Dalecoast Pty Ltd v Guardian International Pty Ltd
[2001] WASC 199
DALECOAST PTY LTD -v- GUARDIAN INTERNATIONAL PTY LTD & ORS [2001] WASC 199
| Link to Appeal : |
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| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2001] WASC 199 | |
| Case No: | CIV:2453/1996 | 12-16 FEBRUARY, 14-18 MAY 2001 | |
| Coram: | McKECHNIE J | 1/08/01 | |
| 39 | Judgment Part: | 1 of 1 | |
| Result: | Most claims dismissed Order for assessment of damages in respect of one claim | ||
| B | |||
| PDF Version |
| Parties: | DALECOAST PTY LTD GUARDIAN INTERNATIONAL PTY LTD GUARDIAN PROTECTIVE COATINGS PTY LTD ANTHONY MAURICE MONISSE GRANT DESMOND BOYCE GARY JOHN DWYER ANTHONY PETER WARREN ROBERT BRUCE ARUNDEL SMITH ALAN FREDERICK BAMFORD |
Catchwords: | Contract Trade Practices Act 1974 Franchise agreement Representations made in agreement Whether misleading and deceptive Re-pricing of product Whether estoppel arises No new principles Case turns on own facts |
Legislation: | Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (WA) |
Case References: | Attorney General v Blake & Jonathon Cape Ltd [2001] 1 AC 268 Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349 Breen v Williams (1996) 186 CLR 71 British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railway Co of London Ltd [1912] AC 673 Brown v Jam Factory Pty Ltd (1981) 53 FLR 340 Clef Aquitaine SARL v Laport Materials (Barrow) Ltd [2000] 3 WLR 1760 Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1981) 149 CLR 337 Colliers Jardine (NSW) v Balog Investments Pty Ltd (1995) ATPR (Digest) 46-140 Collins Marrickville Ltd (No 1) (1998) 39 FCR 546 Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1 Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 Duke Group Ltd (In Liq) v Pilmer (1999) 153 FLR 1 Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310 Finucane v New South Wales Egg Corporation (1988) 80 ALR 486 Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217 Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Giumelli v Giumelli (1999) 196 CLR 101 Gould v Vaggelas (1985) 157 CLR 215 Hamilton v Whitehead (1988) 166 CLR 121 Haynes v Top Slice Deli Pty Ltd (1995) ATPR (Digest) 46-147 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) (1989) 89 ALR 539 Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 19 ACLC 1 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Hurst v Picture Theatres Ltd [1915] 1 KB 1 Marks v GIO Australia Holdings (1998) 196 CLR 494 Munchies Management Pty Ltd v Belperio (1989) 84 ALR 700 Poseidon Ltd & Sellars v Adelaide Petroleum NL (1994) 120 ALR 16 Posgold (Big Bell) Pty Ltd v Placer (Western Australia) Pty Ltd (1999) 21 WAR 350 Re Spanish Prospecting Co Ltd [1911] 1 Ch 92 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Serrata Investments Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419 South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611 Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 Taco Co of Australia v Taco Bell Pty Ltd (1982) 42 ALR 177 Tang Man Sit v Capacious Investments Ltd [1996] AC 514 Toteff v Antonas (1952) 87 CLR 647 United Australia Ltd v Barclay's Bank Ltd [1941] AC 1 Wardley Australia Limited v State of Western Australia (1992) ATPR 41-189 Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940 Yorke v Lucas (1985) 158 CLR 661 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
GUARDIAN INTERNATIONAL PTY LTD
First Defendant
GUARDIAN PROTECTIVE COATINGS PTY LTD
Second Defendant
ANTHONY MAURICE MONISSE
GRANT DESMOND BOYCE
GARY JOHN DWYER
ANTHONY PETER WARREN
Third Defendants
ROBERT BRUCE ARUNDEL SMITH
ALAN FREDERICK BAMFORD
Fourth Defendants
(Page 2)
Catchwords:
Contract - Trade Practices Act 1974 - Franchise agreement - Representations made in agreement - Whether misleading and deceptive - Re-pricing of product - Whether estoppel arises - No new principles - Case turns on own facts
Legislation:
Trade Practices Act 1974 (Cth)
Fair Trading Act 1987 (WA)
Result:
Most claims dismissed
Order for assessment of damages in respect of one claim
Category: B
Representation:
Counsel:
Plaintiff : Mr D H Solomon
First Defendant : Mr P G Clifford
Second Defendant : Mr P G Clifford
Third Defendants : Mr P G Clifford
Fourth Defendants : Mr P G McGowan
Solicitors:
Plaintiff : Solomon Brothers
First Defendant : Wilson & Atkinson
Second Defendant : Wilson & Atkinson
Third Defendants : Wilson & Atkinson
Fourth Defendants : Tottle Christensen
Case(s) referred to in judgment(s):
Attorney General v Blake & Jonathon Cape Ltd [2001] 1 AC 268
(Page 3)
Case(s) also cited:
Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470
Alcatel Australia Ltd v Scarcella (1998) 44 NSWLR 349
Breen v Williams (1996) 186 CLR 71
British Westinghouse Electric & Manufacturing Co Ltd v Underground Electric Railway Co of London Ltd [1912] AC 673
Brown v Jam Factory Pty Ltd (1981) 53 FLR 340
Clef Aquitaine SARL v Laport Materials (Barrow) Ltd [2000] 3 WLR 1760
Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1981) 149 CLR 337
Colliers Jardine (NSW) v Balog Investments Pty Ltd (1995) ATPR (Digest) 46-140
Collins Marrickville Ltd (No 1) (1998) 39 FCR 546
Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1
Cowell v Rosehill Racecourse Co Ltd (1937) 56 CLR 605
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31
Duke Group Ltd (In Liq) v Pilmer (1999) 153 FLR 1
Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410
Far Horizons Pty Ltd v McDonalds Australia Ltd [2000] VSC 310
Finucane v New South Wales Egg Corporation (1988) 80 ALR 486
Futuretronics International Pty Ltd v Gadzhis [1992] 2 VR 217
Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Giumelli v Giumelli (1999) 196 CLR 101
Gould v Vaggelas (1985) 157 CLR 215
Hamilton v Whitehead (1988) 166 CLR 121
Haynes v Top Slice Deli Pty Ltd (1995) ATPR (Digest) 46-147
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) (1989) 89 ALR 539
Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 19 ACLC 1
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Hurst v Picture Theatres Ltd [1915] 1 KB 1
Marks v GIO Australia Holdings (1998) 196 CLR 494
Munchies Management Pty Ltd v Belperio (1989) 84 ALR 700
Poseidon Ltd & Sellars v Adelaide Petroleum NL (1994) 120 ALR 16
Posgold (Big Bell) Pty Ltd v Placer (Western Australia) Pty Ltd (1999) 21 WAR 350
(Page 4)
Re Spanish Prospecting Co Ltd [1911] 1 Ch 92
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378
Serrata Investments Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419
South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611
Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233
Taco Co of Australia v Taco Bell Pty Ltd (1982) 42 ALR 177
Tang Man Sit v Capacious Investments Ltd [1996] AC 514
Toteff v Antonas (1952) 87 CLR 647
United Australia Ltd v Barclay's Bank Ltd [1941] AC 1
Wardley Australia Limited v State of Western Australia (1992) ATPR 41-189
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940
Yorke v Lucas (1985) 158 CLR 661
(Page 5)
- McKECHNIE J:
Introduction
1 This is a case about a dispute between a franchisee and a franchisor as to the business of anti-graffiti coatings and graffiti removals.
