upon by the Franchisee or the Guarantor.
It was Ms Campbell's evidence that she had read the franchise agreement and the disclosure document but that this was 'arduous reading and she perhaps could have understood it greater'. The disclosure document comprised 260 pages. It included a disclosure document (31 pages), a draft franchise agreement (121 pages), financial statements and a copy of the Trade Practices (Industry Codes – Franchising) Regulations 1998 (54 pages). The documents were complex and detailed.
Later in these reasons the effect of the documents signed is considered. It is sufficient to note at this stage that as well as the obligations created by the contract the statutory context must also be considered.
As Gummow J said in Demagogue Pty Ltdv Ramensky [1992] FCA 557; (1992) 39 FCR 31 [37]:
It is well to bear in mind that whilst contractual rights subsisted between the parties their relationship is not governed simply by the general law as to vendor and purchaser. The legislation regulates the existence in the exercise of what would otherwise be the rights at general law and, in addition, it creates new rights and remedies.

Operation of the business

Ms Campbell began operating the franchise before she signed the franchise agreement. Mrs Mullins told her that the van was ready and she was free to collect it and begin trading. Ms Campbell had not had her finance approved when she began trading.
Ms Campbell's evidence was that after one month of operation she became very concerned as to how 'it was travelling'. This was because the daily takings were insufficient to cover business costs. The average daily takings for July 2008 were approximately $420 and for August 2008 approximately $393. Because the position had not improved she asked Mr Purser to check the figures. At that stage she implemented strategies to try to improve the situation but to no avail. She told Mrs Mullins about the difficulties she was experiencing and she suggested strategies to increase turnover.
During the time Ms Campbell operated the franchise the range of daily takings was $272 to $435 with an average throughout the entire period of $368.92. This was significantly below the expected income of $600 per day.
For the financial year ended 30 June 2009 the operation of the franchise business by Ms Campbell resulted in sales of $86,945, a gross trading profit of $32,949 and a net loss of $5,641. For the financial year ended 30 June 2010 there was a net loss of $20,349.
In the first half of 2009, there were exchanges of emails between Ms Campbell and Mrs Mullins concerning the operation of the business and the way it could be improved. A meeting was suggested to discuss the situation but this did not occur.
In August 2009 and September 2009 Ms Campbell sought advice from a finance broker and a solicitor. By October 2009 she had ceased operating the franchise business.
Ultimately on 19 November 2009 KCF terminated the franchise agreement for alleged breach. By that date Ms Campbell had obtained employment as a teacher and was not operating the franchise business.

Were the representations made?

