Culifora Pty Ltd (ACN 113 445 748) v O'Dea

[2007] FCA 1605

FEDERAL COURT OF AUSTRALIA

Culifora Pty Ltd (ACN 113 445 748) v O’Dea [2007] FCA 1605

CULIFORA PTY LTD (ACN 113 445 748) AND SALVATRICE CATALDO v SHANE PATRICK O'DEA
VID 905 OF 2006

NORTH J
7 SEPTEMBER 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 905 OF 2006

BETWEEN:

CULIFORA PTY LTD (ACN 113 445 748)
First Applicant

SALVATRICE CATALDO
Second Applicant

AND:

SHANE PATRICK O'DEA
Respondent

JUDGE:	NORTH J
DATE OF ORDER:	7 SEPTEMBER 2007
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.Judgment for the first applicant in the sum of $331,845.28 and $35,000 interest.  

2.The respondent pay the applicants’ costs of the application.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 905 OF 2006

BETWEEN:

CULIFORA PTY LTD (ACN 113 445 748)
First Applicant

SALVATRICE CATALDO
Second Applicant

AND:

SHANE PATRICK O'DEA
Respondent

JUDGE:	NORTH J
DATE:	7 SEPTEMBER 2007
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. The applicants filed an application on 11 August 2006, seeking amongst other relief, damages from the respondent for breach of the Trade Practices Act 1974 (Cth) (the Act). Until recently, the respondent participated in the proceedings and was represented by a solicitor. On 4 April 2007, the respondent’s solicitor attended a mediation conducted by a Registrar of the Court, and the respondent himself participated by telephone. However, on 20 July 2007, the respondent’s solicitor filed a notice of ceasing to act. That notice stated that the last known address of the respondent was 33 Loxton Avenue, Wantirna South.

2. On 28 August 2007, the applicants’ solicitor wrote to the respondent at that address indicating that the case was listed for directions on 3 September 2007, and that the applicants would seek a trial date at the directions hearing.  The letter also indicated that the applicants wished to serve on the respondent the expert witness report to be relied upon by the applicants.  At the directions hearing on 3 September 2007, there was no appearance by the respondent.  The matter was listed for hearing on 7 September 2007. 

3. Immediately following the directions hearing on 3 September 2007, the applicants’ solicitor wrote to the respondent at the last known address indicating that the case had been listed for hearing for 7 September 2007, and further indicating that the case could proceed in the respondent’s absence if he failed to appear.  Similarly, on 4 September 2007, the Court sent a notice of listing to the respondent addressed to 33 Loxton Avenue, Wantirna South.  Before the hearing this morning, the respondent was called outside the Court and has not appeared.  Against that background, the Court proceeds to consider this matter as an unopposed matter.

4. Orders had previously been made that the parties file affidavits upon which they intended to rely at the trial.  At the hearing, counsel for the applicants relied upon four affidavits which had previously been filed, namely the affidavit of the second applicant Salvatrice Cataldo, sworn on 23 March 2007, the affidavit of her husband Antonino Arrigo, sworn on 1 June 2007, an affidavit of Mark Ian Angwin sworn on 3 April 2007, and the affidavit of Paul Spence sworn on 3 September 2007. 

5. The first applicant is a company of which the second applicant is a director.  The claim made by the first applicant alleges that two companies, Retreat Franchising Pty Ltd and Retreat Retail Services Pty Ltd, contravened s 52 of the Act by engaging in conduct which was misleading or deceptive or likely to mislead or deceive.  

6. The first applicant initially entered into an oral agreement on or about 15 March 2005, and later written agreements were entered into with Retreat Franchising Pty Ltd and Retreat Retail Services Pty Ltd.

7. The agreement with Retreat Franchising Pty Ltd was a franchise agreement which gave the first applicant the right to operate a business for the retail sale of aromatic candles, aromatic oils and associated products.  The franchise agreement required payment to Retreat Franchising Pty Ltd of a franchise fee.  Retreat Retail Services Pty Ltd was to lease premises in the QV Building from which the business would operate.  The first applicant entered in to a licence agreement with Retreat Retail Services Pty Ltd, which gave it the right to use the leased premises to conduct the business.  The second applicant guaranteed the obligations of the first applicant under the franchise agreement and the licensing agreement.