Background to the litigation
2 The fourth defendants, Messrs Smith and Bamford, incorporated the first defendant as Graffiti Coatings Australia Pty Ltd on 28 May 1991. Subsequently, the company name was changed to Guardian International Pty Ltd. For ease of expression I shall hereafter refer to the first defendant as Guardian International even though at some relevant times it may have been known as Graffiti Coatings Australia Pty Ltd. The business of the company was the application of a protective paint coating to buildings and other structures which would inhibit or prevent the absorption of the materials used by graffitists. Further, it specialised in the removal of graffiti from buildings and other structures. The products used by the company were named "Guardian" products as, for example, Guardian Graffiti Remover.
3 In "about" July 1993, Messrs Smith and Bamford engaged Mr Monisse, the first named third defendant, as a financial adviser. Mr Monisse was in partnership with Mr Boyce and Mr Dwyer, two of the other third defendants, in a firm of accountants then known as Mullers. Although there were some distinct features of this arrangement in relation to profit non-distribution, I am satisfied they practised together as a partnership of accountants.
4 During 1993, Messrs Smith and Bamford developed franchises for Guardian graffiti businesses. They sold a franchise for south of the Swan River, known as Graffiti Coatings South. Mr Monisse prepared a number of projections of return on investments to assist Messrs Smith and Bamford in determining a price for this franchise.
5 Similar projections were prepared for the sale of a franchise for north of the Swan River, known as Graffiti Coatings North. This business was then being operated by Guardian International Pty Ltd.
(Page 6)
The plaintiff purchases Graffiti Coatings North
6 Two men, Mr Robinson and Mr Thorpe had met while studying. Mr Robinson was by occupation a carpenter and joiner, while Mr Thorpe was by occupation a builder. They met when both were studying at Leederville Technical College.
7 In late 1993, Mr Robinson was employed part-time as a salesman with Guardian International. He and Mr Thorpe became interested in purchasing the north of the river franchise. There is an issue as to whether Mr Robinson approached Messrs Smith and Bamford regarding the franchise or vice versa, but in the end it matters not.
8 At all events, in December 1993 the four men met together at Mr Smith's house for an initial meeting. Again there is an issue as to whether or not they were shown the bathroom which was being renovated, but nothing turns on this. These minor discrepancies do not assist in the resolution of questions of credit.
9 Of more significance is the question of the asking price for the franchise. Mr Thorpe and Mr Robinson assert that they were told the asking price was $238,000 and it was not negotiable. Furthermore, there was a potential Asian buyer. Mr Smith and Mr Bamford, on the other hand, assert that the initial price given was $250,000 and this was later negotiated to $238,000.
10 There was at least one subsequent meeting in the Guardian International premises. That probably occurred on 11 January 1994. At, or shortly after, that meeting an equipment list was prepared.
11 On 17 February 1994 they acquired a shelf company, Dalecoast Pty Ltd, ("Dalecoast") the plaintiff. Finance was finally arranged through the Challenge Bank.
12 The franchise agreement did not provide for the transfer of equipment, but it seems common ground that Dalecoast took possession of all the equipment necessary for the business. That equipment included motor vehicles, office furniture and paint applicators.
13 There is an issue as to whether Mr Smith subsequently demanded payment of a further $8000 for a vehicle transferred to Dalecoast.
14 Mr Thorpe's recollection was that he refused the payment but found subsequently that Mr Robinson had paid it. A cheque butt was produced indicating a payment which included the sum of $8000 for a vehicle.
(Page 7)
15 In the Dalecoast financial statements for 30 June 1994, the balance sheet records non-current assets, plant equipment and motor vehicles at cost of $46,000 which of course is the sum total of $38,000 plus $8000.
16 The non-current assets also record the franchise business Graffiti Coatings Australia Pty Ltd as a non-current asset of $200,000.
17 Mr Smith denied making the demand for payment for the motor vehicle, but I am satisfied that demand was made and the vehicle was paid for.
18 The probabilities are that the purchase price was presented to Messrs Thorpe and Robinson as a non-negotiable sum of $238,000.
19 On 1 February 1994, prior to the franchise agreement being formalised, Messrs Robinson and Thorpe entered into possession of the franchise business known as Graffiti Coatings North and commenced trading.
20 Dalecoast and Guardian International entered into a franchise agreement by deed stamped 20 April 1994.
21 Mr Bamford and Mr Smith had discovered that the graffiti coating, with some modifications, had uses in recoating ceramic tiles. They incorporated Guardian Protective Coatings Pty Ltd and in due course sold franchises for the ceramics business. Guardian Protective Coatings Pty Ltd is the second defendant.
22 In late 1994, Messrs Bamford and Smith wished to dispose of the Guardian business entirely. Mr Monisse thought the business was worth purchasing. He discussed the matter with his partners and as a result the three accountants acquired both Guardian International and Guardian Protective Coatings Pty Ltd. One of their first acts was to appoint Mr Tony Warren, who had been the General Manager of Colortone Paints as Manager. He is the fourth-named third defendant.
23 Various disputes subsequently arose between the parties culminating in this litigation.
The plaintiff's claims
24 The plaintiff makes a number of claims against the defendants. In summary there are claims for breach of contract, claims for misleading and deceptive conduct under statute (the Trade Practices Act and Fair
(Page 8)
- Trading Act), claims for breach of fiduciary duty, and claims against the individuals on the basis that each was knowingly concerned in the statutory breaches.
25 The plaintiff attempts to tie all of the individual defendants to breaches of contract and alleged misleading and deceptive conduct, both at the pre-contractual negotiating stage and representations within the deed, even though some of the individuals were not involved in Guardian International until later. Further alleged breaches of contract and misleading and deceptive conduct arose long after Messrs Smith and Bamford had sold their interest in the company but they are nevertheless said to be liable for them.
The witnesses
26 In general terms, subject to some matters to which I will refer, I consider that the witnesses were honestly recounting their memories of events. Considerable time has now passed since some of the transactions now in dispute. In respect of several important conversations, there are no contemporaneous notes. While I believe that witnesses, in the main, have honestly tried to record their understanding of events, necessarily the passage of time precludes, in some cases, an accurate recollection. There are differences, sometimes of emphasis and sometimes of substance, between witnesses as to particular events.
Misleading and deceptive conduct - the first to the third defendants
27 The claim against the third defendants is that each has been knowingly concerned in misleading conduct.
28 The misleading conduct in summary is allowing the second defendant to grant rights to two Guardian Ceramic Coating companies and the sign company, charging excess prices between July 1995 and October 1996 for graffiti remover, and refusing to supply graffiti remover during 1996.
