Dalecoast Pty Ltd v Guardian International Pty Ltd
[2003] WASCA 142
•27 JUNE 2003
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION: DALECOAST PTY LTD -v- GUARDIAN INTERNATIONAL PTY LTD & ORS [2003] WASCA 142
CORAM: WALLWORK J
MURRAY J
ANDERSON J
HEARD: 21 & 22 AUGUST 2002
DELIVERED : 27 JUNE 2003
FILE NO/S: FUL 130 of 2001
BETWEEN: DALECOAST PTY LTD
Appellant
AND
GUARDIAN INTERNATIONAL PTY LTD
First RespondentGUARDIAN PROTECTIVE COATINGS PTY LTD
Second RespondentANTHONY MAURICE MONISSE
GRANT DESMOND BOYCE
GARY JOHN DWYER
ANTHONY PETER WARREN
Third RespondentsROBERT BRUCE ARUNDEL SMITH
ALAN FREDERICK BAMFORD
Fourth Respondents
Catchwords:
Trade practices - Consumer protection - Misleading or deceptive conduct - Silence - Various factual situations canvassed - Accessorial liability - Estoppel - Causation of loss - Assessment of damages - Account of profits
Legislation:
Fair Trading Act 1987, s 10
Trade Practices Act 1974, s 52
Result:
Appeal allowed as against first and fourth respondents
Appeal dismissed as against second and third respondents
Cross appeal dismissed
Judgment of trial Judge varied
Category: B
Representation:
Counsel:
Appellant: Mr D H Solomon
First Respondent : Mr P G Clifford
Second Respondent : Mr P G Clifford
Third Respondents : Mr P G Clifford
Fourth Respondents : Mr P G McGowan
Solicitors:
Appellant: Solomon Brothers
First Respondent : Wilson & Atkinson
Second Respondent : Wilson & Atkinson
Third Respondents : Wilson & Atkinson
Fourth Respondents : Tottle Christensen
Case(s) referred to in judgment(s):
Attorney-General v Blake [2001] 1 AC 268
Central Exchange Ltd v Anaconda Nickel Ltd [2002] 26 WAR 33
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Giumelli v Giumelli (1999) 196 CLR 101
Gould v Vaggelas (1985) 157 CLR 215
Henville v Walker (2001) 206 CLR 459
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286
Medlin v State Government Insurance Commission (1995) 182 CLR 1
Pilmer v The Duke Group Ltd (In Liq) (2001) 207 CLR 165
Rural Press Ltd v ACCC (2002) 193 ALR 399
S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd (1998) 88 FCR 354
Sharp & Dymond v Ramage (1995) 12 WAR 325
Watson v Metropolitan (Perth) Passenger Transport Trust [1965] WAR 88
Yorke v Lucas (1985) 158 CLR 661
Case(s) also cited:
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470
Antaios Compania Naviera WA v Salen Rederierna AB [1985] AC 191
Attorney-General v Blake & Anor [2001] 1 AC 268
Barnes v Addy (1874) LR 9 Ch App 244
Bettini v Gye (1876) 1 QBD 183
Bonnington Castings Ltd v Wardlaw [1956] AC 613
British Westinghouse Electric Company Ltd v Underground Electric Railways Company Ltd [1912] AC 673
Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45
Caratti v the Queen (2000) 22 WAR 527
Clef Aquitane S.A.R.L. v Laporte Materials (Barrow) Ltd [2001] QB 488
Compaq Computers Australia Pty Ltd v Merry & Anor (1998) 157 ALR 1
Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370
Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605
Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471
Dubai Aluminium Co Ltd v Salaam [2001] QB 113
Finesky Holdings Pty Ltd v Minister for Transport for Western Australia (2002) 26 WAR 368
Fleming v The Queen (1998) 197 CLR 250
Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217
Global Sportsmen Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Henjo Investments Pty Ltd v Collins Marrickville Ltd (No 1) (1988) 39 FCR 546
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Hurst v Picture Theatres Ltd [1915] 1 KB 1
Hussey v Eels [1990] 2 QB 227
International Fina Services AG v Katrina Shipping Ltd [1995] 2 Lloyd's Rep 344
Mark Foys Pty Ltd v TVSN (Pacific) Ltd (2000) 104 FCR 61
Pettitt v Dunkley [1971] 1 NSWLR 376
Re Croser; ex parte Rutherford (2001) 25 WAR 170
Ricochet Pty Ltd v Equity Trustees Executor & Agency Company Ltd (1993) 41 FCR 229
Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378
Rural Press Ltd v Australian Competition & Consumer Commission (2000) 118 FCR 236
Serrata Investments Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419
Singh v Crafter (1990) 2 ACSR 1
Smith v New South Wales Bar Association (No 2) (1992) 176 CLR 256
Sutton v A J Thompson Pty Ltd (1987) 73 ALR 233
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177
Tang Man Sit v Capacious Investments Ltd [1996] AC 514
Tay v Koh, unreported; FCt SCt of WA; Library No 9802234; 28 May 1998
Toteff v Antonas (1952) 87 CLR 647
Tramways Advertising Pty Ltd v Luna Park Ltd (1938) 38 SR (NSW) 632
Walker & Ors v Stones & Anor [2001] 2 WLR 623
Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189
Whitfords Beach Pty Ltd v Gadsdon (1992) 6 WAR 537
Windsor Smith Pty Ltd v Dr Martins Australia Pty Ltd [2000] FCA 756
WMC Resources Ltd v Bulong Operations Pty Ltd [2000] WASC 131
Wood v Leadbitter (1845) 153 ER 351
WALLWORK J: I am in agreement with the reasons for judgment and the conclusions of Murray J in this matter. There is nothing I wish to add.
MURRAY J: This appeal is against a judgment given in this Court after a trial which took eight hearing days. The judgment was for damages to be assessed following the finding that the first respondent (Guardian) breached a written contract with the appellant (Dalecoast) which was stamped on 20 April 1994 and varied by a deed of variation dated 14 March 1996, when Guardian supplied anti‑graffiti coating and graffiti removal products to a company called Graffiti Proofing Sign Service Pty Ltd (GPSS) after 1 February 1994. The assessment of damages was not to be listed pending the determination of this appeal. Otherwise Dalecoast's action against the second respondent, the third respondents and the fourth respondents was dismissed.
In view of the form of the judgment a question arises whether it is a final or an interlocutory order. The appeal was not by way of an application for leave and no argument was presented on this question. If it was thought to be desirable to formally grant leave to appeal, then, having regard to these reasons, I would be prepared to make that order.
The Grounds of Appeal
The appeal seeks judgment against all the respondents for damages in various nominated sums together with interest. So far as its judgment against the first respondent Guardian is concerned, Dalecoast seeks the capacity to elect whether to require an assessment of damages or an account of Guardian's profit in supplying GPSS. As a last resort, so counsel told us, Dalecoast seeks in the alternative that there be a retrial of its claims before a different judge of this Court.
The grounds of appeal upon which reliance is placed are as follows:
"His Honour erred:-
1.In fact and law in finding that the first respondent (first defendant) had not contravened s 52 of the Trade Practices Act 1974 ("TPA"), further or alternatively s 10 of the Fair Trading Act 1987 ("FTA"), in negotiations preceding the entry by the plaintiff into the Graffiti Coatings North ("GCN") franchise agreement and the assignment to the plaintiff of the Graffiti Coatings South
("GCS") franchise agreement or by entering into the GCN and the assignment of the GCS franchise agreement in that his Honour found:-
1.1the first respondent (first defendant) only had a right to acquire and sell the Guardian graffiti remover until 30 June 1995,
but should have found further:-
1.2the first respondent (first defendant) represented that it had the exclusive right to sell or authorise the sale of Guardian graffiti remover for the perpetual term of the GCN and GCS franchise agreements;
1.3the first respondent (first defendant) did not inform the appellant (plaintiff) of the matters referred to in ground 1.1;
1.4the first respondent (first defendant) did not have reasonable grounds for making the representation referred to in ground 1.2;
1.5by reason of the matters referred to in grounds 1.1-1.4, the first respondent (first defendant) contravened s 52 of the TPA, further or alternatively s 10 of the FTA;
1.6by reason of the conduct referred to in ground 1.5, the appellant (plaintiff) was induced into paying $238,000 to acquire the GCN franchise and $87,720.00 to acquire by assignment the GCS franchise, which were worthless;
2.In fact and law in finding that the first respondent (first defendant) had not contravened s 52 of the TPA, further or alternatively s 10 of the FTA, in negotiations preceding the entry by the plaintiff into the GCN franchise agreement and the assignment to the plaintiff of the GCS franchise agreement, further or alternatively by entering into the GCN franchise agreement and the assignment of the GCS franchise agreement, when his Honour should have found that:-
2.1by supplying, and by not informing the appellant (plaintiff) that the first respondent (first defendant) was supplying the same products to Graffiti Proofing Sign Service Pty Ltd ("GPSS") that it represented it would, and contracted to, supply exclusively to the plaintiff in the area of the GCN franchise agreement and by inducing the appellant (plaintiff) to pay a fee of $238,000 to acquire the GCN franchise agreement;
2.2further or alternatively, by permitting the second respondent (second defendant), a company with at all material times the same shareholders and directors as the first respondent (first defendant), to supply and by not informing the appellant (plaintiff) that the second respondent (second defendant) was so supplying, the same product, with the addition only of a paint thinner, to other persons within the exclusive area of the GCN and GCS franchise agreements and by the first respondent (first defendant) representing it had the exclusive right to supply and contracting to supply exclusively to the appellant (plaintiff) the Guardian anti-graffiti products within the area of the GCN and GCS franchise agreements.
2.3the first respondent (first defendant), by reason of the matters referred to in grounds 2.1 and 2.2 above further or alternatively grounds 1.1-1.4, 2.1 and 2.2 above, contravened s 52 of the TPA, further or alternatively s 10 of the FTA; and
2.4by reason of the conduct referred to in ground 2.3, the appellant (plaintiff) was induced into paying $238,000 to acquire the GCN franchise agreement and $87,720 to acquire by assignment the GCS franchise, which were worthless;
3.In fact and law in failing to find, in light of the matters referred to in grounds 1.1, 1.2, 2.1 and 2.2, the first respondent (first defendant) contravened s 52 of the TPA further or alternatively s 10 of the FTA by failing to inform the appellant (plaintiff) that:-
3.1the first respondent (first defendant) may not be able to perform the GCN and GCS franchise agreements throughout their perpetual term;
3.2further or alternatively, the first respondent (first defendant) did not intend to perform the GCN and GCS franchise agreements.