Ms Campbell's case is that there were two oral representations. First, that the profit margin of the franchise business would be 72% and, secondly, that Ms Campbell could expect to derive takings Monday to Friday from the franchise business of $600 per day.
Ms Campbell's counsel abandoned any suggestion that the daily takings representation was a representation of present daily takings and submitted that this representation was only as to anticipated takings.
In opening counsel for KCF and Mrs Mullins submitted that 'it still remains the position of the defendants that no such representations were made'. In closing submissions counsel eschewed any suggestion that Ms Campbell had been untruthful. Relevantly he said:
As the evidence tumbled out in the course of this trial, your Honour, it's become clear that it would be wrong of the defendants to assert that Ms Campbell has lied to the court. This case, rather, in our submission, is a case of conflation of information rather than any deliberate deception, and I'll make that clear in these submissions. But we will say that bits and pieces of information had been gathered by Ms Campbell, to form a mistaken but very powerfully held belief that the two specific things that she alleges were said to her by Mrs Mullins about the profitability of the business.
Counsel for Ms Campbell submitted that notwithstanding the change of approach in closing of counsel for KCF and Mrs Mullins, the position was that Mrs Mullins' evidence was that she had never said anything to Ms Campbell about profitability, earnings or what could be earned.
KCF and Mrs Mullins submit that the making of the representations was improbable. The casual nature of the setting in which the statements were made and the absence of serious context of negotiations were matters which KCF and Mrs Mullins submitted were relevant in the assessment as to whether these statements were representations. Whilst it is the case that Ms Campbell provided limited detail as to the circumstances in which the daily taking representation was made, she was very firm in what she said had been said. It was made in circumstances where she had attended a number of rounds to assess the viability of the business. It was made in the context of her evaluating the business.
In examining and determining what was said, the oft cited observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 316, 318 ‑ 391, are apposite. His Honour said:
Where a party alleges that the conduct of another was misleading or deceptive within the meaning of s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act1987), it is ordinarily necessary for that party to prove to the reasonable satisfaction of the court: (1) what the alleged conduct was; and (2) circumstances which rendered the conduct misleading.
Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.
I accept that it must be proved that the statements recollected by Ms Campbell were not simply her interpretation of information gathered by her, including information provided by KCF and Mrs Mullins, but that the actual words said to have been spoken by Mrs Mullins had the meaning claimed.
Ms Campbell's evidence was that the first representation was made at the office of Australian Air Express. Ms Campbell was about to leave for the day. She said Mrs Mullins told her that the business profit was 72%. At the time Ms Campbell was in the van with Mrs Mullins. She understood the 72% to be the gross profit. Following a sale of product she would be left with 72% profit which then would be required to meet extra business expenses and would leave her with an income. She had not asked Mrs Mullins for an explanation as to what she had meant by the reference to 72%.
In her evidence‑in‑chief Mrs Mullins in answer to a question as to whether there were any discussions about the profitability of the franchise business answered 'No nothing specific, no'. She said she did not tell Ms Campbell the profit was 72%.
Ms Campbell's evidence was that she was interested to know what the franchise business could earn. She did not have any documentary evidence as to expected turnover or profit and Mrs Mullins was her source of information in this regard.
The second representation as to expected earnings was made when Ms Campbell was driving the van and Mrs Mullins was a passenger. Mrs Mullins told her that she could expect to make $600 per day. It was Ms Campbell's evidence that the reference to expected takings was the most important part of the conversation. She could not specifically remember other matters discussed. At that stage Ms Campbell had not made a decision as to whether to proceed with the purchase and wanted to obtain advice from her accountant.
In cross‑examination Ms Campbell was asked about the documents including the agreement which she had signed and the references to their having been no representations made. It was her evidence that she did not think that she could cross things out of documents and believed what Mrs Mullins had told her to be correct. She said that she had no idea that she would end up in the situation that she was in.
Ms Campbell's evidence was she needed to know in her own mind that the business was going to be strong and profitable. She would not have proceeded with the acquisition of the franchise business had she not received some information concerning the takings and profitability. I accept that to be the case. It accords with commonsense. Ms Campbell would not have proceeded with the purchase without the information.
Mrs Mullins' evidence was that she did not say to Ms Campbell words to the effect that she could expect daily takings of $600. She said she was not asked what the daily takings were and never offered any information about daily takings at all. It was her evidence Ms Campbell did not ask for any financial information and she did not provide any. She was adamant that she 'never tells anyone what they could earn'. I do not accept Mrs Mullins' evidence as to the provision of financial information and requests made by Ms Campbell. Ms Campbell was embarking on a significant purchase from a person who until about three months before had been unknown to her. Ms Campbell had no experience in the business. I do not accept she would have proceeded without financial information.
Mrs Mullins accepted that when she had spoken to Ms Campbell the Redcliffe area had done nothing like $600 per day.