29 The claim as formulated by the plaintiff at the commencement of the trial is conveniently set out in their written submissions as follows:
"The plaintiff's claim for relief against the first defendant for breach of s 52 and s 10 and against the first to third-named third defendants and the fourth defendants for being, in any way, directly or indirectly, knowingly concerned in or a party to the
(Page 9)
- first defendant's conduct: s 75B of the TPA, s 68 of the FTA. See Yorke v Lucas (1985) 158 CLR 661 @ 666-9. … The first to third-named third defendants were the first defendant's accountants at the material time. They knew that the first defendant had no value in its goodwill or intellectual property: … yet they prepared many documents showing values of the south franchise of $100,000 to $140,000 … and worked on calculating a price for the north franchise. … Either the first to third-named third defendants knew that no real rights were being sold or they knew of such suspicious circumstances that knowledge is to be inferred: Compaq Computers Australia Pty Ltd v Merry (1998) 157 ALR 1 @ 5. The knowledge of the first to third-named third defendants, not their intention, is the important fact. …"
30 In closing, the plaintiff amplified this submission by reference to the provisions of the Partnership Act which, it was argued, read in combination with the Trade Practices Act, particularly s 84, rendered the third defendants, Mr Boyce and Mr Dwyer, liable for the actions of Mr Monisse, notwithstanding that they had no personal knowledge of it.
31 One central matter of complaint within the statement of claim was the nature of the exclusive areas north and south of the river. It was asserted that during the pre-contractual negotiations it had been falsely represented that the contract would cover the entire State north of the river.
32 It was further asserted that the south of the river franchise, which was subsequently purchased by the plaintiff, would cover the entire State south of the Swan River, the parties apparently considering that the Swan River in some way marked a geographical boundary of the State.
33 Within each franchise agreement, the exclusive areas are defined by means of a schedule which lists a number of shires. It does appear that some Western Australian shires both north and south of the river were left out. Notwithstanding, the pre-contractual representations as to exclusivity were pressed in the pleadings.
34 For this and other reasons, I considered that issues of credibility would be important and that my resolution of them would be assisted by examination of the witness in-chief as well as in cross-examination. I therefore ordered that there would be no tender of witness statements (although the same had of course been exchanged by the parties). In the
(Page 10)
- course of evidence from Mr Dwyer, late in the trial, it became clear that the franchise agreement had been terminated. Although each party claimed to have been the innocent party in the termination that is not a matter raised on the pleadings which I have to determine. Hence the declaration as to exclusivity is now moot. The plaintiff in closing submissions abandoned this aspect of the claim.
35 While issues of credibility do remain for resolution, the scope of those issues is a far narrower compass than I had understood at the beginning of the trial.
36 With regard to the pre-contractual negotiations, there now appears to be little of significance in the differing accounts of Messrs Smith and Bamford, on the one hand, and Messrs Thorpe and Robinson, on the other. Such differences as exist may be largely explained by the passage of time which has elapsed and the different perceptions of the parties and their recollections. In this respect I regard Mr Thorpe and Mr Smith as having generally clear memories and recollections. Mr Robinson was vague as to details. Mr Bamford was forthright in admitting his non-recollection of certain matters.
37 A number of issues which arise for resolution do so in the context of the franchise agreement. At first sight the parties would appear to advance different constructions of the franchise agreement. On reflection, however, I am inclined to think that the difference between them is not so much construction as a matter of inference and emphasis. The franchise agreement asserts a number of matters which are directly challenged by the plaintiff and it is therefore to the agreement that I now turn. Although the plaintiff relies to an extent on pre-contractual negotiations as to the question whether Guardian International caused the graffiti products to be developed for the exclusive use of Guardian, there is no dispute that this assertion was made. It is argued however that it is a true statement. The issue arises directly in the franchise agreement.
The franchise agreement
38 The franchise agreement contained a number of 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'.
(Page 11)
- 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."
39 The plaintiff claims that recital A is relevantly false because the franchisor did not develop, and is not the supplier for the product for the removal of graffiti.
Did the second defendant cause graffiti remover to be developed?
(a) Development of graffiti protective coating product
40 Mr Smith gave evidence that he first became interested in the question of graffiti and protection against it, and removal of it, following a visit to the west coast of the United States of America in 1985.
41 In 1989 he started working for a company known as Cementaid which sold, amongst other things, a protective resin. He came up with the idea to use a protective coating to put on walls so that if the wall did get graffitied it would be easily removed. He discussed the matter with Mr Bamford who also became interested. He made enquiries of a number of companies and eventually was put in touch with the firm of Albright & Wilson and particularly Mr Ivor Crane of that company.
42 Mr Smith wished to develop a protective or non-sacrificial coating.
43 Albright & Wilson had a starting formulation for a base resin.
44 Mr Smith and Mr Bamford had tested a number of single pack products by painting them on forms of substrate, adding graffiti and then seeking to remove the graffiti. They arranged for the Albright & Wilson formulation to be manufactured by Wanneroo Paints and then evaluated that product providing feedback to Mr Crane. In 1991 Guardian International was incorporated and began to win contracts for graffiti coating and removal. Testing of the graffiti coating continued through 1992. Ultimately a product known as Durasol 347 was developed which
(Page 12)
- when combined with a product from Bayer AG called Desmadure N75 so that:
"… when it cross-linked with the Desmadure N75, formed an extremely tight link in a paint sense, so that paint found it very difficult to hold on."
"Dear Bob
DURASOL 347
We are pleased to confirm Graffiti Coatings Australia, as the sole purchaser world-wide of our product 'DURASOL'* 347 acrylic solution.
This product has been jointly developed by our two companies, and as such, we recognise that Albright & Wilson Specialities Proprietary Limited has exclusive rights to manufacture this product, and Graffiti Coatings Australia has exclusive rights to purchase, market and distribute this product, in all world markets.
We do make provisos:
1. All product must be purchased direct from Albright & Wilson Specialities Proprietary Limited, or our approved agent or distributor.
2. All sales must be to Graffiti Coatings or its approved agent or distributor.
We wish you well in your efforts to further develop the markets for this product.
Yours faithfully
GREG C. BAIN
(Page 13)
- * 'DURASOL' is a registered trademark of Albright & Wilson Specialities Proprietary Limited."
46 The plaintiff does not plead that recital A is false in respect to the coating product. The letter written by Albright & Wilson was for an indefinite time. In fact the letter was subsequently replaced by a deed to like effect.
47 This has significance in relation to the plaintiff's later claim that because of false statements about the exclusivity of the remover, among other things, the goodwill of the business was nil. In fact, I am satisfied that sales and application of the coating product provided the predominant source of income in respect of both Guardian International when it was directly in business providing protection against graffiti, and of Dalecoast after it purchased the franchise.
48 An attempt was made to impugn the credit of Mr Smith by reason of the fact that the defendants did not call a representative from Albright & Wilson Specialities Pty Ltd. However, having regard to the pleaded issues, I do not consider Mr Smith's credit was impugned by the failure to call such a witness and in fact I accept his evidence, the effect of which I have just set out.
(b) The development of the remover
49 Mr Smith gave evidence that in 1991 he began to investigate a graffiti remover. He went to see Mr Guy Vinciguerra at Chemform, telling him that he was there to find a remover to use on the coating.
50 Mr Vinciguerra had a product immediately available. According to Mr Smith:
"During the course of the next year or 2 - well, we tested it and then we came back to Guy and said, 'it works okay but can we make it better, or can you make it better?' He then introduced us to a chemist that he had working for him by the name of Michael Chan, and Michael and myself and Alan - Michael would give us different removers and different versions of it and what have you until in about 93 we finally - we, Alan and I, finally decided on the remover that seemed to work best."
51 He indicated that he was testing the remover in about 1992.
52 In cross-examination Smith said in relation to Chemform:
(Page 14)
- "They had a product which existed … but it had a problem which was probably suitable for what we wanted to a degree but it had a problem removing the permanent marker pens from the walls, from our coating, and when I went to see Guy he then put me on to Michael Chan and we basically set about, over a number of months, coming up with the remover that pretty well did everything, I guess."
