Coolstar Holdings Pty Ltd v Cleary & Ors
[2007] FMCA 1684
•12 October 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COOLSTAR HOLDINGS PTY LTD v CLEARY & ORS | [2007] FMCA 1684 |
| TRADE PRACTICES – Unconscionable conduct – misleading and deceptive conduct – sale and purchase of business. |
| Trade Practices Act 1975 (Cth), Part IVA, Part V Division 1, ss. 6(2)(h), (3)(a), 51AC(1)(2), 52, 82(1) Federal Magistrates Court Rules 2001 (Cth), r.1.03(1) |
| Coolstar Pty Ltd v Cleary & Anor [2006] FMCA 1442 |
| Applicant: | COOLSTAR HOLDINGS PTY LTD |
| First Respondents: | PAUL CLEARY AND DAWN CLEARY |
| Second Respondent: | A PERFECT TASTE PTY LTD |
| File Number: | PEG 219 of 2006 |
| Judgment of: | Lucev FM |
| Hearing date: | 16 October 2006 |
| Date of Last Submission: | 27 October 2006 |
| Delivered at: | Perth |
| Delivered on: | 12 October 2007 |
REPRESENTATION
| Mr. R.J. Thurston for the Applicant. |
| Ms. D Cleary for the Respondents. |
ORDERS
The application as against the First Respondents be dismissed.
That the application insofar as it alleges unconscionable conduct contrary to s.51AC of the Trade Practices Act 1975 (Cth) as against the Second Respondent be dismissed.
That the application insofar as it alleges misleading or deceptive conduct contrary to s.52 of the Trade Practices Act 1975 as against the Second Respondent be upheld.
That the Second Respondent pay the applicant under s.82 of the Trade Practices Act 1975 a sum in the amount of $152,500 for loss and damage suffered by the applicant, within seven days.
That the Second Respondent pay the Applicant’s costs fixed at $7,520, within seven days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 219 of 2006
| COOLSTAR HOLDINGS PTY LTD |
Applicant
And
| PAUL AND DAWN CLEARY |
First Respondents
| A PERFECT TASTE PTY LTD |
Second Respondent
REASONS FOR JUDGMENT
Introduction
This case concerns the purchase of a spit roast business (“the Business”) by the Applicant, Coolstar Holdings Pty Ltd (“Coolstar”).
The Coolstar alleges that the conduct of the Respondents in relation to Coolstar’s purchase of the Business was unconscionable, and misleading and deceptive.
Coolstar is a proprietary limited company, of which Robert Jack Thurston (“Thurston”) is the sole director, secretary and shareholder, with one share beneficially held.[1]
[1] Affidavit of Robert Jack Thurston, sworn 5 September 2006, para. 1 and Annexure RJT1, being an ASIC Company Extract, dated 4 September 2006 (“Thurston’s First Affidavit”).
There are two named First Respondents, Paul Cleary (“P Cleary”) and Dawn Cleary (“D Cleary”), and a Second Respondent, A Perfect Taste Pty Ltd (“APT”).
APT is a proprietary limited company, of which P and D Cleary are directors and shareholders with one share each, beneficially held.[2]
[2] Thurston’s First Affidavit, para. 3 and Annexure RJT2, being an ASIC Company Extract, dated 4 September 2006.
Application
By application filed on 5 September 2006 (“the Application”) the Applicant claims final orders under s.51AC and s.52 of the Trade Practices Act 1974 (Cth) (“TP Act”) as follows:
“1.An order that the whole of the contract in writing dated 26 May 2006 between the Applicant on the one part and the Second Respondent on the other part (“the Contract”) to be void ab initio.
2.Further, an order that each of the First and Second Respondents or any one or more of them do refund the Applicant the sum of $182,500.00.
3.Injunctive relief against the First and Second Respondents or any one or more of them.
4.Further, and/or in the alternative to 1 and 2 above, damages against each of the First and Second Respondents or any one or more of them.
5.Interest on any amounts payable to the Applicant at such rate or rates and for such period or periods as this Honourable Court may think fit.
6. Such other relief as this Honourable Court may think fit.
7. Costs.”[3]
[3] Application, Annexure A.
Interim orders application
On 6 and 7 September 2006 the Court heard an application for Mareva type interim orders in this matter.
In a judgment delivered on 7 September 2006 the Court dismissed the application for interim orders, with costs awarded against the Applicant.[4]
[4] Coolstar Pty Ltd v Cleary & Anor [2006] FMCA 1442.