Mrs Mullins accepted that any prospective franchisee including Ms Campbell would require to be provided with financial information prior to acquiring a franchise. Mrs Mullins accepted that Ms Campbell required a monthly income and would have been careful to ensure that what she was acquiring would generate an income for her. Ms Campbell was required to borrow the purchase price of $129,584.06. Her ability to service the loan commitment necessarily involved the franchise business being profitable. The earning potential and expenses of the franchise business were therefore critical to Ms Campbell.
After she had spoken to Mrs Mullins Ms Campbell told her partner Matthew Purser what had been said. The evidence of Mr Purser was adduced to rebut any suggestion of recent fabrication by Ms Campbell.
Mrs Mullins's evidence was that she advised Ms Campbell to seek financial advice and encouraged her to do so so as to ensure that the 'business would be suitable to their situation'.
Ms Campbell did take steps to obtain advice from Mr Woodgate. I accept that it is improbable that Ms Campbell would have sought financial and accounting advice in circumstances where she had no information in relation to the profitability or takings of the business.
From November 2007 Mrs Mullins had traded in the Redcliffe area in conjunction with the Belmont area and was familiar with the takings from the business and the gross profit from the operation. She was well placed to know exactly what Belmont and Redcliffe could earn and to provide financial information to a prospective purchaser. She was in a position to predict earnings, costings and takings. When specifically asked whether she was well placed to tell a prospective franchisee of earnings in the Redcliffe area she replied that it had been 'we don't – it was drilled into us early'. When the question was repeated she agreed that she was well placed to tell a prospective franchisee what the earnings for the Redcliffe area would be. She also agreed she was well placed at that time to say what the cost of sales was likely to be.
During the round Ms Campbell asked questions about the operation of the business. Mrs Mullins agreed that prospective franchisees would want information about earning potential and expenses of the business.
KCF and Mrs Mullins as part of their submission that the $600 per day was a conflation referred to the content of the Kiss Café website which referred to the ability of a franchisee to earn $100 per hour. Ms Campbell denied in her evidence that this was an idea she had 'got off the internet'. I accept her evidence in that regard. Mr Purser's evidence was that when he spoke to Ms Campbell he had said the internet statement 'actually meshes in with what Mrs Mullins has said'. I accept that Mr Purser was an honest and reliable witness. I do not accept that the $600 was a figure arrived at by Ms Campbell from a variety of sources including the KCF website as submitted by counsel for KCF and Mrs Mullins.
It was submitted on behalf of KCF and Mrs Mullins that an important circumstance in assessing whether the representations were made is that it was not until the issue of proceedings that Ms Campbell complained about representations to Mrs Mullins. It is the case that when Ms Campbell's solicitor wrote to the solicitor for KCF and Mrs Mullins in September 2009 there was no mention of the representations. However the communication was very short and needs to be understood in the context of Ms Campbell wishing to achieve a resolution. The reason why Mr Lewin did not raise the representations in the letter written by him on 9 September 2009 was explained by Ms Campbell on the basis that she did not want to create a situation and sought to exit from the relationship by mutual consent. I am satisfied that is a reasonable explanation in the circumstances.
The evidence of Ms Campbell, which I accept, was that she did express her concerns to Mrs Mullins as to takings, the level of costs and that she was not making enough money. In cross‑examination of Mrs Mullins the following exchange occurred:
HERSHOWITZ, MR: Now, the plaintiff Heather had made it known to you right – early on from the start of trading that the figures were low, didn't she? – Yes, she did.
And she wasn't able to meet her expenses? – Yes.
Yes. And she was – you knew she was trying her best to improve things. She was talking to you about it, trying different things? – Yes.
While specific allegations as to the representations were not raised by Ms Campbell until issue of the writ, there were clearly issues identified by Ms Campbell at an early stage in relation to turnover.
Ms Campbell did attend on rounds but not for the entire period and was therefore not in a position to assess takings. KCF and Mrs Mullins rely upon the lack of particularity as to the conversations. I have very carefully considered the evidence of Ms Campbell in this respect. I accept the submission that the most important aspect of what she was being told in relation to the business was its expected daily takings. The figure of $600 and the profit representation were the most important pieces of information she was receiving from Mrs Mullins. The reference to $600 per day was not a passing observation or comment.
Ms Campbell was clear in her evidence that she was told that the turnover of the franchise business would be $600 per day and that the profit from the franchise was 72%. It was specifically put to her in cross‑examination that her evidence in that regard was a recent fabrication. I do not accept that to be the case. I found Ms Campbell to be a straightforward and reliable witness. She made suitable concessions. For example, she accepted that she did handle money when she was with Mrs Mullins and that she had taken time to read the documents provided to her. Ms Campbell was an honest and reliable witness.
In contrast the evidence of Mrs Mullins was unconvincing. On a number of occasions during the cross‑examination of Mrs Mullins it was necessary for counsel to repeat his questions and to request an answer. She appeared determined in her evidence to maintain that there had not been disclosure of any financial information by her to Ms Campbell. The overall impression which I formed of the way in which Mrs Mullins gave her evidence was unfavourable. I prefer the evidence of Ms Campbell to that of Mrs Mullins.