4.In fact and law failing to find that the fourth respondents (fourth defendants) were knowingly concerned in or a party to the first respondent's (first defendant's) contravention(s) of s 52 of the TPA, further or alternatively s 10 of the FTA, when the fourth respondents (fourth defendants):-
4.1were directors of the first and second respondents (first and second defendants) at the time when the relevant negotiations occurred and the GCN franchise entered into by the appellant;
4.2conducted all negotiations with the appellant's (plaintiff's) directors including providing a draft of the GCN franchise agreement to the appellant's (plaintiff's) directors;
4.3executed the GCN and GCS franchise agreements; and
4.4had, on their own evidence, knowledge of the limited rights the first respondent (first defendant) had to the Guardian remover and of supply being made to GPSS and the ceramics franchisees of the same products as the first respondent (first defendant) represented it would and contracted to, supply exclusively to the appellant (plaintiff) in the GCN franchise area, and to the franchisee in the GCS franchise area,
alternatively, in failing to make any findings in relation to the fourth respondents (fourth defendants) being knowingly concerned in or a party to the first respondent's (first defendant's) contravention of s 52 of the TPA further or alternatively s 10 of the FTA.
5.In fact and law in failing to find that the second respondent (second defendant) was knowingly concerned in or a party to the first respondent's (first defendant's) contravention of s 52 of the TPA, further or alternatively s 10 of the FTA when:-
5.1at all material times the first respondent (first defendant) and the second respondent (second defendant) had common directors and shareholders;
5.2the second respondent (second defendant) sold the same product with the addition only of a paint thinner to the ceramics franchisees as the products sold exclusively by the first respondent (first defendant) to the appellant (plaintiff) pursuant to the GCN franchise agreement and to the franchisee and the GCS franchise agreement;
5.3Messrs Monisse's and Dwyer's evidence was that the first respondent (first defendant) and the second respondent (second defendant) carried on business as if they comprised one seamless business with various management and service fees being charged by one to the other, both companies were acquired by the first to third-named third respondents (first to third-named third defendants) from the fourth respondents (fourth defendants) under the same sale agreement for one indivisible consideration and the second respondent (second defendant) was incorporated only for accounting or tax reasons,
alternatively, in failing to make any finding in relation to the second respondent (second defendant) being knowingly concerned in or a party to the first respondent's (first defendant's) contravention of s 52 of the TPA, further or alternatively s 10 of the FTA;
6.In fact and law in finding that the first to third‑named third respondents (first to third‑named third defendants) were not knowingly concerned in or a party to the conduct referred to in grounds 1 to 3 above, when:-
6.1a person is knowingly concerned in or a party to a breach of the TPA, further or alternatively the FTA, if he or she knew of such suspicious circumstances that knowledge is to be inferred or was reckless as to whether or not the conduct they were concerned in or a party to was a contravention of the TPA further or alternatively the FTA;
6.2the first-named third respondent (first-named third defendant):-
6.2.1admitted sending exhibit 27 to the first respondent (first defendant) or the fourth respondent (fourth defendant);
6.2.2admitted preparing exhibit 28;
6.2.3admitted that he may have sent exhibit 28B to the first respondent (first defendant) or the fourth respondents (fourth defendants);
6.2.4admitted sending to the first respondent (first defendant) or the fourth respondents (fourth defendants) various earlier documents, including exhibits 19 and 20;
6.2.5made the admission quoted at para [171] of his Honour's reasons;
6.2.6admitted that he was not aware of the nature of the rights or arrangements between the first respondent (first defendant) and Chemform and Albright & Wilson Specialities Pty Ltd until 1996;
6.2.7knew that the first defendant was selling anti-graffiti products to GPSS;
6.2.8was shown in cross‑examination, at transcript pages 455-456, 463-489, to have been reckless as to the accuracy of the documents he was preparing or the use to which those documents would be put;
6.2.9admitted receiving exhibit 23;
6.3his Honour accepted each of Messrs Thorpe's, Robinson's, Smith's and Bamford's evidence (at paras [26] and [36]), whose evidence was that Messrs Smith and Bamford told Messrs Robinson and Thorpe that the price of the GCN franchise had been calculated by the first to third-named third respondents (first to third-named third defendants);
6.4the rate of return models were, contrary to his Honour's finding at para [167], plainly for the purpose of being provided to potential purchasers as a rate of return on investment is a financial figure relevant to a purchaser and not to a vendor;
6.5the first-named third respondent (first-named third defendant) had prepared annual returns for the first respondent (first defendant) showing that it had intangible assets (including intellectual property) of only $910.00, the evidence in relation to which was that $910.00 was the formation expenses of the first respondent (first defendant);
6.6the rate of return models prepared by Mr Monisse (which showed an annual rate of return on investment) necessarily assumed an ongoing supply of graffiti remover in perpetuity;
6.7the second‑named and third‑named respondents (second‑named and third‑named third defendants) were liable for the conduct of the first‑named third respondent (first-named third defendant) by reason that the first-named, second-named and third-named third respondents (first to third-named third defendants) were partners (as found by his Honour at [3] and all liable for the first‑named third respondent's (first‑named third defendant's) conduct pursuant to:
6.7.1s 17 of the Partnership Act 1895;
6.7.2further or alternatively, s 26 of the Partnership Act 1895;
6.7.3further or alternatively, s 84 TPA;
6.7.4further or alternatively, s 82 FTA;
7.In fact and law in finding that by authorising or permitting or causing the second respondent (second defendant) to supply the same products as supplied by the first respondent (first defendant) to the appellant (plaintiff) on an exclusive basis, with the addition only of a paint thinner, to ceramics franchisees, was not a breach of the GCN and GCS franchise agreements;
8.In law in failing to give reasons with respect to the appellant's (plaintiff's) claim for breach of fiduciary duty, alternatively implied contractual duty of good faith, by the first respondent (first defendant) and the appellant's (plaintiff's) claim that the second respondent (second defendant) was knowingly concerned in the first respondent's (first defendant's) breach of fiduciary duty, alternatively in fact and in law, in failing to hold that:-
8.1the first respondent (first defendant) breached the fiduciary duties it owed to the appellant (plaintiff) in supplying Guardian anti-graffiti products to GPSS and by authorising or permitting the second respondent (second defendant) to supply the Guardian graffiti coating with the addition of a paint thinner to its ceramics franchisees; and
8.2the second respondent (second defendant) was, for the reasons referred to in ground 5 above, knowingly concerned in the first respondent's (first defendant's) breach of fiduciary duty;
9.In law in distinguishing Attorney-General v Blake [2001] 1 AC 268 and failing to permit the appellant (plaintiff) an election between an assessment of damages and an account of profits obtained by the first respondent's (first defendant's) breach of the GCN and GCS franchise agreements;
10.In fact and law in:-
10.1failing to make findings as to damages or compensation with respect to breach of contract, further or alternatively breach of fiduciary duty, with respect to such supply to ceramics franchisees;
10.2failing to permit the appellant (plaintiff) an election as referred to in ground 9 for breach of contract with respect to such supply to ceramics franchisees;
11.In fact and law in:-
11.1finding the plaintiff was estopped from bringing a claim for overcharging for Guardian graffiti remover when his Honour:-
11.1.1made no finding of reliance or detrimental reliance on the appellant's (plaintiff's) conduct;
11.1.2could not have found reliance or detrimental reliance in light of exhibit 99 and Mr Warren's evidence in cross‑examination in relation to exhibit 99; and
11.2preferring Mr Dwyer's calculation of loss to Mr Robinson's calculation, when Mr Dwyer's calculation excluded the Guardian environmentally friendly remover which was a "Product" as defined in the GCN and GDS franchise agreements and consequently to be supplied at the price specified therein;
12.In fact and law in finding that the appellant (plaintiff) had not established any loss arising from the refusal by the first respondent (first defendant) to supply Guardian graffiti remover because:-
12.1Mr Robinson's evidence was based on hearsay;
12.2the appellant (plaintiff) started purchasing graffiti remover from Chemform on or about 8 October 1996;
12.3the cost of materials calculated by the appellant (plaintiff) did not correspond with the first respondent's (first defendant's) invoices or Mr Dwyer's schedule;
when his Honour should have found:-
12.4the schedule relied on by the plaintiff was admissible as prima facie evidence of the facts stated therein pursuant to s 1305 of the Corporations Law;
12.5Mr Robinson's evidence was admitted without objection;
12.6Mr Robinson's and Mr Michel's evidence was not hearsay but was derived from first hand experience;
12.7the first respondent's (first defendant's) invoices showed purchases by the appellant (plaintiff) of the "environmentally friendly remover";
12.8the appellant (plaintiff) was required by clause 17 of the franchise agreements to purchase a minimum quantity of products from the first respondent (first defendant) pursuant to the GCN and GCS franchise agreements and consequently had to purchase the first respondent's (first defendant's) products including the "environmentally friendly remover";
12.9the appellant's (plaintiff's) evidence was that the extra product column included not only the "environmentally friendly remover" but also solvent based remover required to finish removal jobs performed with the "environmentally friendly remover" and other materials necessary to complete removal jobs in which the "environmentally friendly remover" was used;
13.In law in failing to consider whether, and find that, the first respondent (first defendant) contravened s 52 of the TPA, further or alternatively s 10 of the FTA, and the second respondent (second defendant) and the third respondents (third defendants) were knowingly concerned in or a party to that conduct by the first respondent (first defendant) engaging in the conduct referred to in grounds 11 and 12 above;
14.In fact and law in failing to make any findings concerning damages when his Honour should have found, for those purposes, that the appellant (plaintiff) would not have acquired the GCN and GCS franchises but for the first respondent's contravention of s 52 of the TPA, further or alternatively s 10 of the FTA, and that the GCN and GCS franchises were worthless."
In this judgment it will be convenient to adopt the abbreviations in the grounds of appeal and refer to the Graffiti Coatings North franchise agreement as the GCN franchise agreement and the Graffiti Coatings South franchise agreement as the GCS franchise agreement where they need to be separately identified. So far as the grounds raise errors of fact, counsel submitted that it was open to this Court to re-examine the findings and indeed incumbent upon it to do so because the evidence raised no relevant credibility issues.
The Notice of Contention and Cross-Appeal
There is a notice of contention filed by the first, second and third respondents. If Dalecoast should succeed against any of them on any of the grounds of appeal 1, 2, 3, 4, 5, 6 or 14 then they contend that Dalecoast did not rely upon any representation of Guardian or the third respondents material to those grounds when entering into the franchise agreements. The notice of contention puts the matter better when it asserts that Dalecoast failed to prove reliance. The notice further asserts that before the trial Judge, Dalecoast failed to prove that the franchises were worthless. There is a related cross-appeal by Guardian which asserts that Dalecoast should only have had judgment against it for nominal damages in the sum of $10 as a result of Dalecoast's alleged failure to prove that it had suffered any loss and damage as a result of the breach of contract.