Orders made
On 27 October 2006 the Court made orders in this matter as follows:
“(1)the application as against the First Respondents be dismissed;
(2)that the application insofar as it alleges unconscionable conduct contrary to s.51AC of the Trade Practices Act 1975 (Cth) as against the Second Respondent be dismissed;
(3)that the application insofar as it alleges misleading or deceptive conduct contrary to s.52 of the Trade Practices Act 1975 [as against the Second Respondent] be upheld;
(4)that the Second Respondent pay the applicant under s.82 of the Trade Practices Act 1975 a sum in the amount of $152,500 for loss and damage suffered by the applicant, within seven days;
(5)that the Second Respondent pay the Applicant’s costs fixed at $7,520, within seven days.”
At the time of handing down the above orders the Court indicated that reasons for judgment would follow. These are those reasons.
Evidence
Affidavit evidence for Coolstar was read from a number of persons as follows:
a)Ronald Derreck Atkinson, sworn 22 September 2006 (“Atkinson’s Affidavit”);
b)Trevor Ronald Blaylock, sworn 20 September 2006 (“Baylock’s Affidavit”);
c)Neil Coulthard, sworn 22 September 2006 (“Coulthard’s Affidavit”);
d)Jacqueline Mary Farrar, sworn 6 October 2006 (“Farrar’s Affidavit”);
e)Janice Claire Ricks, sworn 22 September 2006 (“Ricks’ Affidavit”);
f)Stephen Thornett, sworn 21 September 2006 (“Thornett’s Affidavit”); and
g)Robert Jack Thurston, sworn 5 September 2006 (“Thurston’s First Affidavit”), 6 September 2006 (“Thurston’s Second Affidavit”) and 21 September 2006 (“Thurston’s Third Affidavit”).
Of Coolstar’s witnesses only Thurston was cross-examined, and then but briefly.
The Respondents elected to lead no evidence.
The sale/purchase
The Business was purchased by Coolstar from APT under a written agreement dated 26 May 2006.[5] The gross purchase price for the Business was $182,500 with settlement on 12 July 2006.[6]
[5] Thurston’s First Affidavit, para. 12 and Annexure RJT3 being an Agreement For Sale Of Business (As A Going Concern) (“the Sale Contract”). The Sale Contract in evidence is not signed on behalf of the Respondents.
[6] Thurston’s First Affidavit, paras. 13 and 15 and Sale Contract particular 5. The Settlement Date was obviously extended from that specified (30 June 2006) under the Sale Contract: see particular 7.
The gross purchase price was broken down as follows:
“(a)Goodwill $75,000
(b)Plant & Equipment fixed $102,500
(Refer to General Condition 12.2)
(c)Plant & Equipment moveable $ –
(Refer to General Condition 12.2)
(d) Stock (estimated) $5,000
(Refer to General Conditions 6.6 and 7.6)
(e) Other $ – .”[7]
[7] Sale Contract particular 5. No “General Conditions” related to the Sale Contract are in evidence. There is an Annexure A to the Sale Contract, but it appears to have been incorporated from another type of agreement as that Annexure refers to it forming “part of the “Agreement to Purchase a Business” or “Agreement for Sale of Business by Offer & Acceptance” Contract”: Sale Contract, Annexure A.
Alleged representations
The conduct about which Coolstar complains is alleged representations, upon which it says it relied in purchasing the Business,[8] as follows:
a)that the Business was no longer part of a franchise, of which it was formerly a part;
b)that the Business had acquired and owned the telephone number 1300 762 780 (“the 1300 Number”); and
c)APT owned the Business Name “Coast to Coast the Golden Roast” and had acquired the Business Name by mistake (collectively “the Representations”).[9]
[8] Thurston’s First Affidavit, paras. 10 and 12.
[9] Thurston’s First Affidavit, para. 10.
Alleged reliance
Coolstar says that it relied upon the Representations, but if Coolstar had known that APT:
a)did not own the Business;
b)that the Business was the subject of a franchise agreement;
c)APT was in dispute with the Franchisor concerning the Business;
d)did not own the 1300 Number; and
e)did not own the Business Name “Coast to Coast the Golden Roast”,
then Coolstar would never have purchased the Business.[10]
[10] Thurston’s First Affidavit, para. 24; Thurston’s Third Affidavit, paras. 15.4(a), (d), (e), (k) and (l) and 26.
The Business
The Business was an on-site spit roast catering business.
Atkinson, a business broker engaged in 2005 by P and D Cleary to sell the Business[11] gave evidence (for Coolstar) that in early 2005 P and D Cleary told him that the Business:
a)name was “Coast to Coast the Golden Roast”;
b)was a franchise; and
c)was owned, and had been owned for approximately 2 years, by APT.[12]
[11] Atkinson Affidavit, para. 10.
[12] Atkinson Affidavit, para. 8.
Atkinson said that sometime later, but still early 2005, he saw a copy of a franchise agreement, and recalls that the franchisor was:
a)CCGRA; and
b)based in Canberra.[13]
[13] Atkinson’s Affidavit, para. 9.