Ms Campbell gave evidence that she would not have entered into the franchise if had she not received information concerning its earnings and profitability. I accept that to be the case.
Ms Campbell gave evidence that she did not understand the words 'potential turnover' and 'expect a profit' referred to in the franchisee certificate as matters which related to the gross profit representation and the daily earnings representation.
Mrs Mullins gave evidence that notwithstanding the provisions of the disclosure document and the franchise agreement, when requested to do so she did provide financial information and earnings information. She accepted that cl 19 'earnings information' of the disclosure document which contained the words 'The franchisor does not give earnings information about Kiss Café franchise' was not accurate and in fact she did provide earnings information on occasion. Mrs Mullins accepted that from time to time representations were made about earnings of a franchise business notwithstanding the clauses in the disclosure document.
KCF and Mrs Mullins were looking to expand the franchise business. The Redcliffe area was not a new area.
I accept that Mrs Mullins told Ms Campbell that she could expect to earn $600 per day from the Redcliffe franchise Monday to Friday and that the profit was 72%. I am satisfied on the balance of probabilities that each representation was made.
The words used by Mrs Mullins as to the expected takings and profit were clear. They were made by a proposed vendor/franchisor to a proposed purchaser/franchisee carrying out an assessment of the franchise. The statements were material and were understood by Ms Campbell as representations.
The representations were, I accept, made as stated by Ms Campbell. The references in the documents to there having been no representations made do not displace the view which I have formed as to what was said by Mrs Mullins.