The Facts as Found
The primary facts, so far as they are presently relevant, appear to be the following: the fourth respondents, Messrs Smith and Bamford, incorporated Guardian under the name Graffiti Coatings Australia Pty Ltd on 28 May 1991. During 1992 they were in the process of developing an anti-graffiti coating and indeed a remover, the latter in cooperation with a Dr Vinciguerra whose business traded as Chemform. As I understand it they were getting orders for coating product and were applying it as it developed. One vehicle through which they did this was the company known as GPSS, which they acquired on 29 April 1993.
As I understand it the anti‑graffiti coating is a chemical product applied like a paint to walls which have already been painted or are otherwise in a final form of presentation. As the GPSS name suggests, the product could also be applied to signs, but obviously it would be less profitable to do so. The profitability of the business of applying anti‑graffiti coating lay in its application to relatively large surface areas. The effect of applying the product was to make paint used to apply graffiti less able to bind with the surface of the wall. It could then more easily be removed by the use of a solvent or remover and, as can be seen, Messrs Smith and Bamford, through their company Guardian, were interested in developing both aspects of the product which went under the name "Guardian".
During 1993 Messrs Smith and Bamford became interested in providing a capacity for others to apply the product they had developed, under franchise agreements. Their accountants became involved in mid 1993. The accountants were known as Mullers. There were three partners. They are the first three third respondents, Messrs Monisse, Boyce and Dwyer. Monisse was the partner who did the work for Guardian. The first work done in relation to franchise agreements was done generally for the area of the State comprising various local government areas south of the Swan River. This franchise, Graffiti Coatings South or GCS, as it is described in the grounds of appeal, was sold to a company called Parisi Holdings Pty Ltd on 6 August 1993. Mr Monisse continued work to assist to fix a price for a franchise agreement to be entered into generally for the area of the State encompassing various local government areas north of the Swan River.
I have said that the graffiti coating was being developed and gradually improved by Guardian. The work that Guardian, the first respondent, was doing to develop a remover in association with Chemform came to fruition on 23 June 1993 when Chemform wrote to Mr Smith a letter (of which Mr Bamford was aware) under the hand of Dr Vinciguerra saying:
"This letter is to confirm the fact that your company will have exclusive rights to the product 'Graffiti Solv' until 30th June 1995. We undertake not to sell this to any other company until this period has expired when the agreement will be re‑negotiated."
It is important to note therefore that the remover upon which they had been working was exclusively available to Guardian before they sold the GCS franchise to Parisi Holdings Pty Ltd, but only for a period of about two years, ending on 30 June 1995.
Meanwhile, in late 1993 a Mr Robinson commenced to work for Guardian as a salesman. He knew a Mr Thorpe and together the two men became interested in purchasing the GCN franchise from Guardian.
The four men, Robinson and Thorpe, the purchasers, and Smith and Bamford for Guardian, met in December 1993 at Mr Smith's house. The deal does not appear to have been concluded at this point, but it seems that, guided by Monisse's work, Smith and Bamford said that the purchase price was $238,000 and that sum was not negotiable. The trial Judge so found. A further meeting was held on about 11 January 1994 at which time a list of equipment to be acquired by the purchasers was prepared. Robinson and Thorpe were at the same time pursuing finance, which was finally arranged through the Challenge Bank. On 17 February 1994 they acquired Dalecoast as a shelf company to be the corporate vehicle by which the business of the franchise would be carried on.
It seems that the only variation to the price was the payment of an additional sum of $8000 for a motor vehicle transferred to Dalecoast. It seems to have been the case, as often happens, that without particular formality it was accepted that Dalecoast would purchase the GCN franchise at the price asked and, ultimately using that corporate vehicle, Thorpe and Robinson commenced to operate the franchise business from 1 February 1994, the date upon which the trial Judge found they entered into possession of the business and commenced trading.
The formal GCN franchise agreement is in the form of an undated deed stamped on 20 April 1994 between the corporate precursor of Guardian as franchisor and Dalecoast as franchisee. There are three recitals:
"A.The Franchisor has caused to be developed and is the supplier in Australia of a range of products for the removal of or protection against graffiti known as 'Guardian'.
B.The Franchisor is engaged in the business of the sale of the Product and providing services of the application of the Product for protection against and removal of graffiti from buildings and other structures and places and has thereby created substantial goodwill and high repute in connection therewith.
C.The Franchisee has requested the Franchisor to licence to the Franchisee the right to acquire the Product and to carry on a business as franchisee within the Exclusive Area under the Business Name."
The trial Judge found that so far as these recitals contained any representations by Guardian, they were not misleading or deceptive.
The matters relevant to the alleged contraventions of s 52 of the Trade Practices Act 1974 (Cwth), or alternatively s 10 of the Fair Trading Act 1987 (WA), the subject of the first three grounds of appeal, are the subject of other provisions of the deed.
A number of the definitions in clause 1.1 should be noticed:
"Exclusive Area" means the area of the local authorities as mentioned in the Schedule hereto at the date hereof;
"the Franchise Business" means the business of the supply and application of the Product the operation of which is permitted by virtue of the rights and benefits granted by the Franchisor to the Franchisee pursuant to this deed;
"the Product" means the product or products as at the date hereof sold by the Franchisor for the removal of or protection against graffiti under the style or trade name of "Guardian" together with any future developments of such products effected by the Franchisor during the Term;
"the Term" means the period beginning on the Commencement Date and ending upon a date to be mutually agreed between the parties or upon which this deed is earlier terminated by law or pursuant to Clause 17;
In relation to the last-mentioned definition, the commencement date is given by this clause as 1 February 1994. Clause 17 provides for termination by the franchisor for various breaches by the franchisee. The most important provision is probably clause 17.2 which provides a rolling period of six months during which the franchisee is obliged to purchase an average of 200 litres of product per month over each such six-month period. If the franchisee does not make those purchases then the franchisor may terminate the agreement by written notice.
Clause 3 records the franchise fee as being the sum of $238,000 and the operative clause of the franchise agreement, described as providing for a licence, is in the following terms:
"2.1Licence
The Franchisor for the duration of the Term:
(a)agrees to supply Product to the Franchisee for the purpose of enabling the Franchisee to carry on the Franchise Business;
(b)licences the Franchisee to exploit and use the Product in the Exclusive Area;
(c)licenses the Franchisee to exploit and use the trade name and other intellectual property but only to the extent necessary for the purpose of conducting the Franchise Business in the Exclusive Area;
(d)agrees not to authorise any other person to operate a Franchise Business in the Exclusive Area during the Term and take all necessary steps at the joint cost of the parties hereto to prevent any intrusion in the Exclusive Area by any other Franchisee, unauthorised person or persons;
(e)licenses the Franchisee to use in the conduct of the Franchise Business the current distinctive signs labels designs trade marks commercial symbols and advertising matter pertaining to the Product and to use and display the name "Guardian" in advertising matter used in connection with sales of Product and services in the operation of the Franchise Business;
(f)licenses the Franchisee to conduct the Franchise Business under the Business Name;
(g)agrees to provide the Franchisee with relevant data and information and consult with the Franchisee as may be necessary to ensure that the Franchisee has the benefits of the exploitation and use in the Exclusive Area of the Product;
(h)agrees to provide training accounting services and assist in the operation of the Franchise Business in the manner herein mentioned.
2.2The Franchisee acknowledges and agrees that the Franchisor may at any time during the Term grant franchises or enter into joint ventures or other arrangements for the operation of businesses similar to the Franchise Business within areas outside the Exclusive Area upon such terms and conditions as it thinks fit in its absolute discretion."
I shall return to the provisions of the deed later. To complete the narrative, however, I should note that Messrs Smith and Bamford ceased to have any interest in GPSS on 24 May 1994. It will be recalled that it was the supply of product to that company which the trial Judge found to be a breach of the franchise agreement, particularly clause 2.1(d). It seems that there was no real dispute that Guardian supplied graffiti coating to this company, of which until May 1994 Smith and Bamford were directors, until 12 December 1994. I will need to refer to one aspect of the judgment against Guardian in respect of this breach of contract for damages to be assessed in due course, but for the moment I may put it to one side.
Finally, I note that on 29 November 1994 Dalecoast entered into an agreement to purchase the business of Kline Pty Ltd which was being carried on as "Graffiti Coating – South of River" for a purchase price of $102,000 attributed as to $87,720 to goodwill and licences, the balance being attributed to plant and stock in trade. This purchase relates to the GCS franchise which, it will be recalled, had originally been granted to Parisi Holdings Pty Ltd. Kline Pty Ltd was an assignee of that franchisee. As I understand it, the terms of that franchise agreement were in substance the same as the GCN franchise agreement. I have quoted the terms which seem to be important for present purposes. Therefore by those somewhat different processes Dalecoast became the franchisee in relation to Guardian's graffiti coating and the graffiti remover (subject to the expiry date of 30 June 1995 imposed by the agreement between Chemform and Guardian) for all the areas of the State covered by the agreements both north and south of the Swan River.
During 1993 Mr Bamford and Mr Smith discovered that the graffiti coating in a modified form could be used as a protective coating for ceramic tiles. On 19 November 1993 they acquired a shelf company which they named Guardian Protective Coatings Pty Ltd, the second respondent, to be used as the corporate vehicle by which this interest might be pursued. The product was modified by adding 15 to 20 per cent butyl acetate. It was effectively the addition of a more volatile solvent to enable it to be sprayed on the tiles successfully so that it did not run and dried quickly. A particular form of primer was used as an undercoat. The trial Judge found that on the evidence this was a completely different form of business, using a product which his Honour concluded was different from that supplied for protective coatings because of the necessity to modify it by the introduction of a percentage of butyl acetate.
The second respondent entered into franchise agreements in favour of two different franchisees for the provision and application of this ceramic coating on 16 March 1994. These franchise agreements are in common form and they are in substance the same as those entered into by Guardian in respect of the supply and application of the graffiti coating and remover. The product is described as that sold by the franchisor, "for the coating of ceramic and other similar surfaces under the style or trade name of 'Guardian Ceramic Coatings' together with any future development of such products".
The factual account for present purposes is completed by noting that the partners of Mullers, Messrs Monisse, Boyce and Dwyer, acquired Guardian and the second respondent from Messrs Smith and Bamford on 3 November 1994. One of their first acts was to appoint the last-mentioned third respondent, Mr Warren, as general manager of these companies and later, in February 1995, Mr Warren acquired a 25 per cent interest in the companies to match the interests of their other owners.
A Contravention of the Trade Practices Act
The issue raised by the first ground of appeal is the question of Guardian's liability under s 52 of the Trade Practices Act or s 10 of the Fair Trading Act in the negotiations preceding Dalecoast's entry into and acquisition of the GCN and GCS franchises, or by the acts of entering into those agreements, in respect of Guardian's statements and conduct as to its rights to the graffiti remover. It is clear from Chemform's letter of 23 June 1993 that Guardian's exclusive rights to the remover were only guaranteed to it until 30 June 1995. Thereafter any such agreement was to be renegotiated. The trial Judge so found.