53 The number of months was possibly 18 months he thought.
54 He said the product was constantly in development the same as the anti-graffiti coating. In respect of the development he said:
"… it was a constant thing where we were trying to develop the coating and develop the remover to come up with the best product we could possibly have."
55 As far as Mr Smith knew, Chemform were trying to use a less aggressive solvent.
56 Dr Vinciguerra, whose PhD is in Chemistry, gave evidence for the plaintiff. He is the Managing Director and shareholder of Chemical Formulators Pty Ltd which trades as Chemform. He was a clear decisive witness. He recalled meeting Mr Smith and Mr Bamford who told him that they had an anti-graffiti coating which, when placed on a hard surface, would enable graffiti to be removed easily and they needed some sort of cleaning vehicle to remove any graffiti. Although it was technically a difficult problem, he understood the problem. He was asked:
"What was done to develop a remover and who did it?"
- and the answer was:
"Okay. We had experience in cleaning in general. We knew how to remove films totally and so we backed it off a little bit and basically blended some chemicals together and asked them if they would evaluate it, which they did, and came back and reported to us."
"I think the first time it wasn't successful or the first few we gave them weren't successful. … So then we did some more variations until the field evaluation showed that we had hit the
(Page 15)
- right product mix of not being too aggressive and not being too gentle."
58 He said that their role was limited to testing of the formulations prepared by Chemform.
59 Michael Chan was an employee who dealt with Mr Smith and Mr Bamford but rarely formulated anything without Dr Vinciguerra's direct involvement.
60 There is an apparent difference between the evidence of Dr Vinciguerra and Mr Smith over the length of time it took to develop Graffiti Solv into a form acceptable to the first defendant. However, I do not regard the difference as so significant as to reject the general account given by Mr Smith.
Conclusion on issue whether the first defendant caused remover to be developed
61 I am satisfied that Mr Smith, on behalf of Guardian International, had an interest in developing an anti-graffiti coating and a graffiti remover which could be used in a general anti-graffiti business, particularly targeted towards government and local government authorities and industrial and commercial premises.
62 While there were both coating products and remover products commercially available which achieved similar results in relation to graffiti protection and graffiti removal, I am satisfied that Mr Smith provided the impetus for each of the anti-graffiti coating product and graffiti remover to be developed to a higher standard and that he did this, in part, through testing the products and reporting to the respective manufacturers until a product level was achieved which he regarded as satisfactory for the business.
63 In this way I consider that he, and consequently Guardian International, did cause both the coating product and specifically the remover to be developed. In consequence I do not regard recital A as false, misleading or deceptive.
64 The products were manufactured by others but supplied to the plaintiff. The product was publicly exhibited as a Guardian product. Guardian International held the rights to that name. I consider Guardian International was, in the terms of the franchise agreement, the supplier of
(Page 16)
- a range of products for the removal of or protection against graffiti known as Guardian.
65 No doubt goodwill was attached to the name Guardian. The licence agreement licensed the plaintiff to use and exploit the trade name and distinctive signs, labels, trademarks and the like.
Recital C: The right to acquire a product and carry on a business
66 Although the plaintiff seemed to contend that the franchise agreement was in reality the licence for supply of a product, as recital C and subsequent terms make clear, it is both the right to acquire the product and to carry on the business within the exclusive area under the name Graffiti Coatings North of River.
The definitions
67 There are a number of relevant definitions:
The Franchise Business:
"'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
"'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
"'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;"
The trade name and other intellectual property
"'the trade name and other intellectual property' means the trade name 'Guardian' any associated logo and other related and ancillary trade marks trade names copyrights emblems designs
(Page 17)
- labels signs symbols and indicia devised and employed by the Franchisor to identify and distinguish the Product together with the Business Name and includes any future additions and modifications thereto and all applications in respect thereof."
68 It is to be noted that, conformably with recital C, the franchise business is the business of supply and application of the product.
69 The product includes both the present product and any future development.
70 In other words, the franchise agreement, read as a whole, is not just about supply of product. The right to carry on a business under the name Guardian Protective Coatings is equally important.
The construction of the licence
71 The term is effectively an indeterminate term.
"2.1 Licence
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) licenses 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
(Page 18)
- 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;
…"
72 A number of issues arise out of the licence.
73 It is alleged by the plaintiff that there was a breach of the licence because Guardian Protective Coatings Pty Ltd, which at material times had common directors with Guardian International, supplied products to companies Ceramic Coatings Australia (North) and Ceramic Coatings Australia (South). The supply to Ceramic Coatings South became a breach of the plaintiff's south of river franchise when it was acquired by purchase from the original franchisee.
74 Further, there was a supply to Graffiti Proofing Sign Service Pty Ltd.
75 Thus, it is said that the defendants were in breach of cl 2.1(d) of the licence.
76 It is also pleaded that Guardian International made a false representation because Guardian International was unable to grant to the plaintiff the exclusive right to acquire graffiti removal in the exclusive area the subject of each agreement throughout the term of both agreements by reason of the fact that the right for graffiti remover was only for a period until 1995. Furthermore, the intellectual property did not reside in the first defendant.
77 I shall deal with each issue separately.
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Is the supply to Ceramic Coatings a breach of the franchise agreement?
78 It is common ground that on or about 16 March 1994, Guardian Protective Coatings Pty Ltd granted rights to Westall Investments Pty Ltd under a franchise agreement to carry on business under the name Guardian Ceramic Coatings (South).
79 Furthermore, on or about 16 March 1994 Guardian Protective Coatings granted rights to Patrick Joseph Kelly, and subsequently to Quest Enterprises Pty Ltd, to carry on business under the name Guardian Ceramic Coatings (North). The statement of claim asserts that Guardian Protective Coatings granted the rights to use and exploit the products to Quest Enterprises and Kelly in what was the defined exclusive area of the plaintiff under its franchise agreements north and south. Guardian Protective Coatings Pty Ltd pleads that the rights in the ceramic franchise agreements are expressly limited to use of the product in the business of ceramic coating. The agreements with Westall Investments Pty Ltd and Kelly and Quest Enterprises Pty Ltd do not allow use of the product for or the carrying on of a business in graffiti protection or removal.
80 The relevant ceramic franchise agreements are in common form. The recitals are:
"A. The Franchisor is engaged in the business of the sale of the Product and providing services of the application of the Product.
B. 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."
81 The business name is Ceramic Coatings Australia (North), (or South) as the case may be.
The Franchise Business
"'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
"'the Product' means the product or products as at the date hereof sold by the Franchisor for the coating of ceramic and
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- other similar surfaces under the style or trade name of 'Guardian Ceramic Coatings' together with any future developments of such products;"
82 The licence relevantly provides:
"2.1 Licence
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) licenses 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 Franchise Business and to use and display the business name 'Ceramic Coatings Australia - North' 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;
…"
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83 It is obvious that the franchise agreements for both the ceramic coating business and the graffiti coating business have many common features.