There is evidence that in January or February 2006 one or other or both of P and D Cleary had said, to Atkinson, that:
a)the Business was no longer part of a franchise; and
b)the withdrawal from the franchise had proceeded smoothly;[14] and
c)they did not own the 1300 Number, but had the right to use that number.
[14] This was a misrepresentation to Atkinson, as it is clear, on other evidence, that this was not the case.
The business which was advertised, and which attracted Thurston’s attention on or about 7 May 2006[15] was as follows:
“Master franchise for WA. Operating 12 yrs. Nets $105,000. Purpose built factory – cheap rent. No cooking by owners who together only work 36 hrs per week.”[16]
[15] Thurston’s Third Affidavit, para. 6 and Annexure RJT2.
[16] Thurston’s Third Affidavit, para. 5 and Annexure RJT1.
The Business traded, prior to purchase by Coolstar, from premises at Unit 3, 47 Holder Way, Malaga (a northern suburb of Perth) (“the Business Premises”).[17]
[17] Thurston’s Third Affidavit, para. 24.2. The Business Premises are incorrectly cited as “Unit 4” in the Sale Contract: Thurston’s Third Affidavit, para. 24.2.
The Business Premises were not leased by APT, but by P and D Cleary, trading as “Coast to Coast the Golden Roast” (ABN 84 401 880 854), for a period of twenty-four moths from 1 April 2005 to 31 March 2007, with an option to renew for 24 months at a fixed monthly rental of $756.00.[18]
[18] Farrar’s Affidavit, para. 6 and Annexure JMF1 (being an unsigned standard form REIWA Contract Lease Commercial/Industrial Premises By Offer And Acceptance Other Than Retail Premises) (“the Business Premises Lease”), Preamble and Clauses 3 and 5.
There is no evidence:
a)that the Business Premises Lease was assigned or sublet to APT; and
b)of the prior written approval required of the lessor for assignment or sub-letting.[19]
[19] Business Premises Lease, Clause 20.
There is no direct evidence from CCGRA or APT of the Business operating under the CCGRA Franchise, but it would appear that APT operated the Business under franchise from CCGRA Pty Ltd (“CCGRA”) (“the CCGRA Franchise”) until the termination of the franchise by CCGRA on or about 31 March 2006.[20]
[20] Thurston’s First Affidavit, para. 18(iv) and Annexure RJT4.
In an email dated 8 August 2006 from CCGRA’s Canberra solicitor to the Applicant’s solicitor (admitted without objection) (“8 August 2006 Email”) it was said:
“2.The initial correspondence relating to the potential termination of the franchise agreement commenced in February 2006 and they were given notice on 23 February that unless they complied with certain provisions of the franchise agreement the franchise would be terminated.
3. …
4. …
5. …
6. …
7. …
8.As advised, due to the Cleary’s extremely unco-operative approach my client allowed the owners of the South Australian franchise to re-establish the Perth franchise. I will not provide you with a copy of that franchise agreement as it is not relevant to any proceedings between your client and the Clearys. My client agreed to give the rights to the West Australian franchise to Trevor Blaylock and Steven Thornett. Trevor Blaylock will be the Perth based representative. The original franchise agreement to the Clearys is part of the Court documentation.
9.The Clearys have provided very little in the way of any written response to any documentation. Verbally they maintained that there was no franchise agreement.”[21]
[21] Thurston’s First Affidavit, part of Annexure RJT4.
The ownership of the Business was a central issue in these proceedings. The failure of the Second Respondent to give evidence on this issue enables the Court to draw an inference, adverse to the Second Respondent, namely, that the Second Respondent did not own the Business, and the Court so finds.[22]
[22] Jones v Dunkel (1959) 101 CLR 298 at 308 per Kitto J.
Thurston’s evidence, admitted without objection, is that:
a)the Business was always subject to a franchise agreement between CCGRA and APT;[23]
b)APT did not own the Business;[24]
c)the Business was at the relevant time in the process of being sold to a South Australian company;[25] and
d)the purchase of the Business by a South Australian company, The Golden Roast Pty Ltd (“The Golden Roast”) was completed in July 2006.[26]
[23] Thurston’s First Affidavit, paras. 11(i) and 18(i).
[24] Thurston’s First Affidavit, paras. 18(i) and 21.
[25] Thurston’s First Affidavit, para. 18(iii); 8 August 2006 email, para. 8.
[26] Blaylock Affidavit sworn 20 September 2006, para. 5, and at para. 6:
“The Golden Roast acquired the Western Australian franchise for Coast to Coast The Golden Roast franchise from CCGRA in July 2006.”