His Honour did not however make any finding in the context of this issue about the conduct of those representing Guardian, Messrs Smith and Bamford, and what representations were made on behalf of the company during the negotiations, such as they were, which preceded the entry into the GCN franchise agreement some time before 20 April 1994, in particular at the meetings held in December 1993 and on or about 11 January 1994.
His Honour's conclusion on this aspect of the case, as a result of which this claim by Dalecoast was dismissed, is contained at [115] – [116] of his Honour's judgment:
"Many events may happen in the future, some of which may lead to an inability to supply product or remover. If such an event occurs, it may be a breach of contract. It does not inevitably follow that there has been misleading and deceptive conduct in the pre-contractual negotiations or in the franchise agreement.
At the time of the franchise agreement there were no such events. Dr Vinciguerra did not have any problems in supplying Guardian International with remover. He had given a letter guaranteeing supply. During the course of the contract, except for the development of the environmentally friendly remover to which I shall shortly turn, there was no break in supply of remover. In the circumstances, the plaintiff has failed to persuade me that there has been any misleading and deceptive conduct."
Of course, his Honour also discussed the terms of the franchise agreement upon which Dalecoast placed reliance. His Honour found nothing of a misleading or deceptive nature in those provisions.
His Honour commented upon the credibility of the witnesses who spoke about the material events, Messrs Smith and Bamford on the one hand and Messrs Thorpe and Robinson on the other. He concluded that the passage of time had had a harmful impact upon the memory of a number of the witnesses, but he thought that Mr Thorpe and Mr Smith had "generally clear memories and recollections." Mr Robinson, his Honour said, was "vague as to details." His Honour commented that Mr Bamford "was forthright in admitting his non‑recollection of certain matters."
The statement of claim of Dalecoast seems, remarkably, to have undergone no less than five processes of amendment. The pleading relevant to this ground of appeal is paragraph 15. By paragraph 15.1 it was pleaded that Guardian represented to Dalecoast that it "had the exclusive right to sell or authorise the sale of graffiti remover." It will be noticed immediately that the problem was not said to be the representations made with respect to the graffiti coating. Five particulars of representation are provided. The first four rely respectively upon recital A, recital B, recital C and clause 2.1 of the franchise agreements. I have set out the terms of those provisions. Then by particular E it is pleaded:
"In negotiations prior to entering into both agreements, [Guardian] represented to [Dalecoast] that, by entering into each agreement, [Dalecoast] acquired exclusive rights within the exclusive area the subject of that agreement."
In paragraph 15.4 it is pleaded that the representation was false. Three particulars of falsity are given. The first two are not presently material, but particular C is:
"[Guardian] was unable to grant to [Dalecoast] the exclusive right to acquire graffiti remover in the exclusive area the subject of each agreement throughout the term of both agreements pleaded in paragraph 5."
Paragraph 5 of the statement of claim simply refers to the various agreements constituting the formation of the GCN franchise and the formation and acquisition of the GCS franchise.
I accept that, because a finding of the ultimate fact in issue, whether the conduct of the defendant is or is not misleading or deceptive, involves a conclusion from primary facts which are found or undisputed, and because it is a matter of judgment, the appellate court may well come to a different conclusion from the judge at first instance. Indeed, when the issue is raised before an appellate court by appropriately framed grounds of appeal that court is obliged to consult its own views upon the question and, absent relevant credibility issues, may do no more than give "respectful weight" to the conclusion of the trial judge: S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd (1998) 88 FCR 354 and the cases there cited. This is because the test of whether conduct is misleading or deceptive or likely to mislead or deceive is objective. It is for the court to determine that ultimate issue of fact.
There are two aspects of the pleaded allegation which are presently material – the right to sell and use, or authorise the sale and use, of graffiti remover was exclusively the property of Guardian, and this was the property to be conveyed to Dalecoast for the whole of the term of the agreements. The fact that Guardian's exclusive rights in this regard in relation to the particular remover presently in use were limited to 30 June 1995 was not conveyed to Dalecoast.
It is to be remembered that Robinson was working as a salesman for Guardian at the time of the discussions about the acquisition by Thorpe and him of a graffiti coating franchise. He knew the nature of Guardian's business in general terms and about the development of the graffiti coating. Thorpe was told about this aspect of the matter, but Thorpe and Robinson said in evidence that in relation to the remover they were not told what arrangement Guardian had with Chemform, nor were they shown the letter of 23 June 1993. Smith, upon whose evidence the Judge was prepared to rely, did not on this issue have a clear memory. He said that he was "pretty sure", but he could not be 100 per cent sure, that the Chemform letter was shown to Robinson and Thorpe. He agreed that neither he nor Bamford specifically said that their rights in respect of the remover were for the limited period of two years. Bamford's evidence about what was said was even less certain. He was simply unsure whether or not the Chemform letter had been shown to Messrs Thorpe and Robinson.
In my view, the evidence of oral statements lacked certainty and clarity in relation to the making of affirmative statements that Guardian's rights to both the coating and the remover were exclusively theirs, but the clear inference from their statements would have been that it was rights of that character of which Guardian was prepared to dispose by franchise. To my mind the reliable evidence was all one way, that there was no specific reference to any limitation of time upon Guardian's rights with respect to the remover.
When the negotiations moved from the process of oral discussion in the context of a fixed price of $238,000 for the acquisition of the franchise (and ultimately the payment of $8000 to acquire a motor vehicle) to the prospect of execution of the deed of franchise, the nature of the representations was reinforced. It is not clear to me whether those representing Dalecoast saw the franchise agreement before or after they took possession of the GCN franchise and commenced their operations on 1 February 1994. It is not clear when the document was signed. However, it is to be remembered that it is in a form which is substantially the same as the GCS franchise and the deed by which that franchise was granted had been drawn by Guardian's solicitors before the middle of 1993. It will be recalled that the GCS franchise had been taken up by Parisi Holdings Pty Ltd in August 1993 and so it was simply a matter of changing the particulars of the document to accommodate the transaction between Guardian and Dalecoast in relation to the GCN franchise. There would seem, in fact, to be no question between the parties that the representations made within the document are to be considered as material to the allegations that the entry into the franchise agreement was causally related to the alleged misrepresentations.
In my opinion, recital A supports the conclusion that Guardian was representing that it was the exclusive supplier in Australia of products, not only for protection against graffiti, but for the removal of graffiti. Recital B is to the same effect and recital C reinforces the conclusion that the licence to be acquired by the franchisee was the right to acquire the product and to carry on business within the exclusive area. That the representations applied to the remover as well as to the anti‑graffiti protection product is made clear by the definition of the product in clause 1.1, a definition which expands the meaning of the term to include not only those products currently being used, but any future developments of such products.
A crucial definition is that of the term of the agreement, a period beginning on the commencement date, 1 February 1994, and "ending upon a date to be mutually agreed between the parties" unless the deed is earlier terminated by law or under clause 17 by virtue of the breach of material provisions or non-payment of moneys payable under the deed. In addition, by clause 17.1(b) there is provision for the usual acts of termination, the abandonment of the franchise business, the winding up of the franchisee if a company, its liquidation, its entry into an arrangement or composition with its creditors, its incapacity to pay its debts and like matters. Otherwise, as has been seen, the franchisor was specially entitled to terminate the agreement under clause 17.2 upon the franchisee's failure to purchase the required quantity of product in any rolling six-month period during the currency of the agreement.
Those are all specific acts or defaults on the part of the franchisee which will entitle the franchisor to terminate the agreement earlier than would otherwise be the case during its currency. The licence granted by clause 2.1 was for the duration of the term and in my opinion the parties correctly described that as an indeterminate or indefinite term. I would not agree with the appellant's submission that the term is to be regarded as being, potentially at least, in perpetuity. It is simply the grant of a licence on an indeterminate basis, but, as has been seen, in that context clause 2.1(d) directly provides for the exclusive use of the products in a franchise business for the supply and application of the products in the exclusive area to which the agreement applies during its term.
It is necessary to have regard to the terms of the oral negotiations between the parties, as they were established by the evidence, and the terms of the deeds themselves, bearing in mind their similarity and the fact that the GCS franchise was purchased and therefore acquired from Guardian at the end of November 1994 and while, as I understand the evidence, Messrs Robinson and Thorpe remained ignorant of the limited nature of the rights to the remover which Guardian possessed. Having regard to all that material and after giving careful consideration to the reasoning of the trial Judge I consider that Guardian was guilty of misleading or deceptive conduct in respect of the representations made about the rights to and the nature of the licence granted in respect of the acquisition and use of the remover.
I reach that view, not because Guardian was giving any guarantee of supply of remover which it could not then honour or that there was any problem in achieving supply of remover during the life of the franchise agreements, but because the representation was effectively that Guardian had, and could license Dalecoast to acquire and use, guaranteed rights of access to the remover for as long as the franchise agreements should last; and they could last indefinitely. They were terminable only by agreement or by the specified defaults on the part of the franchisee, including, importantly, the failure to purchase a specified quantity of the product, including the remover, in any given period of six months. But Guardian did not have that right to acquire and use the remover indefinitely. It had it only for the period of two years expiring on 30 June 1995. Thereafter, it had no right to the remover from Chemform at all. It was back to the starting point of negotiating continued access to that product from its supplier.
The matter may, I think, be looked at in two ways. Either Guardian was representing by its conduct that it had access to and rights over the remover indefinitely or it failed to qualify its statements about the remover by express reference to the limited nature of its rights. This, I think, it was bound to do in the circumstances.
In my opinion it remains a useful test to apply the statements made by the Federal Court in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. At 32 Black CJ said:
"Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. To speak of 'mere silence' or of a duty of disclosure can divert attention from that primary question. Although 'mere silence' is a convenient way of describing some fact situations, there is in truth no such thing as 'mere silence' because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed."
At 40, in a judgment with which Cooper J agreed, Gummow J said that:
"… in any case where a failure to speak is relied upon the question must be whether in the particular circumstances the silence constitutes or is part of misleading or deceptive conduct."
At 41 his Honour continued:
"… consistently with regard to the natural meaning of the terms of s 52, the question is whether in the light of all relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive. Conduct answering that description may not always involve misrepresentation."
In my opinion, while it may be said that there was no positive misrepresentation in this case, all the negotiations and the terms of the franchise agreements themselves in relation to the remover, as much as in relation to the graffiti coating, proceeded upon the basis that Guardian had and could grant to Dalecoast by licence, exclusive rights for an indefinite period. The situation was different with respect to the remover from that which applied to the coating. With respect to the remover Guardian's rights were much more limited and therefore, in my opinion, looking at the matter objectively, a reasonable expectation arose that Guardian should disclose the particular circumstances applicable to access to the remover.