Was there a contravention of s 52?

Section 52(1) of the TPA relevantly provided that a corporation shall not, in trade or commence, engage in conduct that is misleading or deceptive or likely to mislead or deceive. Section 10 of the FTA is in similar terms to s 52 of the TPA save that it proscribes misleading or deceptive conduct by a person.
The making of the representations by Mrs Mullins was conduct engaged in by KCF. It is admitted that at all material times KCF and Mrs Mullins acted in trade or commerce.
Whether conduct is misleading or deceptive is to be determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [102].
A representation in relation to a future matter is misleading if there were no reasonable grounds for making it (s 51A of TPA, s 9 of the FTA).
I accept that each representation was as to a future matter. KCF and Mrs Mullins did not plead or submit that if the representations were made there were reasonable grounds for making them. In any event the takings records establish that there could have been no reasonable grounds for the making of the daily takings representation.
In the case of a claim arising out of a contravention of s 52 of the Act the relevant question, in this context at least, is always one of reliance or inducement. If, as a result of misleading conduct, a person is induced to enter into a contract and suffers loss, the right to a remedy will subsist whatever the parties may provide in their agreement: Clark Equipment Australia Ltd v Covcat Pty Ltd (1987) 71 ALR 367, 371 (Sheppard J, Fox J & Jackson J); Petera Pty Ltd v EAJ Pty Ltd [1985] FCA 277; (1985) 7 FCR 375, 378 (Wilcox J); and Oraka Pty Ltd v Leda Holdings Ltd (1997) ATPR 41‑558, 43,717. Exclusion clauses in a contract will only preclude a remedy under the Act when those clauses demonstrate that the party in question did not, in fact, rely on the conduct or where the conduct could not, as a whole, have been seen to be misleading: Lezam Pty Ltd v Seabridge Australia Pty Ltd [1992] FCA 206; (1992) 35 FCR 535, 557; Kewside Pty Ltd v Warman International Ltd (1990) ATPR 41‑012; Warwick Entertainment Centre Pty Ltd & Anor v Alpine Holdings Pty Ltd & Ors [2005] WASCA 174 [59].
Ms Campbell was asked in cross‑examination about the documents. Part of her evidence was as follows:
Okay. So the position is you haven't made your final decision, you've got the documents, you've read the documents, and then there's this statement in the document about there being, 'If any representations have been made, we would like to know about them', and you are saying at the same point that you had had these two things said to you about how profitable the business was and what daily takings you could get, and you did not think that those things were important enough for you to actually raise an issue? - I thought they were extremely important in regards to my eventual decision to buy the franchise. However, I didn't give them significance at this point. I didn't think that I could cross things out of the document. I - I believed what Mrs Mullins had told me, her husband is the accountant of the business, I thought the - what she told me would be correct. I didn't give that statement the importance it now requires. I had no idea I would end up in this situation.
I suggest to you the reason you didn't raise anything was because you had nothing to raise, no one had put the - no one had said those - - ? - That is incorrect.
The documents were complex. At no stage was the takings representation corrected. The impression created by the representation was misleading or deceptive. Ms Campbell gave evidence, which I accept, as to her understanding of 'profitability' and 'turnover'. The misleading or deceptive conduct in question was prior to execution of the documents and commencement of the franchise business. The disclosure document, the franchise certificate and the franchise agreement itself did not erase or avoid the misleading or deceptive conduct: Benlist Pty Ltd v Olivetti Australia Pty Ltd (1990) ATPR 41‑043.
Mrs Mullins was knowingly involved and concerned in the contravention by KCF. She obviously had actual knowledge that the representation was made. She knew KCF had no reasonable grounds for making the representation.
Under s 87(1) of the TPA the person whose acts in breach of pt IV caused loss or damage and any person involved in the contravention may properly be the subject of an order: Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514.
By making the representations KCF and Mrs Mullins engaged in misleading or deceptive conduct in contravention of s 52 of the TPA and s 10 of the FTA.