84 Mr Smith gave evidence as to the evolution of ceramic coatings as follows:
"During the course of probably, I guess, 93 in my own house I had an olive green bathroom and my wife and I didn't like it and we just thought maybe we could spray the product over the top of the tiles to change the colour and what have you and so we - - -
When you say 'the product' you mean the graffiti-coating product?---Yes. We modified it slightly. We had to sort of thin it because you couldn't spray it successfully; it was just too thick that it would just run all over the tiles, so we had to change the formulation of it slightly so it could be sprayed on and we also had to get a primer for the tiles, like an etch primer, a solvent-based etch primer and, yes, we did it on my bathroom and that worked successfully.
When was this? When did you do it on your bathroom?---Probably mid-93, I suppose.
Just tell us what did you do to the graffiti-coating product to successfully apply it to the tiles in your bathroom?---We had to thin it because we used a normal spray-gun, not an airless that we'd used to put the graffiti coating on air assisted with a very small nozzle, so it went on very fine and you had to spray it on in a number of sort of layers so that it wouldn't run down the tiles because the tiles were very flat and you just couldn't - if you didn't thin it you just couldn't spray it on thin enough in each part.
What did you thin the product with?---We started with - - -
When you say 'we' is this - - -?---Sorry, Alan and I. We started with xylene and we ended up using butyl acetate because it was a lot more volatile solvent. In other words, it would dry a lot quicker.
So you were adding butyl acetate as a thinner to the graffiti-coating product?---About 15 to 20 per cent butyl acetate, yes.
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- You have told his Honour that you then changed the method of application. Was there any other change to enable this product to be successfully applied to tiles and bathrooms?---Yes. We went back to Albright and Wilson and we asked them if they had an etch primer which would be suitable for this product which would basically - the purpose behind it was to put the primer onto the tiles, so basically what would happen is the primer would stick to the tiles particularly well and then the product would stick to the primer well. It's called an etch primer.
Did they supply you with a primer for that purpose?---Yes, they did."
85 The evidence of Mr Smith as to the requirement to modify the coating product with butyl acetate was not challenged in cross-examination. I accept Mr Smith's evidence on this point.
86 He explained the price differential in supply to Kelly because Kelly was proving the product. The application of the ceramic product involved a different spraying technique. The material cost on a typical ceramic job was small. Eight to 10 square metres may be covered with one litre and a large job might use two litres.
87 Mr Elliott is the franchisee for Graffiti Coatings in New South Wales. He had been given the opportunity to take on a ceramic coatings business but decided against it. In his words:
"… it's a totally different trade. We didn't see it as being viable because all the preparation you had to do. It was not cost effective in our eyes. The products we're looking at to go retail now are totally outside the graffiti market.
… the product has to be put on by specialists. It's a real specialist field. It's more time consuming. There's a lot more preparation that has to be done. It's more to be on-sold to an applicator."
Conclusion in relation to the Ceramic Coatings franchises
88 The graffiti coating franchise required the supply of product in connection with the graffiti business. I do not consider it was a breach of that agreement for Guardian Protective Coatings Pty Ltd to enter into a separate franchise agreement for the supply of product for use in a
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- completely different business, namely the ceramic coatings business. I accept the evidence of Mr Elliott as to the practical nature of the differences between the two businesses. The two common form agreements are clear in their terms and contain licences to carry on different businesses. As I have found, the coating product is not exactly the same as the coating product used as a barrier against graffiti. The ceramic product was different from that supplied for protective coatings because it was necessary to modify it by the introduction of a percentage of butyl acetate.
89 I do not find that the first defendant engaged in misleading or deceptive conduct by entering into the franchise agreement after it had entered into the ceramic coating franchise agreement. I do not find the second defendant liable.
Is the supply to Graffiti Proofing Sign Service Pty Ltd a breach of the franchise agreement?
90 The plaintiff pleads that the supply of product within the exclusive area to Graffiti Proofing Sign Services Pty Ltd was a breach of contract and gave rise to misleading and deceptive conduct.
91 Messrs Smith and Bamford together with Mr Bird were directors of Graffiti Proofing Sign Services Pty Ltd until 24 May 1994. The plaintiff pleads that:
"From prior to the First Defendant entering into the agreements … until 12 December 1994, the First Defendant supplied the product to Graffiti Proofing Sign Services Pty Ltd. …"
92 This plea is admitted by Guardian International and Guardian Protective Coatings Pty Ltd. Messrs Smith and Bamford admit that they supplied products to Graffiti Proofing Sign Service Pty Ltd until in or around December 1993 (sic) but otherwise deny this claim.
93 On the face of it, the supply of any product to Graffiti Proofing Sign Service Pty Ltd is a clear breach of the franchise agreement and in particular par 2.1(d) and I so find.
94 In relation to this claim, and to the claim in respect of the supply of product to the ceramic coating businesses, the plaintiff seeks the opportunity to elect for damages or an account of profits. The plaintiff claims that such an election is permitted: Attorney General v Blake & Jonathon Cape Ltd [2001] 1 AC 268. The facts of that case, as
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- acknowledged by Lord Nicholls, were exceptional. The four categories enunciated by Lord Steyn are not present here. It would seem that an account of profits does not follow as of course in cases of breach of contract where the usual remedy is for damages.
95 On the assumption that I can follow Attorney General v Blake, and that further I should follow it, I nevertheless conclude that the claim by the plaintiff in this case does not carry with it the hallmarks which would enable me to grant an account of profits.
96 On this aspect of the claim, I find that the plaintiff has proved a breach of contract and is entitled to damages. Subject to resolving questions as to the cost of a further hearing, I will order that damages for this breach be assessed.
97 The plaintiff also claims that this conduct constitutes misleading and deceptive conduct.
98 Mr Robinson gave evidence that when he was employed as a salesman he became aware of Graffiti Proofing Sign Service Pty Ltd which was trading as Sign Guardian. He was told that they were using a completely different product. He agreed that he had on occasions handed out a product information data sheet for Graffiti Proofing Sign Service Pty Ltd and in particular the product known as Sign Guardian Anti-Graffiti Coating. It was supplied with a different label. After Mr Bird fell out with Messrs Bamford and Smith, an event which occurred after Dalecoast Pty Ltd had taken over the north of the river Graffiti Coatings franchise, Mr Robinson was told by Mr Bird that the sign anti-graffiti coating was the same product as the other anti-graffiti coating. He was also told by Mr Smith at that time, which was around the middle of 1994, that the plaintiff "could do signs" and that the product was the same product although there was a slightly different application technique. He could not say whether Mr Smith told him that they could not coat signs before or after he agreed to buy the business. Messrs Robinson and Thorpe were not looking at coating signs at the time, they were looking at all the other work they were doing.
99 Mr Thorpe gave evidence that Bob Smith said:
"You don't do signs. They do signs over there. You don't do signs."
100 Mr Smith was very plain about that. Mr Smith did not say anything about the product that was used, although later on Mr Thorpe came to
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- learn it was the same product. When there was a change in the ownership structure of Graffiti Proofing Sign Service, Mr Thorpe gave evidence:
"Bob Smith came to us and he said, 'Now you can do signs.' I said, 'What do you mean we can do signs?' He said, 'You can do signs now'."
That was a "couple of months" after the franchise had been taken over.
101 Mr Thorpe in cross-examination was unable to recall when he was told that they "don't do signs". He understood "they do signs" to be a reference to Graffiti Proofing Sign Service Pty Ltd. He agreed that there was not much money in actually doing signs.