In my opinion, ground 1 is made out both with respect to the GCN franchise and the GCS franchise. As to the latter, I have mentioned the factual circumstances of its acquisition from Kline Pty Ltd. That company was operated by a Mr Stephens. The evidence of Messrs Robinson and Thorpe was that when they agreed to purchase that franchise they mentioned that plan to Smith and Bamford at a meeting held in Wangara. It was then that Robinson and Thorpe were told that Smith and Bamford were in the process of selling Guardian to their accountants, Mullers, the partners of which were, as I have mentioned, Monisse, Boyce and Dwyer. So it was that Guardian, by Smith and Bamford, in my opinion, consented to the assignment of the GCS franchise by Kline Pty Ltd to Dalecoast before the business was acquired on 29 November 1994. That transaction was completed by a deed dated 8 March 1995 by which Guardian (by then owned by the three accountants) consented to the assignment to Dalecoast of the GCS franchise, the performance of the franchise agreement being guaranteed by Thorpe, Robinson and one other, the then owners of Dalecoast.
Reliance on the Causation of Loss or Damage
The next question was the effect of the misleading or deceptive conduct. For the respondents it is argued that Dalecoast received in relation to each franchise all that it was represented it would receive in relation to the graffiti coating. It received business assets, work in progress and introductions to a "book of clients." It would appear that during the period of some two and a half years until mid 1996, when the supply of Chemform remover in fact ended, about 75 per cent of the worth of the business in broad terms could be attributed to the supply of anti-graffiti coating. At all events, it would seem clear that the supply and application of remover was much the lesser part of the remunerative work carried on by the business after its acquisition by Dalecoast in the form of first the GCN franchise alone and then, by about the end of 1994, both businesses. It is put for the respondents that there was no evidence that Dalecoast would not have acquired the franchises had the true position with respect to the remover been revealed. In other words, it is contended that there is no evidence to support the conclusion of actionable misrepresentation because the necessary causal relationship between the misleading and deceptive conduct and the acquisition of the franchises was not established.
In this regard it must be recalled that causation of loss or damage for this purpose is treated in the same way as causation of loss or damage generally. It is sufficient to establish that the conduct found to be misleading and deceptive makes some real contribution, even if only a minor contribution, to the formation of the agreement from which it is said that the plaintiff's loss or damage flows. Such a contribution will be inferred if, on the facts as found, the impugned conduct is of a kind likely to provide an inducement to enter into the contract and one finds that after the conduct occurred the contract was indeed entered into: Sharp & Dymond v Ramage (1995) 12 WAR 325, 329-330, applying the decision of the High Court in Gould v Vaggelas (1985) 157 CLR 215, 236, 238. Reference should also be made to the recent decision of the High Court in Henville v Walker (2001) 206 CLR 459, where it was made clear that it is sufficient if the conduct in breach of s 52 of the Trade Practices Act was a concurrent cause of the loss or damage suffered. It is not necessary that it be the sole cause: see per Gleeson CJ at 469 [14], Gaudron J at 482-483 [69] and McHugh J at 493 [106] ‑ [107].
The question of fact involved in the issue of causation is really no different, it seems to me, from the case where the question of causation arises in an action at common law, where there may be a number of operative causes concurrently producing a result: see generally Medlin v State Government Insurance Commission (1995) 182 CLR 1, 6-7.
The question of causation under the Trade Practices Act arises in the context of s 82(1) which provides that:
"A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention." (also the Fair Trading Act, s 79(1))
The section creates an issue of causation by the use of the word "by". That question will be resolved as a matter of fact in commonsense terms, where there may be considered to be concurrent causes (and hence not a case where it is seen that a particular event intervenes to break a chain of causation), by asking the question whether the conduct in breach of s 52 is in a real sense a contributing cause to the formation of the agreement which is the occasion for the loss or damage suffered by the plaintiff. In this regard the section distinguishes loss or damage from damages, the quantification of the loss or damage.
In this case it seems to me to be abundantly clear upon all the evidence that the capacity to supply and apply the remover on an indefinite basis was a substantive consideration for Dalecoast to enter into the franchises. It may not have been the dominant or major part of the franchise businesses but it was a substantive part and in that regard Dalecoast, having been induced to enter into the franchise agreements by all representations, including that in breach of s 52, suffered the loss that it got less of an asset in respect of the remover than had been promised to it.
For the moment I propose to put to one side the argument related to ground 1.6 that the rights acquired under the franchises were worthless. This goes to the quantum of damages and I will need to return to it in due course, but at this stage it is appropriate to go on to consider the matters raised in ground 2.
The Supply to GPSS
I have mentioned the evidence that in April 1993 Smith and Bamford were not only operating Guardian, but also GPSS for the specific application of the product, be it graffiti coating or remover, to signs. Smith and Bamford were GPSS, effectively, until 24 May 1994. The product, whether it be coating or remover, was the same as that used on walls and the product was used for the same purpose. After the ownership of GPSS changed, Guardian continued to supply product to that company. It did so until 12 December 1994. It was this supply which, from the effective date of Dalecoast's acquisition of the GCN franchise, 1 February 1994, and from the date of its acquisition of the GCS franchise, 29 November 1994, constituted the breach of clause 2.1(d) of the franchise agreements found against Guardian by the trial Judge.
However, as to the further question whether, in the negotiations preceding the entry into the franchise agreements or by the entry into the franchise agreements themselves, Guardian was in breach of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act by the supply made to GPSS and by not informing Dalecoast of it, the trial Judge found, at [105] of his Honour's judgment, that:
"I am satisfied the probabilities are that the plaintiff, particularly through Mr Robinson, knew about Graffiti Proofing Sign Service Pty Ltd and its relationship with Guardian International prior to entering into the franchise agreement. Mr Robinson and Mr Thorpe are unable to swear positively that they did not know prior to the agreement. The comment Mr Thorpe attributes to Mr Smith to the effect that, "You don't do signs. They do signs", meaning Graffiti Proofing Sign Service Pty Ltd, lends force to this view. In consequence, although I consider that the arrangement with Graffiti Proofing Sign Service Pty Ltd was a breach of contract, I do not consider that there was any misleading or deceptive conduct involved."
His Honour had previously discussed the evidence given by Mr Robinson that he knew about GPSS when he was employed as a salesman by Guardian. During the negotiations he thought that he was told that the product used by that company was different. He agreed that he had been told by Mr Smith in about the middle of 1994 and therefore at about the time when Smith and Bamford disposed of GPSS, that Dalecoast could now "do signs". That was effectively the evidence of Thorpe, to which his Honour referred. The evidence of Bird, who was a shareholder and involved in the operation of GPSS, was that he was involved in discussions with Robinson about their activities while he was a salesman. Smith's evidence confirmed that he had told Thorpe and Robinson that it would not be for them to "do signs".
In my view, the findings made by the trial Judge were well open to his Honour and the consumer protection case in relation to GPSS fell at the first hurdle. The conduct relied upon did not occur. It was not the case that Dalecoast was not informed that Guardian was supplying GPSS with product for application to signs.
The Supply of Ceramic Coating
Ground 2.2 raises the question of Guardian's alleged breach of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act in the negotiations preceding, or the entry into, the GCN franchise and the assignment of the GCS franchise, by permitting the second respondent, another corporate entity within the business of Guardian, to supply what is alleged to be the same graffiti coating product "with the addition only of a paint thinner" to others within the exclusive area of the franchises, without informing Dalecoast of that infringement upon its representations of exclusivity of supply.
I have thus far discussed the facts concerning this activity and I have mentioned that the trial Judge found that this was a different form of business, using a product which his Honour concluded was different from that supplied for protective coatings by reason of the necessity to modify it by the introduction of a percentage of butyl acetate.
Referring to the facts in rather more detail, it appears that on about 16 March 1994 Guardian, in the form of the second respondent, granted a franchise to a Mr Kelly and later to Quest Enterprises Pty Ltd to carry on business under the name Guardian Ceramic Coatings (North). At the same time Guardian, again in the form of the second respondent, entered into a franchise agreement with a company called Westall Investments Pty Ltd to carry on business under the name Guardian Ceramic Coatings (South).
It was the familiar pattern of exclusive areas north and south of the river and the franchise was granted in respect of a product described in each agreement as the product or products sold by the franchisor "for the coating of ceramic and other similar surfaces under the style or trade name of 'Guardian Ceramic Coatings' together with any future developments of such products." Not only did his Honour find that the product was different, he found that the process, involving the use of an "etch primer" to enable the coating to grip onto the ceramic tiles, was a different process. His Honour found that the product was applied as a ceramic coating or sealant.
In my opinion, it was open to the trial Judge to find that this was a business of a different character, although using a product derived from that developed for the purpose of a graffiti coating. His Honour found neither a breach of the franchise agreements in respect of the graffiti coating, nor any misleading or deceptive conduct, and once the differences in the franchises were identified it seems to me that those conclusions were open and may not be interfered with on appeal.
The outcome thus far is therefore that I would add to the finding of breach of contract in respect of Guardian's supply to GPSS to which the trial Judge came, a finding of a breach of s 52 of the Trade Practices Act in respect of Guardian's conduct and representations in relation to its capacity to supply the remover, but I would not extend that conclusion of breach of s 52 of the Trade Practices Act to the matters raised by ground 2.
Further, what I have written in respect of Guardian's contravention of s 52 of the Trade Practices Act to my mind disposes sufficiently of the contentions of breach raised by ground 3. And the conclusion to which I have come in respect of the ceramic coating controversy in my opinion makes it unnecessary to further consider ground 5, which does not succeed. Nor, in the light of what I have already written, may ground 7 succeed. No breach of the GCN and GCS franchise agreements was established by Guardian, through the second respondent, supplying the ceramic coating to entities other than Dalecoast. The product was not that exclusively guaranteed to Dalecoast by the franchise agreements.
Two Further Causes of Action
It is convenient at this stage to turn to ground 8. In paragraph 7 of the statement of claim Dalecoast pleads that by reason of the terms of the franchise agreements Guardian owed it fiduciary duties and/or implied contractual duties to act in good faith in its dealings with Dalecoast and not to do anything which would limit or reduce the value of the rights conferred on Dalecoast under the franchise agreement. The complaint here again is in respect of Guardian's conduct in supplying product to GPSS or, by way of franchise agreements, the supply of ceramic coating. The trial Judge found the first act of supply to be in breach of the franchise agreements. That decision is not now challenged. His Honour found, however, that the supply of ceramic coating was not in breach of the franchise agreements and I would uphold that decision.
In respect of the act of supply found to be in breach of express terms of the franchise agreements, there is of course no need to consider these alternative causes of action and, in my view, this ground falls now to be dealt with in relation to the franchise agreements for the supply of ceramic coating.