Causation and reliance

In order to recover damages a plaintiff must prove that loss or damage was suffered by conduct in contravention of the Act.
In Wardley Australia Ltd v The State of Western Australia Mason CJ, Dawson, Gaudron and McHugh JJ said in relation to the term 'by' in relation to a claim for damages pursuant to s 82(1) of the TPA (525):
'By' is a curious word to use. One might have expected 'by means of', 'by reason of', 'in consequence of' or 'as a result of'. But the word clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1991) 171 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act. Had Parliament intended to say something else, it would have been natural and easy to have said so.
In the context of the Act, the concept of loss or damage, like the concept of causation, must be applied in a wide variety of situations because the contraventions of pt IV and pt V which give rise to causes of action under s 82(1) are diverse. Here we are concerned with contraventions of s 52(1) in the form of misleading conduct constituted by misrepresentations. In this situation, as at common law, acts done by the representee in reliance upon the misrepresentation constitute a sufficient connexion to satisfy the concept of causation. And, if those acts result in economic loss, that is, loss other than physical injury to person or property, that economic loss will ordinarily be recoverable under s 82(1). In the context of the area of commercial conduct in which the Act operates, the reference to 'loss or damage' in s 82(1) plainly includes economic or financial loss.
In determining when a plaintiff first suffers economic loss or damage in an action under s 82(1) based on misleading conduct constituting a contravention of s 52, it is necessary to have regard to the applicable measure of damages.
Causation in s 82 of the TPA is to be determined in a practical or commonsense way: Wardley Australia Ltd & Anor v State of Western Australia.
In Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215 Wilson J said (238):
Where a plaintiff shows that a defendant has made false statements to him intending thereby to induce him to enter into a contract and those statements are of such a nature as would be likely to provide such inducement and the plaintiff did in fact enter into that contract and thereby suffered damage and nothing more appears, common sense would demand the conclusion that the false representations played at least some part in inducing the plaintiff to enter into the contract. However, it is open to the defendant to obstruct the drawing of that natural inference of fact by showing that there were other relevant circumstances. Examples commonly given of such circumstances are that the plaintiff not only actually knew the true facts but knew them to be the truth or that the plaintiff either by his words or conduct disavowed any reliance on the fraudulent representations. It is entirely accurate to speak of an onus resting on a defendant to draw attention to the presence of circumstances such as those I have described in order to show that the inference of the fact of inducement which would ordinarily be drawn from the fraudulent making of a false statement calculated to induce a person to enter into a contract followed by entry into that contract should not in all the circumstances be drawn. But it is no more than an evidentiary onus – an obligation to point to the existence of circumstances which tend to rebut the inference which would ordinarily be drawn from the primary facts. When all the facts are in, the fact-finding tribunal must determine whether or not it is satisfied on the balance of probabilities that the misrepresentations in question contributed to the plaintiff's entry into the contract.
Loss or damage is causally connected to a contravention of s 52 of the TPA if a misrepresentation was one of the causes of the loss or damage sustained by the claimant. The contravention need not be the only cause of the loss or damage: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459, 469 [14] (Gleeson CJ), 494 [109] (Gummow J).
If a contravention of s 52 has materially contributed to the loss or damage suffered, it will be regarded as a cause of the loss or damage, despite other factors or conditions having played an even more significant role in producing the loss or damage. As long as the breach materially contributed to the damage, a causal connection will ordinarily exist even though the breach without more would not have brought about the damage. In exceptional cases, where an abnormal event intervenes between the breach and damage, it may be right as a matter of commonsense to hold that the breach was not a cause of damage. But such cases are exceptional: see Henville, 493 [106] (McHugh J).
Ms Campbell's case is that she would not have entered into and completed the agreement if the representations had not been made to her.
Mrs Mullins denied that there was any reliance by Ms Campbell upon any representation made by her.
I am not satisfied that there was reliance by Ms Campbell upon the percentage profit representation made to her by Mrs Mullins. The evidence of Ms Campbell and Mr Woodgate was that the percentage profit representation was not a material factor and not relied upon.
Mrs Mullins knew that Ms Campbell would want some information about the earning potential of the franchise business.
Ms Campbell gave evidence that she would not have entered into the franchise agreement had she not been provided with information about the takings of the business. I accept Ms Campbell's evidence that she placed great reliance upon the daily takings representation made to her by Mrs Mullins. I am satisfied that without the representation as to the daily takings Ms Campbell would not have entered the agreement. What Mrs Mullins said about the daily takings of $600 was material and in the circumstances materially likely to induce Ms Campbell to enter into the franchise agreement. The effect of the representation was to induce Ms Campbell to enter into the franchise agreement. It operated as an inducement. The takings representation formed the basis of the budget prepared by Mr Woodgate. KCF and Mrs Mullins provided information to enable an evaluation to be made by Ms Campbell of the merits of purchasing the franchise business. KCF was looking to expand its business even if not on an 'aggressive' basis. This was the basis upon which Mrs Mullins and KCF provided information. The reliance by Ms Campbell upon what she was told by Mrs Mullins was in all the circumstances entirely reasonable.
Ms Campbell did seek advice from Mr Woodgate who prepared a budget for her. Mr Woodgate used the information which Ms Campbell provided to him in relation to the daily takings representation in his calculations. Ms Campbell relied on the budget prepared by Mr Woodgate and also relied upon the daily takings representation in deciding to proceed with the purchase. The fact that she relied on Mr Woodgate's budget does not detract from the importance of and reliance upon what she had been told by Mrs Mullins about expected takings. The inducement and reliance were significant and material.
Prior to execution of the agreement Ms Campbell sought advice from a solicitor. I am satisfied the advice was of a general nature. It did not in any way break the chain of causation between the daily takings representation and entry into the agreement by Ms Campbell.
Part of Mrs Mullins' case was that the documents executed by Ms Campbell demonstrated that there was no reliance. Clause 50 of the agreement referred to there not having been any representation or inducement. In this case the misleading and deceptive conduct continued to be a material cause of the damage which she eventually suffered. If such a clause is to be effective, it must be by enabling the conduct as a whole to be seen as not misleading. It did not do so in this case. None of the documents had that effect in the circumstances: Lezam Pty Ltd v Seabridge Australia Pty Ltd. The conduct in this case in all the circumstances was misleading or deceptive. I am not satisfied that any of the documents displace the view which I have formed as to reliance by Ms Campbell.
The identified misleading or deceptive conduct in making the takings representation was a cause of Ms Campbell entering into the franchise agreement and thereby suffering or likely to suffer loss or damage. In summary, I am satisfied that Ms Campbell was induced to enter into the franchise agreement by reason of Mrs Mullins' conduct, which I find was misleading and deceptive. I am satisfied that in reliance in that conduct and induced thereby she entered into the franchise agreement.
In the circumstances I am satisfied Ms Campbell suffered or was likely to suffer loss or damage by conduct of KCF and Mrs Mullins in contravention of the TPA and FTA.