102 Mr Bird was initially, together with Mr Smith and Mr Bamford, one of the shareholders in Graffiti Proofing Sign Service Pty Ltd. In the course of his evidence he recalled Mr Peter Robinson coming to his premises:
"I suppose I recall that because he was one of their salespeople and I was the main salesperson for Graffiti Proofing Sign Service so we were trying to tee up clients to then promote the two businesses almost together to try and get work at shopping centres and things like this, I recall."
- That was before Messrs Robinson and Thorpe took over the franchise.
103 Mr Smith gave evidence that he and Mr Bamford basically dissolved the partnership with Mr Bird and ceased being directors on 23 May 1994. Following that, supply continued for a little while "and then we found out that Grant [Bird] was actually applying the product to structures other than signs and we ceased to supply". This was probably a couple of months after. He was asked the specific question:
"Did you ever have a discussion with Mr Robinson or Mr Thorpe in relation to the business of GPSS?---Yes. During the discussions before they bought the Graffiti Coatings - North business we made them aware that the GPSS business was in the business of graffiti-proofing signs and that they weren't to do signs."
104 He denied that he had told Mr Thorpe and Mr Robinson that Sign Guardian was a different product and denied not telling them.
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The plaintiff's knowledge as to Graffiti Proofing Sign Service Pty Ltd
105 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.
106 If I am wrong about that last conclusion, in any event the measure of damages is the same as for the breach of contract. There did not appear to be any great enthusiasm in that early stage for Mr Robinson or Mr Thorpe to do signs and this is understandable. Signs cover a comparatively small area and the growth of the business was in covering large areas with the coating product.
Was there an exclusive right to the graffiti remover?
107 The plaintiff pleads by par 15 of the statement of claim that prior to the entering into each of the agreements, the first defendant represented to the plaintiff that the first defendant had the exclusive right to sell or authorise the sale of graffiti remover.
108 The particulars were said to have been contained partly in the recitals, partly in cl 2.1, and partly in negotiation. I have dealt with the recitals.
109 Paragraph 1E pleads:
"In negotiations prior to entering into both agreements, the First Defendant represented to the Plaintiff that by entering into each agreement the Plaintiff acquired exclusive rights within the Exclusive Area the subject of that agreement. "
110 It is said that the representation was false because:
"A. The first Defendant did not cause Graffiti Remover to be developed;
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- B. The First Defendant was acquiring Graffiti Remover from its manufacturer, Chemform and was not the owner of any substantial goodwill with respect to Graffiti Remover;
C. The First Defendant was unable to grant to the Plaintiff the exclusive right to acquire Graffiti Remover in the Exclusive Area the subject of each agreement throughout the term of both agreements pleaded. …"
111 On 23 June 1993, Dr Vinciguerra on behalf of Chemform wrote to the first defendant as follows:
"Graffiti Solv
This letter is to confirm the fact that your company will have exclusive rights to the product 'Graffiti Solv' until 30 June 1995.
We undertake not to sell this to any other company until this period has expired when the agreement will be re-negotiated."
112 The essence of the plaintiff's argument is that the letter from Chemform was for a limited period of time, whereas the franchise agreement was for an indeterminate period of time. The terms of the franchise agreement are therefore false and misleading as are the statements made at Mr Smith's house when, according to Mr Robinson, either Mr Smith or Mr Bamford said: "… they developed them products and they had exclusive rights to them products."
113 The particulars pleaded as to falsity in par 15.4(b) of the statement of claim do not reflect the agreement. Recital B attaches goodwill to the business of the sale of product and providing services of the application of the product for protection against, and the removal of, graffiti from buildings and other structures. It did not represent that it was the owner of any substantial goodwill with respect to the remover itself. Furthermore, at the time of the agreement, the first defendant did have exclusive rights to Graffiti Solv.
114 The licence obliged the franchisor to supply product for the term of the agreement. The proper construction of the definition "the product" together with cl 2.1(a) and 5.1 is that the franchisor is obliged to supply quantities of graffiti remover.
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115 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.
116 At the time of the franchise agreement there were no such events. Dr Vinciguerra did not have any problems in suppling 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.
The over-pricing of product
117 The plaintiff pleads by par 11 that between July 1995 and October 1996 the first defendant supplied graffiti remover to the plaintiff at prices in excess of those agreed in the agreement and thereby overcharged the plaintiff the sum of $9028.35.
118 Although Guardian International in its pleading formally denies the overcharge, the evidence is clear that there was in fact an overcharge.
119 More relevantly, Guardian International pleads an estoppel:
"13. If, which is denied, the First Defendant did charge the Plaintiff prices for the graffiti remover which were in excess of those applicable pursuant to the terms of the Franchise Agreements, the Defendants say that the Plaintiff is estopped and precluded from seeking to enforce those terms of the Franchise Agreement because the said prices were altered with the knowledge of the Plaintiff who by conduct and/or silence permitted and induced the First Defendant to believe that the Plaintiff agreed to the price alteration with the intention that the First Defendant should act upon the conduct and/or silence, which the First Defendant did in fact do.
PARTICULARS
- (a) In or about July 1995 the First Defendant advised the Plaintiff of a new pricing structure for the
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- products, whereby the First Defendant's profit margin on all products was standardised. As a result of the standardisation, the price of some products increased, and the price of others decreased in relation to the product prices that would have been applicable had the prices been restructured on the basis of the pricing formula contained in the Franchise Agreements.
- (b) The Plaintiff paid the increased prices without protest and further, has accepted the benefit of the lower prices. Further and better particulars of the prices and products supplied to the Plaintiff will be provided prior to trial.
(c) In reliance upon the matters set out above, the First Defendant has allowed the Plaintiff to be supplied with some products at a lower price than otherwise would have been the case, on the basis of its belief that the Plaintiff had agreed to the standardised pricing structure. Further and better particulars of the products supplied and the reduced price amounts will be supplied prior to trial."
120 Mr Warren, one of the third defendants, gave evidence which in general terms I accept. He had been Manager of Colortone Paints. He was appointed in November 1994 to be General Manager for the first defendant, a position he held until November 1996.
121 His evidence was that in January 1995 there was a meeting with Mr Thorpe and Mr Robinson who requested further discounts because they were failing to win certain jobs. This meeting had been held following a letter written by Mr Thorpe.
122 At a franchisees' conference in Sydney in March 1995, Mr Warren suggested introducing bulk discounts. Those were in due course introduced and the plaintiff took advantage of them.
123 On 1 July 1995 Mr Warren circulated a revised price list for all products including Guardian Remover No 1. He said that he telephoned Mr Peter Robinson:
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- "… He said it seemed fair. He said, 'But the remover has gone up,' and I said, 'The bulk of your purchases are in coating so where you will get the advantage of one, you may lost (sic) on the other.
Did he respond to that?---Yes, he said, 'That's fair enough.
Were the franchisees then billed under that national price list?---Yes, right up to about November 96 when I left."
124 It appears that the pricing of products continued to be a source of discussion between Mr Warren and the plaintiff.
125 On 18 September 1995 he sent the following memo:
"GUARDIAN REMOVER NO. 1
You have asked for documentation pertaining to the increase of your purchase price for the above product. When you purchased your franchise in April 1994, Graffiti Coatings Australia was purchasing this product tax exempt, as per the attached invoice and your purchase price commenced at $7.50 per litre.