It has been held that contractual and fiduciary relationships may co-exist between the same parties and indeed it may be the case that the fiduciary relationship springs from a basic contractual relationship: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. It may be accepted for present purposes that that would be the case here and that Guardian, as franchisor, would owe Dalecoast, the franchisee, recognised fiduciary duties: but cfPilmer v The Duke Group Ltd (In Liq) (2001) 207 CLR 165. However, where such a relationship arises out of a contractual relationship it is important to bear in mind what was said by Mason J in Hospital Products at 97:
"In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
In my opinion, that consideration prevents reliance upon a fiduciary duty of the kind asserted. If the franchise agreements permitted the supply of ceramic coating it can, I think, hardly be said that Guardian was under a fiduciary duty to Dalecoast not to do so.
As to the question of an implied term in the franchise agreements that Guardian should not so conduct itself as to limit or reduce the value of the rights conferred on Dalecoast, again it seems to me that there can be no argument for the implication of such a term so as to prevent the supply of ceramic coating to a third party, a matter not the subject of a contractual relationship which had been erected between Guardian and Dalecoast. That is not to say that in an appropriate case such a term may not be implied into a commercial agreement: cfCentral Exchange Ltd v Anaconda Nickel Ltd [2002] 26 WAR 33. In the final analysis ground 8 may not succeed.
It is convenient at this time to say that the failure of all causes of action in relation to the supply of ceramic coating has the consequence that ground 10 also fails, that ground being concerned with the question of damages or an election for an account of profits in respect of the supply of ceramic coating.
The Over-Pricing of Product - Estoppel
Ground 11 is concerned with a different cause of action by Dalecoast. The franchise agreements, clause 5.1, govern the price of the product, both anti ‑graffiti coating and graffiti remover, which was to be charged by Guardian to Dalecoast. Prices per litre were stipulated and the clause provided that those prices might be increased at six‑monthly intervals in accordance with increases in the cost of materials utilised in the production of the products or increases in the Consumer Price Index for each period. Guardian was to provide Dalecoast with "documented evidence" of all increases in costs.
Dalecoast claimed that over a period from July 1995 to October 1996 Guardian supplied graffiti remover to it at prices in excess of those agreed. It alleged that it was over-charged a little over $9000 over this period. It is convenient to note that the trial Judge did not allow this claim, but held that had he done so he would not have accepted Dalecoast's calculation of the overpayment and his Honour calculated that the overpayment which he found to have been made was the sum of $3310.70. His Honour expressly found that there was an overcharge.
Guardian's defence was not that there was no breach of clause 5.1 of the franchise agreements because the price had been varied in accordance with the provisions of this clause, nor did it plead any variation of the contract. Its plea was an estoppel which, it asserted, precluded Dalecoast from enforcing the relevant term of the franchise agreement because the prices were altered with the knowledge of Dalecoast, who induced Guardian to believe that it agreed to price alterations, upon which belief Guardian relied and acted to its detriment. Of course it is clear that to establish an equitable estoppel there must be detrimental reliance: Giumelli v Giumelli (1999) 196 CLR 101. Apart from a complaint about the calculation of loss in respect of which I see no reason to take a view contrary to that found by the trial Judge, it can be seen from ground 11 that it is upon the question of reliance that the complaint of Dalecoast about the conclusion of the trial Judge is based.
The evidence in respect of this matter was principally that of Mr Robinson for Dalecoast and Mr Warren and Mr Dwyer for Guardian. His Honour accepted "in general terms" the evidence of Warren who, it will be recalled, was appointed as Guardian's general manager on 14 November 1994.
Shortly after his appointment he met with Messrs Thorpe and Robinson who requested discounts in respect of the prices they were to pay for products supplied. In March 1995 there was a national franchisees' conference in Sydney. Warren attended. He suggested the introduction of discounts in price for bulk purchases. That was to assist franchisees. That was accepted and applied to Dalecoast's purchases. On 1 July 1995 Mr Warren circulated a revised price list for all products, including remover. That reflected the bulk purchase discounts, but there was also a price increase in respect of remover. Warren said he discussed that with Robinson, who noted the price increase for remover, but who was told that as the bulk of Dalecoast's purchases were of the graffiti coating, in respect of which Dalecoast would have the advantage of bulk discounts, that might be offset against any increase in the price of the remover. Warren's evidence was that Robinson, on behalf of Dalecoast, accepted that that was "fair enough" and thereafter invoices were rendered to Dalecoast in accordance with that national price list up until the time in November 1996 when Warren resigned. The short point appears to be that it was a package deal and that Guardian was not prepared to provide discounts outside the terms of the franchise agreements unless Dalecoast was prepared to accept the increased price of the remover. It is put simply that Dalecoast appeared to accept that and upon that basis they were invoiced and the invoices were paid.
The trial Judge noted that the parties continued to debate the matter, but it seems that throughout the period Guardian's invoicing applied bulk discounts and reduced prices on some product together with an increase in the price of remover. In the result, Mr Dwyer said that he calculated that Dalecoast had saved about $14,000 in relation to the supply of anti‑graffiti coating against the payment of an extra $3300-odd for remover. Again, it appears that Guardian was applying what it regarded as a national pricing policy to the asserted overall benefit of Dalecoast. Although Dalecoast complained that it was paying more for remover than it should have paid had the franchise agreements been strictly applied, it was paying less for the anti‑graffiti coating and appeared to accept that variation to the arrangements made by the franchise agreement. Guardian said its invoices over the relevant period were drawn in reliance upon that acceptance.
For Dalecoast it is argued that the fact that Mr Warren sought legal advice, which was received by a letter dated 28 March 1996 advising upon courses of action which might induce Dalecoast to formally accept the national pricing policy, precludes a finding that Guardian relied upon acceptance of the policy in the charges it raised. To my mind that does not follow. Mr Warren explained that he sought legal advice because, on behalf of Dalecoast, there continued to be queries about the overpricing in relation to the supply of the remover. Nonetheless, invoices continued apparently to be rendered upon the basis I have discussed and they were paid.
In my opinion, in respect of this very minor claim the conclusion reached by the trial Judge was fairly open to him on the evidence. Guardian, during the period in question, charged Dalecoast prices which in some respects were lower than or discounted below the prices chargeable under the franchise agreements and in respect of the remover were above the appropriate price. Although there was debate about that aspect, the invoices continued to be paid and in my view the relevant detrimental reliance in relation to the charges made overall could be held to have been established. I would not uphold ground 11.
A Failure to Supply Remover
I turn then to ground 12 which complains of the decision of the trial Judge in respect of an alleged failure by Guardian to supply Dalecoast with remover, as Guardian undertook to do in the franchise agreements. Again, this is a relatively minor head of claim. The pleaded case of Dalecoast was that Guardian failed and refused to supply remover to Dalecoast "during 1996". Further and better particulars were sought. Dalecoast responded that it had placed an order for "solvent-based (old) remover" on 30 August 1996. It pleaded that Mr Warren, for Guardian, replied that the product had been discontinued "as previously advised". It was pleaded that Dalecoast continued to refuse supply until ultimately it offered to submit the order to Chemform on 23 October 1996.
That was denied by Guardian, but the trial Judge found that the supply of the solvent-based remover did cease from 30 August 1996 until, on 23 October 1996, Guardian arranged for the resupply of this remover from Chemform, about six weeks later. In the circumstances as they were found by the trial Judge his Honour concluded that Dalecoast did not agree to the cessation of this supply, which his Honour accepted was an entitlement of Dalecoast under the franchise agreements.
The background, as found by the trial Judge, is apparently that Guardian introduced what is described as an "environmentally friendly remover" as a result of requests from franchisees around Australia, who appear to have considered that government agencies were moving to stipulate the use of such a remover. Mr Warren gave instructions for its development and it was produced. His Honour concluded, and it seems to me it was open to him to do so, that he was not persuaded that this remover was "markedly inferior" to the old solvent‑based remover. It was introduced to replace the solvent‑based remover, but, as the trial Judge found, that was done without the clear agreement of Dalecoast and infringed its entitlement to supply of the remover in question. This is a finding which is not challenged and it may be taken to involve a breach of the contract in the form of the franchise agreements.
However, damages for breach were not awarded. The trial Judge found that Dalecoast did not establish that it did not have on hand sufficient quantities of solvent‑based remover for its needs. Mr Robinson's evidence was that Dalecoast "always kept big volumes because we had a lot of removal jobs". His Honour noted that an order placed by Dalecoast for this remover at the end of August was not reissued when supply resumed in October, suggesting that even then Dalecoast had sufficient of this remover for its requirements. The damages claimed in this regard were said to be the sum of $34,222.12, being costs incurred because it was said that removal of graffiti by the use of the environmentally friendly remover took about one-third longer than the time taken when using the solvent‑based remover. The witness Robinson had reduced the claim to a schedule, but the trial Judge was not persuaded to accept this evidence of loss.
His Honour said that Robinson's evidence was "based on hearsay", presumably as to the extra time taken. The evidence was admitted without objection, but it is clear that his Honour regarded it as being of little weight because he found "there is no significant difference in performance between the two removers." Further, the trial Judge noted that the amount of material used in the calculation did not correspond with invoices and other evidence as to the amount of material acquired by Dalecoast during the period. Finally, his Honour noted that part of the claim for the extra work allegedly involved was for the period from 8 October to 5 December 1996 by which time the capacity to purchase the solvent‑based remover from Chemform was restored to Dalecoast. This claim failed as a matter of fact because the trial Judge, having made what seems to me to be a proper analysis of the evidence, pronounced himself to be unpersuaded that the damages claimed represented a loss which had, in fact, been incurred. I can see no basis upon which this Court would be entitled to set aside his Honour's conclusions.
Ground 13 complains that the trial Judge failed to consider alleged contraventions of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act in relation to Guardian's conduct in respect of the overcharging for the supply of remover and the failure to supply that particular product for the period in question. His Honour did not fail to consider this matter. At [162] of his judgment he expressed the global conclusion that there had been no contravention of these statutes in respect of any matter before him, including the overpricing of product and the replacement of the solvent‑based remover with the environmentally friendly remover.
His Honour did not give reasons for that conclusion, but in my opinion the reasons are apparent from his Honour's discussion of these topics. The trial Judge found in respect of the over‑pricing issue that the revised national price structure was accepted by those acting for Dalecoast, before its introduction. Dalecoast took advantage of the benefit of this scheme in relation to bulk discounts, accepting, in his Honour's view, as the price for that benefit, what his Honour described as the burden of the scheme in relation to the increased price for remover.