Blaylock, a director of The Golden Roast, received a letter dated 4 July 2006 from APT. The terms of the 4 July 2006 letter are best set out in full:
“4 July 2006
Dawn & Paul Cleary
A PerfectTaste
0409 762 787Trevor Blaylock
Coast to Coast The Golden Roast – South AustraliaBy Fax (08) 8340 1877
OFFER TO PURCHASE SPIT ROAST BUSINESS
As per our recent discussions Trevor and pursuant to a request made to us by CCGRA Pty Ltd, we offer you the following for purchase:
· Coast to Coast The Golden Roast – Western Australia name owned by us and any associated benefits coming from the brand in WA.
· Lease on the Property 3/47 Holder Way, Malaga WA used by the business, which includes any fixtures presently there (e.g. Cool rooms, grease traps, etc) plus 1 year left on the lease with a further 2 year option.
· 2 Telephone landlines presently used by the business located at the property.
· All present and future bookings made from the Internet Site.
· Assurance we will not engage in or advertise any ‘spit roast’ catering in WA for 3 years.
Trust this meets your requirements and will allow you to take on a similar franchise in WA to that you presently operate in SA.
Would appreciate your responses on a purchase price prior to our final mediation session with CCGRA Pty Ltd this Thursday, as this will finalise their dispute with us and provide everyone with some definitive expectations on the ‘way ahead’. Unfortunately, we are in a position where if you are unable to provide us with some guaranteed and satisfactory price by this time we will be forced to refuse their request. This would not be in CCGRA’s best interests, means we all do not benefit from the sale and, seeing you are a franchisee of them, there appears an indirect obligation for you to help them out.
Please call me at any time to discuss further or offer a purchase price, and appreciate your understanding.
Sincere regards, Dawn and Paul”[27]
[27] Blaylock’s Affidavit, Annexure TRB3.
Blaylock also travelled to Western Australia and spoke to D Cleary on 8 July 2006. In discussions, D Cleary (on behalf of APT) offered The Golden Roast, amongst other things, the following:
“(a)the business name “Coast to Coast The Golden Roast”;
(b)the lease on Unit 3, 47 Holder Way, Malaga;
(c)any fixtures currently at the Business Premises;
(d)2 telephone lines currently used by the Business, but not the 1300 762 780 number or the mobile number 0409 762 787;
(e)all present and future Internet bookings of the Business; and
(f)an assurance that the Business would not advertise any spit roast catering in WA for 3 years.”[28]
Most of the assets being offered to The Golden Roast were assets already the subject of the Sale Contract, which had originally been due to settle on 30 June 2006, but did not settle until 12 July 2006.[29]
[28] Blaylock’s Affidavit, para. 16.3.
[29] See paragraph 14. above.
During the above discussions D Cleary (on behalf of APT) indicated that APT wanted $30,000 for the assets listed in an earlier letter to Blaylock. Blaylock refused to pay this sum[30], but was prepared to “offer money” for the 1300 Number.[31]
[30] Blaylock’s Affidavit, paras. 19 and 20.
[31] Blaylock’s Affidavit, para. 21.
The 1300 number
The Sale Contract contains no specific reference to the “sale” of the 1300 Number.
Atkinson said that in early January or February 2006 P and D Cleary had told him that they “owned all the telephone numbers to the Business other than the 1300 Number … [but] the Clearys had the right to use the 1300 number”.[32]
[32] Atkinson’s Affidavit, para. 12.5.
Atkinson said that in his experience (a business broker for approximately 32 years)[33] it was not the practice to specifically mention telephone numbers, and it was “assumed” that these would “automatically pass” to the new owner as part of the plant and equipment under Clause 8(A) of Annexure A to the Sale Contract.[34]
[33] Atkinson’s Affidavit, para. 2.
[34] Atkinson’s Affidavit, para. 20.
Annexure A to the Sale Contract provides that:
“This offer is SUBJECT TO and CONDITIONAL UPON the following”
and thereafter sets out a number of conditions, including Clause 8 which provides that:
“In compliance with the current GST legislation the following statements are made and acknowledged by the vendor/s and purchaser/s:
(A)the vendor/s supply to the purchaser/s everything necessary for the continued operation of the business.”
Atkinson said that the Businesses telephone numbers “were critical to the successful operation of the Business as the numbers were contained in the Businesses Yellow Pages advertising and advertising generally.”[35]
[35] Atkinson’s Affidavit, para. 21.
Coulthard, a man with “extensive experience in the hotel industry”,[36] and who had been negotiating to purchase the business prior to Coolstar, said that he “was particularly interested in the 1300 number which I viewed as vital to the success of the Business.”[37]
[36] Coulthard’s Affidavit, para. 2.