The product has since been ruled as a cleaning fluid and subject to 21% sales tax. Until June 30th, 1995 you were still only paying $7.62 per litre in 20 litre drums. The sales tax had not been passed on.
Further to the above, we adopted a uniform margin across the product range effective 1st July, which resulted in several products dropping in price and others not increasing to the extent of our increases from the manufacturer. We are happy to pass the full effect of our purchase price increases on to you, as per our franchise agreement, with no bulk discounts or other price subsidies should you so desire.
We are becoming increasingly concerned with your attitude over recent months and we believe, breaches to our franchise agreement. We have invested a lot of money in retraining, marketing and technical support since we purchased this company, to make our franchises more successful. A successful corporation must work together and we advise that unless there is a positive change on your part, we will be left with no other
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- option than to apply the full context of our franchise agreement in both pricing policy, limit of future support and perceived breaches over recent months."
126 This memo was written following a complaint that the price of the remover had increased outside the terms of the franchise agreement. It would appear that following this memo the plaintiff paid the revised price of the remover and accepted the other prices for the other products.
127 There was a further meeting on 29 March 1996. This is evidenced by a memo of 1 April 1996 from Mr Warren which reads:
"In confirmation of our meeting of Friday 29th March we are prepared to assist you in competing against your main competitor Protecta Systems, by offering you a 10% discount off our January 1st 1996 price list for a period of 12 months from the 1st April 1996.
The current price list pertains to existing product formulas only and any new products or improvements will be priced using the current formula.
…
This offer is conditional on your signed acceptance that the new pricing structure implemented on 1st July 1995 (as per my fax of the 6th July 1995), is confirmed as an amendment to your franchise agreements for WA North and South. The amendment relates to the 'purchase price' of Guardian Anti Graffiti products and supercedes (sic) any prices stated. Future price reviews remain subject to the existing terms of the agreements."
128 The foreshadowed acceptance was not signed by the plaintiff. Mr Warren gave evidence that on 5 April Mr Thorpe rang saying that the offer of 1 April was not confirmation of the meeting and subsequent agreement reached on 29 March 1996.
Conclusions in relation to estoppel plea
129 Notwithstanding the evidence of the plaintiff's two witnesses, and the attitude evinced by Mr Thorpe on 5 April 1996, I am of opinion that the plaintiff did accept the revised national price structure and take advantage
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- of its benefit in relation to bulk discounts and its burden in relation to remover. This is evidenced by its conduct.
130 I consider the plea of estoppel is made out. In consequence the plaintiff is not entitled to damages for over-pricing.
131 Mr Dwyer prepared a schedule of comparison between the prices actually paid over the period by the plaintiff with the prices that would have been paid if the products had been billed with the CPI increases under the franchise agreement.
132 I accept Mr Dwyer's calculations are derived from the actual invoices in preference to the plaintiff's table.
133 As a result of the calculations, if billing to the plaintiff had conformed to the franchise agreements rather than the national price agreement, then the plaintiff has overpaid the sum of $3,310.70.
134 If I had not concluded that the plea of estoppel should succeed, I would have awarded the plaintiff damages of $3,310.70 on this head, not the claimed sum of $9,028.35.
The refusal to supply graffiti remover
135 This issue arises because of the introduction by Guardian International of the environmentally friendly remover.
136 The genesis of this project seemed to arise from some difficulties experienced by franchisees around Australia in relation to what they saw as a general move by government agencies to stipulate an environmentally friendly remover.
137 In consequence Mr Warren gave instructions to develop such a remover to Mr Newman following the latter's appointment to Guardian International as Technical Director in about October 1995. The materials for the product were selected for their ability to be environmentally safe as well as biodegradable and non-toxic and were combined so that they did not destroy the anti-graffiti coating.
138 Mr Newman had some independent testing done and the performance of the environmentally friendly remover was sometimes better than the other remover. This accords with the evidence of the New South Wales franchisee Mr Elliott. In contrast is the evidence of Mr Michels who is employed by the plaintiff. His view was that the
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- ordinary graffiti remover was: "… a lot better than the environmental friendly stuff" which:
"Sometimes it might take twice as long to use and other times it might only take, like, a quarter of the time. It just depended what sort of surface or what sort of texture the surface was or what type of stuff they used as graffiti, like as a graffiti substance."
He tested the product. In cross-examination he conceded there were swings and roundabouts in comparison but, in his view, probably 80 per cent of the time it was not as good.
139 On all of the evidence, I am not persuaded that the environmentally friendly remover was markedly inferior to the previous remover.
140 An issue arises as to whether the plaintiff, through Messrs Thorpe and Robinson, agreed to the introduction of the environmentally friendly remover in the sense that it would replace the previous remover.
141 The matter was discussed at franchisees meetings in Sydney and Melbourne, and Mr Warren, whose evidence I generally accept, certainly thought there had been an agreement to introduce the environmentally friendly remover and proceeded quite openly to develop it and then replace the previous remover with environmentally friendly remover.
142 Nevertheless, I cannot find that Messrs Robinson and Thorpe finally agreed to the replacement of the remover with the environmentally friendly remover.
143 The New South Wales franchisee Mr Elliott's recollection of the Adelaide conference was that a Mr Darren Martin represented Dalecoast and there was a vote that an environmentally friendly remover would be developed.
144 He was asked whether there was a vote that it would replace the other remover and his answer was:
"Not really, not to replace the solvent one because in my business there was always - as I said before, there was always the client that wanted that solvent-based product. It was more a market demand … For an additional product."
145 I am satisfied that Messrs Thorpe and Robinson were aware that Mr Warren proposed to cease supply in August 1996.
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146 The position of Mr Warren on behalf of Guardian International is clearly set out in a fax sent by him to Mr Robinson on 30 August 1996 following receipt of a request from the plaintiff for 25 x 20 litre tins of the solvent-based remover.
147 In the course of that fax he said:
"As per our fax of 11 June, it was agreed by all staff, other than WA, to discontinue the remover No 1 immediately, owing to environmental issues.
We have continued to supply you for a further three months. However as agreed by our meeting of Monday 26 August, no further supplies of the product would be available after today's delivery."
148 The supply of the solvent-based remover ceased for a time from 30 August 1996. The plaintiff consulted solicitors who wrote to Guardian International.
149 On 23 October 1996 Guardian International arranged for the resupply of the solvent-based remover from Chemform.
150 Although Guardian International ceased supply of the solvent-based remover for a period of about six weeks, the evidence is that Guardian International supplied the environmentally friendly remover which the plaintiff commenced to use from 29 August 1996 and continued to use it for the rest of the year. Mr Robinson's evidence, as confirmed by the invoice, was that prior to 30 August 1996 the plaintiff would order remover differentiating between the solvent-based and new remover according to its requirements.
151 Mr Robinson was asked about stock of the solvent-based remover:
"How much stock of that did you have on hand on 30 August?---I couldn't say how much stock. We always kept big volumes because we had a lot of removal jobs.
So you had stock on hand on 30 August?---Yes we did. Like I say, we had existing contracts to honour."
152 I conclude that the plaintiff, through Messrs Robinson and Thorpe did not agree to the cessation of the solvent-based remover. The plaintiff was entitled to have supply maintained.
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153 However, the plaintiff has not established that the refusal to supply the solvent-based remover from 30 August 1996 for the period has caused any damage.
154 There is no evidence that the request for 25 x 20 litres of solvent-based remover, made at the end of August, was re-issued when supplies resumed in October.