Relief

Ms Campbell's claim is made pursuant to s 87 of the TPA and s 77 of the FTA.
At the material time s 87 read, so far as is relevant, as follows:
(1)Without limiting the generality of section 80, where, in a proceeding instituted under this Part … the Court finds that a person who is a party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in … in contravention of a provision of Part … V … the Court may, whether or not it … makes an order under section 82 … make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention … if the Court considers that the order or orders concerned will compensate the first‑mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage.
…
(2)The orders referred to in subsection (1) and (1A) are:
(a)an order declaring the whole or any part of a contract made between the person who suffered, or is likely to suffer, the loss or damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct … to be void and, if the Court thinks fit, to have been void ab initio or at all times on and after such date before the date on which the order is made as is specified in the order …
Section 87 of the TPA confers a wide discretionary power to make remedial orders in appropriate cases in order to ensure a fair result: Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, 298. The power is broader than that provided for under the common law or in equity and the scope of the orders available is not to be constrained because, in particular cases, they may resemble common law or equitable remedies: Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494, 510 (McHugh, Hayne & Callinan JJ), 505 (Gaudron J), and 545 – 546 (Kirby J).
In The City of Sydney v Streetscape Projects (Australia) Pty Ltd & Anor [2011] NSWSC 1214 Einstein J outlined the following principles in relation to s 87 of the TPA which he extracted from the decision of Mason P in Akron Securities v Iliffe(1997) 41 NSWLR 353:
(1)Early case law took a narrow approach to s 87 of the Trade Practices Act 1974 (Cth), with courts fearing to move far from the familiar coastline of traditional common law and equitable approaches. But it is now clearly established that s 87 is to be given no restrictive interpretation. In the words of Gummow J in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 37 ‑ 38:
'… whilst contractual rights subsist … between the parties their relationship is not governed simply by the general law as to vendor and purchaser. The legislation regulates the existence and exercise of what would otherwise be the rights at general law and, in addition, itself creates new rights and remedies … [It] should be no inhibition to giving effect to what, on its proper construction, is provided for in the legislation, that the result may be to achieve consequences and administer remedies which differ from those otherwise obtaining under the general law …
A Court should not restrict the exercise of its discretion "by imposing upon itself technicalities which might defeat the policy of the section".'
(2)The very scope of s 87 means that the court 'must consider all the circumstances before it in the exercise of its discretion': Henjo (at 564), per Lockhart J. In Reg Russell & Sons Pty Ltd v Buxton Meats Pty Ltd (1994) ATPR (Digest) 46-127 at 53,614, Ipp J of the Supreme Court of Western Australia said:
'The Court has a very wide discretion under s 87(1) … In exercising its discretion the Court will take into account whether there is a causal link between the loss or damage suffered or likely to be suffered by the plaintiff, whether and to what extent the plaintiff is the author of his or her own misfortune, and whether another remedy is or was at hand to recover the loss or damage in question.'
(3)There is no point in having a remedial smorgasbord if the table is not scanned at least briefly to see what is best on offer. In this, the task of a judge whose findings of detrimental reliance have presented the key to s 87 is not unlike that facing a trustee of a discretionary trust who has a power to distribute: cf Lutheran Church of Australia South Australia District Inc v Farmers' Co‑operative Executors and Trustees Ltd (1970) 121 CLR 628 at 639 and 652.