[37] Coulthard’s Affidavit, para. 7-4.4 (the numbering of sub-paras is awry in Coulthard’s Affidavit).
Coulthard says that Atkinson (who was then acting as agent in the selling of the Business) told him that:
“[He] would be able to have transferred to … [him] the telephone numbers associated with the Business particularly the 1300 number …”[38]
[38] Coulthard’s Affidavit, para. 16-10.2.
Coulthard also says that the P and D Cleary “orally assured … [him] that there would be no difficulty in the Business’s 1300 number … being transferred … in the event that I purchased the Business.”[39]
[39] Coulthard’s Affidavit, para. 17.
In or about late February 2006 Coulthard was also provided with a copy of an email from a communications company which advised that APT “owned” the 1300 Number.[40]
[40] Coulthard’s Affidavit, para. 19 and Annexure NC11. Annexure NC11 is very curiously formatted, even for a copy of an email. Further, it is clearly not complete, as the email disclaimer ends mid-sentence with the word “attachments”. The matter is not one, on the evidence, that can be taken further.
When Coulthard made an offer for the Business on 2 March 2006[41] Coulthard specifically inserted the 1300 Number under “Other Assets” in the offer.[42]
[41] Coulthard’s Affidavit, para. 21.
[42] Coulthard’s Affidavit, Annexure NC12, being an offer made on a Business Brokers Association (WA) Inc approved form entitled “Agreement For Sale Of Business (As Going Concern)”. The heading “Other Assets” is separate from a heading for “The Plant & Equipment”.
It is apparent from the foregoing that in or about January and February 2006 P and D Cleary, the directors of APT,[43] were telling Atkinson that they did not own the 1300 Number, but telling Coulthard (who wanted to purchase the Business) that they did own the 1300 Number.
[43] Thurston’s First Affidavit, para. 3, Annexure RJT2.
It is further apparent that there are different approaches to whether the 1300 Number might be specified in any sale contract for the Business. Atkinson says no. Coulthard had it specified in his offer.
Thurston says that at a meeting in May 2006 with D Cleary she advised him that:
“When the Second Respondent [APT] acquired the Business, it also acquired the [1300 Number].”[44]
[44] Thurston’s First Affidavit, para. 10(ii).
But Thurston also says that in discussion with D Cleary in late May 2006 she informed him that the 1300 Number “was owned by the Clearys”,[45] but later in the same sub-paragraph of the relevant affidavit Thurston says that D Cleary told him that:
“Although the Yellow Pages advertisement was under the name of the Franchisor, A Perfect Taste Pty Ltd owned the right to all telephone numbers associated with the Business and the Coast to Coast The Golden Roast name in Western Australia.”[46]
[45] Thurston’s Third Affidavit, para. 15.4(e).
[46] Thurston’s Third Affidavit, para. 15.4(k). “Franchisor” is defined, unhelpfully, as “the franchisor of the business”: Thurston’s Third Affidavit, para. 15.4(f).
Thurston’s evidence is that APT did not own, and never had owned or had “title” to, the 1300 Number.[47]
[47] Thurston’s First Affidavit, paras. 11(iii), 18(ii) and 22.
The importance of the 1300 Number to Coolstar is highlighted by Thurston’s evidence that:
“The goodwill was very much tied to the ability of Coolstar to acquire the telephone numbers associated with the Business, especially the … [1300 Number]. The … [1300 Number] … had been used by the Business for the last 4 years in the Yellow Pages”[48]
and that he:
“assumed that the telephone numbers were part of the goodwill and the acquisition of the Business generally and would therefore be transferred to Coolstar, as had been promised.”[49]
[48] Thurston’s Third Affidavit, para. 24.4.
[49] Thurston’s Third Affidavit, para. 29.
The importance of the 1300 Number to Coolstar is further highlighted by Thurston’s evidence that following the purchase of the Business, Coolstar “sent out considerable advertising with the 1300 number being the key part of that advertising.”[50]
[50] Thurston’s First Affidavit, para. 16(iv).
Blaylock also recognised the importance and worth of the 1300 Number, and its use as an advertised Yellow Pages number: the Business “was worth less without the 1300 Number”, and that because 90% of all business was derived from the Yellow Pages advertising it “was critical to the success of the Business”.[51]
[51] Blaylock’s Affidavit, paras. 21-23.
On 8 July 2006 D Cleary informed Blaylock, a director of The Golden Roast that “the Clearys were not prepared to transfer or sell the 1300 Number to The Golden Roast.”[52]
[52] Blaylock’s Affidavit, paras. 16.1 and 16.3(d). This assumes that APT owned the 1300 Number, or had the right to sell interest in it, which it did not: see para 53 above.