As to the refusal to supply graffiti remover, again his Honour was satisfied that Mr Warren advised those acting for Dalecoast of the plans to replace the solvent‑based remover with the so‑called environmentally friendly remover, a process which proceeded "quite openly", albeit without the formal agreement of Messrs Robinson and Thorpe for Dalecoast. I am unable to see, in those circumstances, how it may be contended that any relevant conduct by Guardian was misleading or deceptive or likely to mislead or deceive. I would conclude that ground 13 is not made out.
Accessorial Liability
I now turn back to grounds 4 and 6 and the question of the accessorial liability of Messrs Smith and Bamford on the one hand and Messrs Monisse, Boyce and Dwyer of the firm of accountants, Mullers, who acquired Guardian, on the other. In view of his Honour's findings about trade practices liability generally it was not strictly necessary for him to consider this issue, but of course as I would hold Guardian liable for a contravention of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act in respect of its misleading or deceptive conduct in the negotiations for and the entry into the franchise agreements in respect of the exclusive supply of remover, it is necessary that I deal with this issue. The case of Dalecoast against these persons in respect of the conduct which I would find constituted a contravention of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act in respect of the exclusive rights to the supply of remover is framed in the same way. Each person is alleged to be knowingly concerned in Guardian's conduct.
By s 75B(1)(c) of the Trade Practices Act and s 68(c) of the Fair Trading Act a person is involved in a contravention of the Act, including the sections presently under consideration, if that person, "has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention". It was held in Yorke v Lucas (1985) 158 CLR 661 per Mason ACJ, Wilson, Deane and Dawson JJ, that a person cannot be knowingly concerned in a contravention unless he or she knows of the essential facts constituting the contravention.
Of course, one cannot be "concerned" in a contravention unless he or she has been guilty of some conduct connected with the principal's contravention of the Act, even if it is not the case that the conduct causes the contravention. In other words, this secondary liability is truly accessorial. It is not limited to cases where the principal would be held to be vicariously liable for the conduct of the individual said to be the accessory, because he or she caused the contravention.
By knowledge of the facts constituting the contravention is not meant knowledge that the conduct in question was unlawful, that it was a contravention of the Act. But what is required is actual knowledge. However, that state of mind of the accessory may be proved by direct evidence or by inference from the relevant circumstances, including in an appropriate case by relying upon the proposition that a person who has before him or her the means of knowledge and asserts a failure to make inquiry may be inferred, in fact, to have had actual knowledge: Heydon v NRMA Ltd (2000) 51 NSWLR 1 at 109 - 112 per Malcolm AJA, 149 – 150 per McPherson AJA and at 243 per Ormiston AJA. These views were very recently adopted by the Full Court of the Federal Court in Rural Press Ltd v ACCC (2002) 193 ALR 399, 441 – 444 [156] – [160]. It was upon this basis that the prayer for relief of Dalecoast in the statement of claim pursued the remedy of damages pursuant to the Trade Practices Act, s 82, and the Fair Trading Act, s 79, not only against Guardian, but against the first three of the third respondents and the fourth respondents.
As to ground 4 and the position of Messrs Smith and Bamford, the case is simplicity itself. They were the directors of Guardian and they effectively operated as Guardian. It was their conduct which constituted Guardian's contravention of the law in the way that I have described. They conducted negotiations for the entry into the GCN franchise agreement and approved and were involved in the acquisition by Dalecoast of the GCS franchise, the agreement for which was in the same terms as those concerning the GCN franchise. It seems to me to be clear that both were aware of the nature of the franchises, having regard to the terms of the agreement, and of the limited nature of Guardian's rights in respect of the remover, having regard to the agreement with Chemform. In my opinion, ground 4 is made out and Dalecoast is entitled to judgment against the fourth respondents in respect of the breach of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act.
The position in respect of the accountants, Messrs Monisse, Boyce and Dwyer is not so straightforward. The matter is raised by ground 6 and attention may first be focussed upon the conduct of Mr Monisse. Speaking generally, the trial Judge accepted the evidence of this witness. Instructed by Smith and Bamford he developed models of the operation and profitability of the businesses representing the GCN and GCS franchises. He was aware that these models would be used by Smith and Bamford for the purpose of settling upon a price for the sale of each franchise and to promote the financial benefits which a purchaser might expect from the franchise business. Monisse did not determine the price, but it is clear that his profitability projections were directed towards that being done.
However, Monisse had no contact with Thorpe and Robinson for Dalecoast. He was not involved in the negotiations in respect of their entry into the GCN franchise or their acquisition of the GCS franchise and the financial documents themselves suggested that a prospective purchaser should make their own inquiries, as Monisse had obtained the information upon which they were based from Messrs Smith and Bamford and the primary data had not been checked by him. The trial Judge found that there was no evidence that Monisse's profit projections were shown to Messrs Thorpe and Robinson. Indeed, his Honour said, Robinson's evidence was that he was not shown the models prepared by Monisse.
As to the contention that Monisse was knowingly concerned in the contravention of the Trade Practices Act which I would hold was established, his Honour said:
"This claim founders at its source. The evidence of Mr Monisse, which I accept, is that he did not know the position in relation to exclusivity at the time he prepared the models which were relied upon by [Dalecoast] as indicative of his being knowingly concerned in the conduct."
The crucial question is whether, when he prepared the financial models to demonstrate the profitability of the franchise businesses, Monisse knew of the conduct constituting the contravention of the Trade Practices Act. Did he know that Smith and Bamford effectively represented the availability of exclusive rights to the remover in the open-ended context of the indefinite licences proposed to be granted by the franchise agreements? In my opinion, there is no such evidence of knowledge. There seems to me to be no evidence that Monisse knew, at the time of Guardian's contravention of the Act, that it did not possess more than strictly limited rights of access to the remover. Indeed, so much appears to be asserted by paragraph 6.2.6 of the ground. It seems to me that the finding of the trial Judge was well open and that the accessorial liability of Monisse was not established.
In that event, the case against Messrs Boyce and Dwyer fails at the outset. They were Monisse's partners, but neither had any involvement in this work and his Honour found (accepting the evidence of Monisse) that Monisse had no discussion with them about the work he was doing. None of the accountants appeared to know anything of the franchise arrangements and the position with respect to exclusive indefinite access to remover until, at the earliest, November 1994 when they acquired Guardian. By then the operative or causative effect of Guardian's conduct to which Smith and Bamford were parties in contravention of the Trade Practices Act had passed. Any knowledge the accountants acquired thereafter seems to me to be irrelevant.
In any event, as the question of the accessorial liability of Boyce and Dwyer was argued before us, reliance was placed entirely upon the Partnership Act 1895 (WA), s 17 and/or s 26. Section 17 provides that where a partner, by a wrongful act or omission in the ordinary course of business of the firm, causes loss or injury to a third party, the firm is liable to the same extent as the partner. That does not help. Section 26 provides, so far as material, that "the acts of every partner done within the ordinary course of carrying on the business of the partnership shall bind his partners to the same extent as if he were their agent duly appointed for that purpose". To my mind that is also of no assistance to the appellant. It says nothing about attributing the knowledge or state of mind of the partner who does the acts to the other partners and it would be an extraordinary outcome to hold that to be so, so as to make the other partners liable as accessories on the basis that they were knowingly concerned in or party to a contravention of trade practices legislation. Ground 6 does not succeed, to my mind. The appellant failed to establish the accessorial liability of any of the third respondents.
An Account of Profits
I turn finally then to the question of the remedy available to Dalecoast and I go first to ground 9 which raises a discrete point that as its case was pleaded Dalecoast sought against Guardian damages for breach of contract, alternatively an account of profits. The ground complains that the trial Judge erred in law in failing to permit Dalecoast an election between the assessment of damages and an account of profits obtained as a result of the breach of the GCN and GCS franchise agreements. The ground relies upon the decision of the House of Lords in Attorney-General v Blake [2001] 1 AC 268. As to that case, the trial Judge said that this was not a case where, applying Blake, an account of profits should be ordered, if indeed it was the case that Blake could and should be followed by this Court. His Honour therefore gave judgment for Dalecoast on the breach of contract and, as we have seen, ordered that damages be assessed.
It is trite law that for breach of contract as for tort the primary remedy is an award of damages. Those damages will be compensatory. In cases of tort the court endeavours to return the plaintiff, so far as damages may do so, to the position he was in before the wrong was committed against him. Of course, that is not the universal response of the law and other remedies are employed, particularly in cases where the tort involves interference with proprietary rights. In cases of breach of contract the court endeavours to place the plaintiff in the position which he would have attained had the contract been performed, had the breach not occurred. Again, that is not an approach universally applied and we are all familiar with the type of case in which an order for specific performance will be made, or some order of that kind will be fashioned in a case where justice requires that an effort be made to secure to the plaintiff the benefit of the performance of the contract.
As was pointed out in Blake, the concept of an account of profits shifts the focus of assessment from the measure of the plaintiff's loss to the extent of the defendant's wrongful gain. It is, generally speaking, a remedy available in equity to deprive a wrongdoer of the profit made from the wrong done, particularly in cases where there has been a breach of trust or breach of fiduciary duty. As Ld. Nicholls put it at 280:
"Equity reinforces the duty of fidelity owed by a trustee or fiduciary by requiring him to account for any profits he derives from his office or position. This ensures that trustees and fiduciaries are financially disinterested in carrying out their duties. They may not put themselves in a position where their duty and interest conflict. To this end they must not make any unauthorised profit. If they do, they are accountable. Whether the beneficiaries or persons to whom the fiduciary duty is owed suffered any loss by the impugned transaction is altogether irrelevant."
It was against that background that Ld. Nicholls, who delivered the principal judgment of the House of Lords in Blake, held that there was no reason in principle why the court must in all circumstances rule out an account of profits as a remedy for breach of contract. Indeed, his Lordship saw that there were cases, such as where a remedy was sought for breach of confidence, where the court might be inclined to give the injured plaintiff the choice of an award of damages or an account of profits. His Lordship concluded:
"An account of profits will be appropriate only in exceptional circumstances. Normally the remedies of damages, specific performance and injunction, coupled with the characterisation of some contractual obligations as fiduciary, will provide an adequate response to a breach of contract. It will be only in exceptional cases, where those remedies are inadequate, that any question of accounting for profits will arise. No fixed rules can be prescribed. The court will have regard to all the circumstances, including the subject matter of the contract, the purpose of the contractual provision which has been breached, the circumstances in which the breach occurred, the consequences of the breach and the circumstances in which relief is being sought. A useful general guide, although not exhaustive, is whether the plaintiff had a legitimate interest in preventing the defendant's profit-making activity and, hence, in depriving him of his profit."
If that general guide is applied to this case it would seem to me that the answer is obvious. In this case the conclusion to which I would come is that Dalecoast is entitled to damages for the loss sustained as a result of the breach of contract found, not the benefit of an order which effectively requires Guardian to deliver up the profits of the sale of the franchises in their entirety, or in respect of the supply of product to GPSS.