8. The respondent was the sole director of each of those companies and, in any event, acted on behalf of those companies in the negotiations which led to the agreements.  Against the respondent, the applicants rely on the liability provided for by s 75B of the Act, namely that he aided, abetted, counselled or procured the contravention or was directly or indirectly, knowingly concerned in, or party to, the contravention by Retreat Franchising Pty Ltd and Retreat Retail Services Pty Ltd. 

9. The respondent, acting on behalf of Retreat Franchising Pty Ltd and Retreat Retail Services Pty Ltd, made a number of representations to the second applicant, prior to the first applicant entering into the franchise agreement and the licence agreement.  Some of these representations were made in the presence of the second applicant’s husband, Mr Arrigo. 

10. The respondent represented that the annual turnover of the business at the QV site would be $750,000 per year, and 60 percent of that turnover would be earned in the Christmas period.  The respondent also painted a picture of the support which would be provided to the first applicant as the holder of a franchise.  He said that Retreat Franchising Pty Ltd would provide training, advertising and promotional support.  The entire trading operation was to be provided for in the package offered through these two agreements.  The shop fitout at the QV site was to be completed for trading by Easter 2005.  Stock would be selected, priced and provided with bar codes for the operation of the business and a comprehensive computer system would be installed, which would provide sales, purchases and stock control information. The respondent said that the franchisor would comply with the Franchise Code and regular tax invoices for the licence fee would be provided. 

11. The evidence of the second applicant satisfies me that she relied upon these representations and in turn, the first applicant relied upon them to enter in to the franchise agreement and the licence agreement. 

12. The representations were, however, misleading and deceptive.  The turnover for the period from September 2005 until February 2006, which included the Christmas period, was just short of $29,000.  The package which the respondent indicated would be provided by Retreat Franchising Pty Ltd, including training, advertising and promotional support, was not provided and the stock which was selected was inappropriate and excessive for the purposes of the business.  The fitout was not completed until September 2005 and the computer system did not work properly.  Furthermore, the companies did not abide by the Franchise Code. 

13. It is clear from the evidence of the applicants that the representations were so far from the truth that I am able to infer that, when made, there was no belief that they were correct.  In addition to the evidence from the second applicant and her husband, there is evidence from Mr Angwin, who acted on behalf of Retreat Franchising Pty Ltd during the period when the misleading and deceptive conduct occurred.  His evidence supports the applicants’ claims. 

14. The loss and damage which has resulted from the first applicant entering into the two agreements, have been assessed by Mr Paul Spence of Munday, Wilkinson Pty Ltd Chartered & Forensic Accountants.  I accept the methodology used in his report which concludes that the losses arising from the first applicant’s failed business venture amounts to $326,189.  In addition, Mr Arrigo gave oral evidence of an additional loss of $5,656.28, being the payments made or yet to be made for the computer equipment which is no longer in the possession of the first applicant, but was apparently removed by the respondent.

15. I am satisfied that the respondent made the representations alleged, that he made them on behalf of Retreat Franchising Pty Ltd and Retreat Retail Services Pty Ltd, and that the conduct engaged in by the respondent on behalf of the companies was misleading and deceptive.  I am satisfied that the corporations acted in contravention of s 52 of the Act.  The respondent was knowingly involved in that contravention.  Further I am satisfied that the first applicant has suffered loss and damage as assessed by Mr Spence as a result of the misleading and deceptive conduct.  The second applicant claims as guarantor of the obligations of the first applicant, but the evidence does not establish that she has suffered any loss.

16. Consequently, there will be judgment for the first applicant in the sum of $331,845.28, together with interest from 11 August 2006 until this day, fixed at $35,000.  The respondent is to pay the applicants’ costs of the proceeding.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North.

Associate:
Dated:        22 October 2007

Counsel for the Applicant:	Mr Philips
Solicitor for the Applicant:	Applaws Pty Ltd
Counsel for the Respondent:	No appearance
Date of Hearing:	7 September 2007
Date of Judgment:	7 September 2007