I would also respectfully adopt what French J said in Tenji v Henneberry & Associates Pty Ltd (2000) 98 FCR 324 (333):
Loss or potential loss causally linked to contravention conditions the exercise of the remedial powers under s 87 and their exercise must be directed to compensate for that loss. The same may be said, limited to actual loss, for the award of damages under s 82. The conditions for the exercise of power under s 87 having been satisfied and the compensatory outcome identified, the grant of such relief is discretionary as is the particular kind of order under s 87(2) that may be made. The exercise of that discretion and the choice of order may then be affected by other considerations. The making of an order under s 87(2)(a) declaring a contract to be void may be based upon a number of factors including those which would affect the grant of analogous relief in equity. But, while relevant, they are not determinative. The question whether there has been a disaffirmation or a commitment to the performance of the contract by the party suffering loss will generally be relevant. The question whether the party would have decided to continue with the purchase, even if aware of the true position, may also be relevant although, as has been pointed out, that does not determine the availability of equitable rescission.
It is necessary to outline the way in which the parties dealt with the issue of relief. In opening, Ms Campbell's counsel stated that 'we've clearly sought repayment of the consideration paid, and that could come under section 87 …'. Shortly thereafter, counsel for KCF and Mrs Mullins stated that 'the way in which we've approached it is just simply that it is a claim for what is essentially restitution …'.
In the course of closing submissions a document signed by counsel for the parties was tendered as an exhibit. It reads:
1.If Ms Campbell succeeds in her claim, Kiss Café's counterclaim will be dismissed.
2.If Ms Campbell is unsuccessful in its claim judgment of $1,857 will be entered on the counterclaim.
3.If the court is minded to make an order under s 87 of the TPA or s 77(1) of the FTA against Kiss Café or Mrs Mullins the amount to be ordered is $129,584.
In seeking rescission and payment of compensation Ms Campbell relies upon the power of the court under s 87(2) of the TPA. Mrs Mullins contends that in the exercise of discretion relief pursuant to s 87 should be refused. I am satisfied Ms Campbell has suffered loss and damage as a result of contravention of the TPA and the FTA. I am satisfied that notwithstanding that contravention and damage are established the grant of relief pursuant to s 87 of the TPA remains discretionary.
I have found that KCF engaged in misleading or deceptive conduct. Ms Campbell's case is that she was led into error. Ms Campbell would not have entered into and completed the franchise agreement if the daily takings representation had not been made. As a consequence she paid the purchase price and thereafter operated the franchise business. She did not receive a franchise with the represented characteristic as to daily takings. When Mrs Mullins spoke to Ms Campbell the Redcliffe area had done nothing like $600 per day. The daily takings of the franchise business during the time Ms Campbell operated it were significantly below the represented sum of $600 per day. There was no suggestion that the way she operated the franchise business was in any way a factor in the level of the daily takings. After she commenced the franchise business and realised the problems with the daily takings, she tried strategies to improve the situation. Her conduct was entirely reasonable. In any event, there was no criticism or suggestion of incompetence on her part.
Subsequent to notice of termination of the franchise agreement given by KCF the van and equipment were sold. There was no evidence as to the basis upon which the sale proceeded other than that the proceeds were now retained in a solicitor's trust account. All parties have proceeded on the basis that the franchise agreement is at an end. Ms Campbell is no longer in the business. She has not been there for some time. Following service of the notice of termination Mrs Mullins began to operate in the Redcliffe territory and to service the customers.
Ms Campbell submits that compensation should be assessed on the basis of repayment of the purchase price and an order for rescission of the franchise agreement.
Section 87 is concerned with compensation, whether in whole or in part, for loss or damage and with the reduction of loss or damage, and with the prevention of loss or damage which is likely to be suffered. Compensation in the form of repayment of the purchase price and rescission are the appropriate remedies.

Conclusion

Ms Campbell is entitled to judgment.
I will hear counsel as to the appropriate form of orders to give effect to the rescission.

Details

AGLC: Campbell v Kiss Cafe Franchising Pty Ltd [2012] WADC 34
Case: [2012] WADC 34
Decision Date: 1 MARCH 2012

CaseChat Overview and Summary

In the Federal Court of Australia, Campbell brought an action against Kiss Cafe Franchising Pty Ltd concerning misleading or deceptive conduct. The dispute centred around the franchisee's alleged oral representations regarding the daily takings and profit that could be expected from a Kiss Cafe franchise. The franchisee claimed that these representations induced the franchisee to enter into a franchise agreement, which included certain exclusion and disclaimer clauses, as well as an entire agreement clause.

The legal issues before the court encompassed whether the franchisee's oral representations constituted misleading or deceptive conduct under the Trade Practices Act 1974, whether the franchisee had relied on these representations, and whether the exclusion and disclaimer clauses negated any claim for damages. Additionally, the court needed to determine the appropriate relief under section 87(2) of the Trade Practices Act, given the established misleading or deceptive conduct.

The court found that the franchisee had indeed made oral representations about the expected daily takings and profit, which were misleading or deceptive. It further determined that the franchisee had relied on these representations in deciding to enter into the franchise agreement. The exclusion and disclaimer clauses did not absolve the franchisee of liability, as the court held that such clauses could not negate the initial misleading or deceptive conduct. The court concluded that the most suitable relief was an order for compensation under section 87(2) of the Trade Practices Act, considering the established breach. The court ordered the franchisee to compensate the franchisee for the loss suffered due to the misleading or deceptive conduct.

Orders