The 1300 Number was however ultimately acquired by The Golden Roast when they acquired the Western Australia franchise for Coast to Coast The Golden Roast in July 2006.[53]
[53] Blaylock’s Affidavit, paras. 7.1 and 26-29.
CCGRA solicitor’s advised Coolstar’s solicitors that APT had the right to use the franchise telephone numbers, but it was a term of the franchise agreement (between CCGRA and APT) that this asset had to be returned to CCGRA if the franchise was terminated.[54]
[54] 8 August 2006 Email, para. 6.
The Business and the Canberra Court Case
Thurston’s evidence is that P and D Cleary, and APT, were in dispute with CCGRA in relation to the Business, and that litigation had either commenced or been foreshadowed by CCGRA against APT, at the time the Representations were made, but at that time, Thurston was unaware of the threatened litigation.[55]
[55] Thurston’s First Affidavit, para. 11(iv).
The existence of a dispute was admitted by:
a)the Clearys in a discussion with Atkinson in January or February 2006, over a sum of $14,000; and
b)by D Cleary in discussions with Blaylock on 8 July 2006, that is, four days before the settlement of the Business purchase when she said that the dispute was over a sum of $30,000.[56]
[56] Blaylock’s Affidavit, para. 16.2.
CCGRA’s solicitors advised Coolstar’s solicitors that proceedings were commenced in this Court by CCGRA against APT on 28 April 2006, and the application was served on 8 May 2006.[57]
[57] 8 August 2006 Email, para. 4.
In this Court in Canberra on 18 July 2006, in separate and unrelated proceedings (numbered (P)CAG 21 of 2006) (“the Canberra Court Proceedings”), albeit with some seemingly common issues and possibly some common facts, Mowbray FM made the following final orders relevant to this application:
“(2)the first respondents be restrained from withdrawing or transferring any funds from any accounts held in their names by BankWest;
(3)the second respondent be restrained from withdrawing or transferring any funds from any accounts held in its name by BankWest;
(4)notwithstanding orders (1) and (2), the respondents may withdraw $2000 per week in total for ordinary living expenses;
(5)the respondents have liberty to seek to have orders (2) to (4) discharged subject to an application and an accompanying affidavit being filed and served by close of business on 26 July 2006;
(6)the respondents immediately cease using in any manner the registered trademark ‘Coast to Coast The Golden Roast’ with Chef logo;
(7)the respondents be restrained from operating a spit roast catering business within the State of Western Australia; and
(9)the respondents transfer to the applicant the rights to the telephone numbers – 08 9249 9977, 08 9249 9747, 1300 762 780 and 0409 762 787”,
(“the Canberra Court Orders”: being Annexure RJT2 to Thurston’s Second Affidavit).
The Canberra Court Orders were made on an application by CCGRA against the present respondents. The Canberra Court Orders were discharged and the issues in dispute "resolved" between CCGRA and the respondents in the Canberra Court Proceedings, who are also the respondents in these proceedings.[58]
[58] Thurston’s First Affidavit, para. 27 and Thurston’s Second Affidavit, Annexure RJT2.
Thurston was advised by his solicitors on 5 September 2006 that the Canberra Court Case “had resolved and that [the Canberra Court Orders] … would no longer have any effect.”[59]
[59] Thurston’s Second Affidavit, para. 13.
The resolution of the Canberra Court Case resulted in Coolstar making the Application, including the dismissed application for interim orders.[60]
[60] Thurston’s Second Affidavit, para. 4. As to the dismissal of the interim application see para. 8 above.
Business name
The Business Name was “NOT BEING TRANSFERED (sic)” under the Sale Contract.[61] The Business Name was not specified, perhaps because it was not being transferred.
[61] Sale Contract, particular (1)(c). And see Thurston’s Third Affidavit, para. 24.1.
CCGRA’s solicitors advised Coolstar’s solicitors that APT had the right to use the name “Coast to Coast The Golden Roast”, but it was a term of the franchise agreement between CCGRA and APT that the asset would be returned to CCGRA if the franchise was terminated.[62]
[62] 8 August 2006 Email, para. 6
The name “Coast to Coast The Golden Roast” was acquired by The Golden Roast when they acquired the Western Australia franchise for Coast to Coast The Golden Roast in July 2006.[63]
[63] Blaylock’s Affidavit, para. 7.5. See also Blaylock’s Affidavit para. 16.3(a) – the business name was an asset APT were willing to offer as part of a sale of the business. This assumes that APT owned, or had a right to sell an interest in, the name, which it did not: see para. 62 above.