This case is not at all like Blake, which was concerned with attempts to prevent the former employee of the UK Secret Intelligence Service from profiting from his breach of the undertaking of confidentiality entered into when Blake joined the service of the Crown. In that case, as the Crown itself had suffered no monetary loss, it would have been entitled for the breach of contract to an award of nominal damages only and yet it was held it was desirable that, for public policy and other reasons, Blake should be required to disgorge the profit wrongfully made. The result is that ground 9 may not succeed.
The Issues Concerning Damages
The remaining ground of appeal is ground 14 which raises a damages point in the context of the conclusion which I would hold was required of the trial Judge, that there was a contravention of the trade practices legislation in Guardian's conduct, in which the fourth respondents were implicated, in respect of the rights to the remover. The ground makes the causation point in respect of which I would hold, as I have said, that the case of Dalecoast was made out. I would hold that the contravention was causally linked to Dalecoast's entry into or acquisition of the franchises so as to establish liability. The opposite view of the issue of causation in the sense of the reliance by Dalecoast upon Guardian's conduct in this regard is put by point 1.1 of the Notice of Contention. I have sufficiently disposed of this issue.
It follows that the remedy for the contravention of the trade practices legislation would in this case, in my opinion, be an award of damages assessed as for a tort rather than as in contract. The measure of damages would therefore be the measure of the diminution in the worth of the rights and licences acquired by Dalecoast related to the conduct and representations in respect of the remover: Sharpe v Ramage per Ipp J at 332 –333.
As to that, however, in ground 14 Dalecoast also raises the quite different point of the quantum of damages caused by the breach, by the assertion that the trial Judge erred in failing to find that the franchises were "worthless". The same assertion of error appears in ground 1.6 which, it will be recalled, I reserved to be dealt with later, when I was discussing the first ground of appeal. In the Notice of Contention, point 1.2, appears the assertion that the franchises had value and that Dalecoast failed to prove that they were worthless. In my opinion, this is a non‑issue, although it appears also to have been run at trial and it was argued at length before us.
Dalecoast's case did not depend for its success in relation to the trade practices claim, on the trial Judge finding that the franchises were worthless. Damages will be awarded in respect of the diminution of the value of those rights acquired under the franchise agreements which is causally related to the contravention of the legislation. I would have thought, at first blush, that the franchises certainly had a value, although it seems to me, as I have already said, to be equally apparent that the value to Dalecoast was not as great as if it was acquiring indefinitely an exclusive right to remover. The measure of those damages will be for the assessment process.
I note in relation to the assessment of damages the concern of Anderson J that the appellant should not be permitted to shift its ground, so to speak, by seeking to have the damages, if any are established, assessed on the basis that the value of the franchises was, if not worthless, at least diminished. I do not, with respect, see this as a different basis of claim to that pleaded.
Nor do I think that the assessment process need involve the calling of any, let alone a considerable body of, additional evidence. The appellant has closed its case. If it should seek leave to re-open so as to call further evidence in respect of the quantum of damages that application will fall to be dealt with by the Court applying the ordinary principle that such leave is only granted in exceptional circumstances.
Finally, in relation to damages there is the cross-appeal by the first, second and third respondents which contends that the trial Judge erred in ordering an assessment of damages for the breach of contract in relation to the supply of product to GPSS. It is contended that the trial Judge should have held that there had been a failure to prove that any damages were incurred as a result of that breach of contract and it should have been held that Dalecoast was only entitled to nominal damages in the sum of $10.
In my opinion, this complaint cannot be made out, particularly having regard to the order made by the trial Judge that Dalecoast should have judgment in respect of the breach of contract for damages to be assessed, an order which it is conceded by the respondents was within power: Supreme Court Act 1935 (WA), s 51(2). The procedure before the Master will be that specified in the Rules of the Supreme Court, O 34 r 18. In the light of that order it seems to me that the cross-appeal cannot succeed. I can see no reason to disturb the order for the assessment of damages for breach of contract and I would add to that order an order for the assessment of damages in respect of the contravention, as I have found it to be, of the Trade Practices Act or the Fair Trading Act.
Conclusion
In my opinion, therefore, the appeal should be allowed and the cross‑appeal dismissed. The orders made by the trial Judge should be varied so as to add judgment for Dalecoast against Guardian, the first respondent, and the fourth respondents for damages to be assessed in respect of the contravention of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act in respect of the negotiations preceding and the entry into or acquisition of the GCN franchise and the GCS franchise, together with interest thereon pursuant to s 32 of the Supreme Court Act. I would dismiss the appeal as against the second and third respondents. The orders made by the trial Judge which, as I understand it finally dismissed the claims against those parties, should be affirmed. Of course, the judgment obtained by the fourth respondents should be set aside. I would hear the parties, if necessary, in relation to the precise terms of the orders required to give effect to my conclusions.
As to costs, I would again hear the parties, but as at present advised it would seem to me that the appellant should have its costs of the appeal against the orders made in favour of the first respondent and fourth respondents and in respect of the cross‑appeal. The second and third respondents should have their costs of the appeal. As to the costs of trial, as between the appellant and the first and fourth respondents, all of whom will be involved in the assessment of damages, the usual course is to reserve those costs so that they may be dealt with following the entry of a final judgment upon the Master's certificate as to damages. However, as at present advised, I can see no reason why the second and third respondents should not have their costs of the trial as well as the appeal. Again, there may be a need for particular orders in respect of costs which may fall outside that general framework.
ANDERSON J: I agree with Murray J that in addition to the finding of breach of contract with respect to the sale of graffiti coating product (Durasol 347) to Graffiti Proofing Sign Services Pty Ltd the only head of claim that was established on the evidence was the claim against the first respondent and the fourth respondents under s 52 of the Trade Practices Act 1974 (Cth) arising from the first respondent's conduct in relation to its capacity to supply the graffiti removal product. Otherwise, in my respectful opinion, the action was rightly dismissed.
With respect to the claim in relation to the graffiti remover product the statements in Recitals A and B of the Franchise Agreement that:
"A.The Franchisor has caused to be developed and is the supplier in Australia of a range of products for the removal of or protection against graffiti known as "Guardian".
B.The Franchisor is engaged in the business of the sale of the Product and providing services of the application of the Product for protection against and removal of graffiti from buildings and other structures and places…"
implied that the graffiti removal product was the first respondent's property in the sense that the first respondent alone could supply it, or authorise its sale. There was nothing in the negotiation between the parties which qualified the statements in the Recitals and indeed, as Murray J has pointed out, the conduct of the fourth respondents tended to reinforce what was said in the Recitals.
The truth was however that the chemical substance comprising the removal product was not the first respondent's property in any sense. The first respondent bought the chemical compound from a third party, Chemform, which retained all of the intellectual property attaching to it and had agreed for a limited time only to sell it exclusively to the first respondent. I agree that this was significant. Failure to disclose it to the appellant as a proposed franchisee was misleading and deceptive in all the circumstances. It can perhaps be tested by reformulating Recital A to reflect the true position. The reformed recital would go something like this:
"A.The Franchisor has caused to be developed and is the supplier in Australia of a product for the protection of surfaces against graffiti. The Franchisor has also assisted in the development of a product for removal of graffiti from surfaces to which its protective product has been applied. The manufacturer of the removal product has granted to the Franchisor an exclusive right to supply this product in Australia until 30 June 1995 and thereafter subject to negotiation."
I think that would convey a very different commercial message from the message actually conveyed by the Recitals A and B. It would reveal to the proposed franchisee that direct competition in the business of removing graffiti was a distinct possibility in the franchise area after 30 June 1995.
The question is whether the appellant is entitled to relief for the misleading and deceptive conduct which has been established. The only basis upon which the claim for damages was put in respect to this conduct is that the appellant was induced by the conduct to purchase a worthless business and should therefore have all of its money back. The plea is in the following paragraphs of the statement of claim:
"15.6By reason of the conduct pleaded in paragraph 15.5 the plaintiff has suffered loss and damage.
PARTICULARS
A.The true value of the goodwill held by the first defendant with respect to the products was, by reason of the matters pleaded in paragraph 15.4, nil.
B.The plaintiff's loss is the amount paid as pleaded in paragraph 15.2 namely $315,720."
The amount of $315,720 is the total purchase price of the franchise business including of course the business of applying the graffiti coating product which on the whole of the evidence was the major business activity. It is not alleged that the first respondent engaged in any misleading or deceptive conduct with respect to that product. Therefore the appellant failed to establish that it had been induced by the misleading and deceptive conduct to acquire a worthless business. On the whole of the evidence the appellant operated the franchise successfully and profitably for several years.
The appellant did not seek to establish its claim for damages under s 82 of the Trade Practices Act or under s 79 of the Fair Trading Act on any other basis and hence there is no evidence upon which an award of damages can be assessed. There is no evidence of comparative values nor is there any evidence that the appellant would not have purchased the business but for the misleading and deceptive conduct. There is no evidence that the appellant has suffered operating losses which it would not have suffered but for the misleading or deceptive conduct.
Therefore, although the trial Judge dismissed this head of claim on the basis that misleading and deceptive conduct had not been established and although I would agree with Murray J that the evidence did establish misleading and deceptive conduct I would not vary the judgment below to allow the appellant to try again to prove that it has suffered some loss arising from the misleading and deceptive conduct. This is not a case of an inadvertent failure to produce evidence in proof of damage. In such cases the Court might exercise a discretion to allow further evidence to be called even when it should have been adduced in the first place: Watson v Metropolitan (Perth) Passenger Transport Trust [1965] WAR 88 per Woolf CJ at 89. It is a case in which a deliberate decision was taken to put the claim for damages on a particular basis and not to adduce evidence which might have permitted an award of damages to be made on some other basis. I am not persuaded there is any ground on which the appellant should now be allowed to re‑litigate this aspect of the damages claim. The general rule is that when the onus of proof on all issues is on one party, that party must ordinarily, when presenting his case, adduce all his evidence and may not, after the close of his opponent's case, seek to adduce additional evidence to strengthen his own case. Only when it is necessary in the interest of justice to do so should a discretion be exercised to allow further evidence to be called: 17 Halsbury (4th ed) at par 18. In Luna Park (NSW) Ltd v Tramways Advertising Pty Ltd (1938) 61 CLR 286 at 301 Latham CJ said:
"Thus the evidence which the defendant was content to put before the court does not make it possible to reach any estimate of damage suffered. I can see no reason why the defendant should be allowed to fight the matter over again. If a party choses to go to trial with incomplete evidence he must abide the consequences. The fact that his evidence might have been strengthened affords no reason for ordering a new trial. Thus the defendant must be content … with nominal damages."
I do agree however that it was open to the trial Judge to order that damages be assessed under the single head of claim which he found to have been established and I would not interfere with that order.
In the result I would dismiss the appeal.
6
12
2