155 The plaintiff however asserts that the supply of the environmentally friendly remover caused it damage because the application of the remover and the consequent removal of the graffiti took one-third longer than the time taken with the solvent-based remover.
156 The plaintiff put forward a chart compiled by Mr Robinson which showed the damages at $34,222.12.
157 There are significant problems with this chart.
158 The first problem is the figure of one-third longer as an estimation by Mr Robinson based on hearsay. As I have found, there is no significant difference in performance between the two removers. There is no basis in the evidence for the figure of one-third extra time.
159 Furthermore, the plaintiff began purchasing the solvent-based remover from Chemform from 8 October 1996 yet part of the claim for the extra work alleged involved in the environmentally friendly remover proceeds from that date to 5 December 1996.
160 The amount of material used in the calculation can be determined by reference to the cost of materials. Those amounts do not correspond with the invoices or Mr Dwyer's schedule which I have accepted.
161 For these reasons I am unable to accept Mr Robinson's schedule. The plaintiff has failed to prove any loss due to extra time taken in the application of the environmentally friendly remover and has failed to establish the basis of the calculations leading to the claimed loss of $34,222.12.
Parties knowingly concerned
162 My conclusion is that there has been no misleading and deceptive conduct by Guardian International in relation to the franchise agreement or any other matter including the sign business, the overpricing of product and the replacement of the solvent-based remover with the
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- environmentally friendly remover. There was no misleading and deceptive conduct by Mr Smith or Mr Bamford at the time of the pre-contractual negotiations. In consequence, it is strictly unnecessary for me to deal further with the position of Mr Monisse and Messrs Dwyer and Boyce and Mr Warren. However, I will do so.
Mr Monisse, Mr Dwyer and Mr Boyce
163 Mr Monisse was the accountant for Mr Smith and Mr Bamford.
164 He is by occupation a qualified chartered accountant who graduated with a Bachelor of Commerce degree in 1981 and then worked for a time with a large accounting firm until 1993 when he commenced trading under the name Mullers.
165 In general terms I accept his evidence. In the course of his evidence he was cross-examined on an affidavit he had sworn in earlier proceedings seeking security for costs. His answers to questions concerning his belief that the plaintiff could not meet a costs order were unsatisfactory and reflected adversely on his credit in relation to that issue. I have taken that issue into account, but overall I nevertheless accept Mr Monisse as a witness of truth, particularly in the details he gives as to his role in the preparation of documents prior to the negotiations and subsequent agreements. Mr Monisse gave evidence as to his instructions from Mr Smith and Mr Bamford and his development of models. In his words:
"We developed the model and proved the model based on various assumptions which were - based on information provided by Mr Smith and Mr Bamford. I guess the second consideration was once we had sort of established what sort of profit the business could expect to make is what sort of price should Bob and Alan should ask for the business."
166 The precursor to the business was information supplied by Smith and Bamford. He saw his role as largely to glean information from them and put this into some sort of format that they could use to help them explain it to people who were interested in the franchise business.
167 It was clear that the model was not suggesting an appropriate asking price but suggesting a percentage return on a particular investment. He assisted Messrs Smith and Bamford in relation to franchises north and south of the river. He never met with or heard from purchasers of the south of the river franchises. He then prepared an exercise for the north of
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- the river franchise. In relation to the north it was a significantly larger business and he consulted Mr Radar Luttrell, a principal in a real estate firm of Joseph Charles Learmonth Duffy, to seek confirmation as to the general price for the business.
168 Mr Monisse denied that he came up with the figure of $238,000 for goodwill for the sale of the north of the river franchise. He had no communications at any time with Mr Robinson or Mr Thorpe, nor did anyone approach him with respect to producing from the records financial documents in the nature of statements or tax returns for the first defendant's business in connection with the sale of the north of the river franchise. He gave evidence that Mr Dwyer and Mr Boyce had no involvement with Mr Smith or Mr Bamford at the time of Mr Monisse advising them. He first became aware of the rights regarding graffiti remover when the three partners of Mullers were purchasing the business of Guardian International.
169 He acknowledged that the model could have been possibly used for the purpose of promoting the financial benefit of the business to a purchaser.
170 Mr Monisse prepared information for purchasers of the franchises based on information supplied to him by Mr Smith and Mr Bamford. He suggested within that document that parties should make their own inquiries.
171 At 489 in answer to the following question: "No, but you gave advice upon which a price could be determined? he said:
"Yes, I did the models and gave them advice to help them determine what they might sell the business for, but I didn't determine the price."
172 There is no evidence that the profit projections which he prepared were ever shown to Messrs Thorpe and Robinson. While his documents may have guided Messrs Smith and Bamford into setting a price for the business, there is no evidence that Mr Thorpe or Mr Robinson were ever aware of Mr Monisse's work. Mr Robinson's evidence as to what they were shown at the offices in Balcatta were the profit and loss for the year ended 30 June 1992, the trial balance for the year ended 30 June 1993, handwritten notes of turnover of the previous six months and a copy of a franchise agreement. He took the documents to an accountant also named Mr Robinson. He was never shown the models which were prepared by Mr Monisse.
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173 Mr Dwyer and Mr Monisse both gave evidence as to how the partnership operated and how each partner had his own clients. Mr Boyce wished only to be an investor in Guardian International and otherwise has played no part in the events leading to the litigation.
174 I find that Mr Monisse did not discuss details of the sale with Mr Boyce or Mr Dwyer. He is said to have been knowingly concerned in the breach by Bamford and Smith of the Trade Practices Act in relation to the question of exclusivity. 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 the plaintiff as indicative of his being knowingly concerned in the conduct.
Mr Anthony Peter Warren
175 Mr Warren, who is generally known as Tony Warren, was employed as General Manager of Guardian International in November 1994 and remained in that position for about two years. From the end of 1996 he had no relevant contact with the business.
176 Prior to employment he had been Sales Manager of Colortone Paints from 1982 to 1987 and the Managing Director of that company from 1987 to 1994. He was a good clear witness who obviously had a deal of professional expertise in relation to paint and coating. There is no reason to reject any of his evidence.
177 It is largely confirmed by the documents, many of which he authored, which came into existence at the time of the events to which he was referring. I accept that he reasonably believed there was an agreement reached to discontinue the old remover. In fact as I have found, there was no such agreement. I do not consider any of his actions amounted to misleading and deceptive conduct, nor do I consider that he was knowingly concerned in any misleading and deceptive conduct by other persons.
Conclusion
178 Counsel for the plaintiff put forward a number of intriguing and innovative arguments in which he contended that persons could be knowingly concerned in deceptive and misleading conduct by the company and others notwithstanding that their association with the company had either not commenced or had long since ceased.
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179 These arguments depend on a foundation of fact. The facts I have found do not support the foundation for the argument. As this pre-condition is unfulfilled, I have not dealt with the submissions.
180 The plaintiff's claim in substance fails, although it does succeed against the first defendant in relation to one aspect.
181 The plaintiff's claim against the second defendant is dismissed. The plaintiff's claim against each of the third defendants is dismissed. The plaintiff's claim against the fourth defendants is dismissed.
182 As to the first defendant, the plaintiff is entitled to an order for damages to be assessed in relation to the breach of contract in supply of graffiti coating products to Graffiti Proofing Sign Service Pty Ltd.
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