Other matters
Thurston also says that:
“Since acquiring the Business, Coolstar has:
(i)entered into a lease of premises from which to operate the Business for a period of five years at a cost of approximately $2,000.00 per month;
(ii)borrowed monies to fund the acquisition of the Business and other associated finance and costs;
(iii)organised advertising in the Yellow Pages costing approximately $21,000.00;
(iv)sent out considerable advertising with the 1300 number being the key part of that advertising; and
(v)incurred numerous other expenses relating to the setting up and running of the Business.”[64]
[64] Thurston’s First Affidavit, para. 16.
Business premises lease
Although APT was not the lessee under the Business Premises Lease, the “Particulars of Lease” under the Sale Contract set out the following details:
“(a)…;
(b) Date of Expiry: MARCH 31 2007;
(c)Option (if any): 24 MONTHS;
(d)Rent: $756 per CALANDAR (SIC) MONTH;
(e)Next Review Date: APRIL 1 2006.”
Rent escalation
Thurston asserts that after acquiring the Business Coolstar entered into a lease of premises in Morley, a mid-northern Perth suburb, for a period of five years at a “cost of approximately $2,000.00 per month”.[66] Thurston says that the new lease was entered into because “the Clearys informed me that the owner wanted to sell the Business Premises and that the rent … was about to double.”[67]
[66] Thurston’s Third Affidavit, para. 34.1 and Annexure RJT26. The latter shows monthly rent of $1,650.00 and monthly outgoings of $351.00.
[67] Thurston’s Third Affidavit, para. 34.1.
Farrar says:
“At no stage did I on behalf of the owners ever threaten the Clearys that the owners would be doubling the rent, and/or selling the Premises.”[68]
[68] Farrar’s Affidavit, para. 17.
However, in a letter sent to Phil Hoskin, from The Golden Roast, on 6 April 2006[69] The Golden Roast were advised that when the Business Premises became available the terms to apply would include rent of $1325.00 per calendar month. The rent then being paid by the Clearys was $756.00 per month. The increase is slightly in excess of 75%. It is possible that Thurston was told of the possibility of a rent increase in “round” terms.
[69] Farrar’s Affidavit, Annexure JMF3.
In early June 2006 D Cleary made enquiries with Janice Ricks of Cosmic Realty of Morley concerning leasing premises in Morley.[70]
[70] Ricks’ Affidavit, paras. 6 and 7.
D Cleary told Ricks that her lease in Malaga had “come to an end”, “was unsuitable” and that “the rent had doubled”.[71]
[71] Ricks’ Affidavit, paras. 8 and 9.
Atkinson says that after the execution of the Sale Contract by Coolstar (on 26 May 2006)[72] he was informed by “the Clearys” that the landlord of the Business Premises proposed doubling the rent for the Business Premises, and the landlord would not assign the Business Premises to a third party.[73]
[72] See para. 14 above.
[73] Atkinson’s Affidavit, para. 22.
It was “as a result of this information regarding the Business Premises” that Atkinson “assisted Thurston [Coolstar] in obtaining alternative premises”.[74]
[74] Atkinson’s Affidavit, para. 24.
On the basis of the facts set out above it is not possible to conclusively say that there was conduct, or a representation made, by the Respondents concerning rent escalation which was misleading or deceptive.
Mortgage extension
Thurston gave evidence that a mortgage held by he and his partner over a property in Churchlands had recently been extended by $200,000 to enable Coolstar to have sufficient funds to acquire the Business.[75]
[75] Thurston’s Second Affidavit, paras. 7 and 8 and Annexure RJT1.
Contract
Coolstar purported to rescind the agreement to purchase the Business by letter dated 8 August 2006 from their solicitors to the solicitors for the Clearys and APT, and requested return of all monies paid to acquire the Business, together with all losses sustained.[76]
[76] Thurston’s First Affidavit, para. 25 and Annexure RJT5.
Legislation
Section 51AC(1) and (2) of the TP Act provide that a corporation or a person:
“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.”
Section 52(1) of the TP Act provides that:
“A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
The bankruptcy of the first and second-named first respondents
At the hearing of this matter on 16 October 2006 D Cleary told the Court that both she and P Cleary had gone into bankruptcy.
No evidence of the fact of the bankruptcy was before the Court, but there is no reason to doubt what the Court was told. [77] It would not assist with the efficient and economical resolution of these proceedings[78] to consider the position of P and D Cleary in detail in circumstances where:
a)there can be no complaint by a creditor if a debtor seeks to protect itself by going bankrupt in the face of or during proceedings against the debtor, and the effect of bankruptcy (in this case by the First Respondents) is such that claims against the bankrupt should generally be dealt with by the Trustee in Bankruptcy by way of the proof of debt process;[79] and
b)the Court has made a finding that APT is liable for engaging in misleading and deceptive conduct.
[77] The Court subsequently received correspondence from a chartered accountant indicating that the First Respondents both filed for bankruptcy on the morning of the hearing.
[78] Federal Magistrates Court Rules 2001 (Cth) (“FMC Rules”) r.1.03(1) provides that it is an object of the FMC Rules “to assist the just, efficient and economical resolution of proceedings.”
[79] Re Mottee; Ex parte Mottee & Anor (1977) 29 FLR 406 at 414-415 per Riley J; Saxon Building Projects Pty Ltd v Donnelly (in the matter of Honeysett) [1998] FCA 1398; Zodiac Investments Pty Ltd v Brelsford [1999] FCA 1482.
Representations and conduct of individuals
A question arises as to whether P and D Cleary, as individuals, might be liable for the alleged conduct and representations in breach of ss. 51AC and 52 of the TP Act. Section 6(2)(h) of the TP Act extends the operation of the TP Act to individuals generally (with some presently irrelevant exceptions), while s.6(3)(a) of the TP Act extends the operation of the TP Act to Part IVA of the TP Act (which includes s.51AC) and Division 1 of Part V (which includes s.52).[80]
[80] Dickson v Gallagher & Anor (1985) ATPR 40-550 at 46, 459 per Wilcox J.
However, whilst the relevant sections of the TP Act might theoretically be capable of extending to P and D Cleary in this case, it appears to the Court that P and D Cleary were at all times acting in their capacities as directors of ATP, and not as individuals, and therefore no liability for any contravention of ss.51AC or 52 of the TP Act will attach to them as individuals.
Section 51AC – unconscionable conduct
Section 51AC relates to the supply of goods or services to a person. If there is a supply in this case it is of goods only. The definition of “goods” in s.4 of the TP Act does not apply to most of what was purchased in this case: namely, goodwill ($75,000) and fixed plant and equipment ($102,500).[81] Therefore the only goods which might have been supplied is the stock purchased for $5,000. Given the finding made below concerning misleading and deceptive conduct it is unnecessary to consider this matter further, as any remedy in favour of Coolstar for unconscionable conduct will be the same as for any misleading and deceptive conduct engaged in by ATP.
[81] Affixed goods become part of the land, and are thus not goods: Theo Holdings Pty Ltd v Hockey (2000) 99 FCR 232; [2000] FCA 665.
Section 52 – misleading and deceptive conduct
Based on the facts set out above[82] the Court considers that the following conduct, consisting essentially of representations (or more particularly, misrepresentations) was misleading and deceptive:
a)that the Business was APT’s to sell, when it was not;
b)that the Business was not the subject of a franchise agreement, or part of a franchise, when it was, and when that franchise agreement was in dispute;
c)that the Business owned the 1300 Number, when it did not; and
d)that the APT owned the Business Name “Coast to Coast the Golden Roast”, when it did not.
[82] See particularly paras 14-63.
The evidence, largely unchallenged, establishes conclusively that but for the misleading and deceptive conduct Coolstar would not have paid ATP $182,500 for the Business, a Business, which except for the fixed plant and equipment, was not ATP’s to sell. Therefore, Coolstar’s loss was caused by reason of the contravention by ATP of s.52.[83]
[83] Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494.
In the circumstances, Coolstar is entitled to compensation for the conduct of ATP.[84] The assessment of compensation must be that which most fairly compensates for the wrong suffered[85] measured by the amount of loss or damage sustained.[86]
[84] TP Act, s.82(1).
[85] Johnson v Perez (1988) 166 CLR 351.
[86] I&L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, [2002] HCA 41.
On the evidence Coolstar has proven a purchase price of $182,500 for the Business. It seeks an order for that sum. However, Coolstar’s loss has been reduced by selling plant and equipment for $30,000.[87] Therefore, the Court determines that compensation of $152,000 is fair.
[87] Thurston’s Third Affidavit, para. 46. See Gates v City Mutual Life Assurance Society Ltd (1983) 68 FLR 101: the question is how much worse off claimant is having relied on the misrepresentation.
Coolstar further seeks an order that the Sale Contract be declared void ab initio. It is unnecessary to do so in circumstances where the Court has determined that Coolstar is entitled to compensation of $152,500. In any event, it is inappropriate to declare the contract void ab initio when it has, at least in part, been performed. Part performance was constituted by the purchase of the plant and equipment, subsequently sold by Coolstar for $30,000.
Conclusion
ATP contravened s.52 of the TP Act by its misleading and deceptive conduct constituted by various misrepresentations to Coolstar concerning the sale of the business. Coolstar suffered loss and damage by reason of the misrepresentations, and is entitled to compensation of $152,500 and costs assessed at $7,520.00.
I certify that the preceding eighty-eight (88) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: M Hewitt
Date: 12 October 2007
[65] Sale Contract, Particular 12. The retrospective review date is not explained in the evidence.
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