Dangerfield v Sam Coco Pty Ltd

[2000] QSC 464

IN THE SUPREME COURT

[2000] QSC 464

OF QUEENSLAND

BRISBANE  No 8968 of 1998

BETWEEN:

DARYL DANGERFIELD

First Plaintiff

AND:HYDATULLAH TASLIM BAKSH

Second Plaintiff

AND:SAM COCO PTY LTD

First Defendant

AND:

SALVATORE COCO

Second Defendant

AND:PETER THOMAS McPHEE

Third Defendant

REASONS FOR JUDGMENT

B.W. Ambrose J.

Delivered the  fourteenth  day of  December  2000

CATCHWORDS: PRACTICE – SUMMARY JUDGEMENT – Whether action barred by terms in Deed of Franchise Agreement – Court required to exercise power under s87 TPA to possibly set aside the agreement and/or vary contractual obligations arising upon agreements and “collateral arrangements” – Summary Judgment refused.

Fancourt v Mercantile Credits (1983) 154 CLR 87

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125

Mercantile Act 1867 (Qld) s 4

Trade Practices Act 1974 (Cth) ss 51A, 52, 52A, 82, 87

Uniform Civil Procedure Rules 1999 (Qld) rr 292, 293

Counsel:Mr P.H. Morrison QC with Mr P.W. Hackett for the applicants.

Mr D.K. Smith with Mr J.C. Davidson for the respondents.             

Solicitors:Colwell Wright Solicitors for the applicants.

Morgan Conley Solicitors for the respondents.

Hearing Date:            7 November 2000

1. This is an Application by defendants under rule 293 for summary judgment against the plaintiffs on their claim under the Trade Practices Act 1974 (Cth) and in negligence on the ground that it is clearly not maintainable having regard to the terms of a release contained in a deed of termination of a franchise agreement between the first defendant (“Coco P.L.”) of which the second and third defendants were “authorised representatives” and Orlabowl Pty Ltd ACN 060 536 763 (“Orlabowl”) of which the two plaintiffs were also “authorised representatives” and as well the guarantors of the performance by Orlabowl of its obligations under the franchise agreement.

1. Coco P.L. (which has now changed its name to Jonco Holdings Pty Ltd) counterclaims against the plaintiffs for money it was obliged to pay to the lessor of premises formerly leased by Coco P.L. prior to the termination of the franchise agreement, to which I have referred.  The termination of the franchise agreement was conditional upon Coco P.L. assigning that lease to Orlabowl.  Naturally enough the lessor declined to release Coco P.L. from its obligations under the lease.  Eventually Orlabowl breached its obligations under the assigned lease.  The lessor then exercised its rights against Coco P.L. which now seeks to recover monies paid to its former lessor by reason of the breach by Orlabowl of it obligations to pay rent, and in effect its repudiation of its obligations as lessee under the assigned lease.   The defendant Coco P.L also applies for summary judgment against the plaintiffs upon its counterclaim.

1. The pleadings in the case are detailed and voluminous.  I do not propose to analyse them at length.  It will suffice to outline briefly the nature of the case advanced by each of the parties.

1. It is the case for the plaintiffs that in early June or July 1995 Coco P.L. was negotiating with people named Valentine whose company was Orlabowl (and which later changed its name to Brisbane Market Wholesale Produce Pty Ltd  “BMWP”) for them to acquire from Coco P.L. a fresh food market franchise.

1. The first plaintiff at the time was an Accountant advising the Valentines and their company Orlabowl/BMWP concerning the acquisition from Coco P.L. of a franchise to be located at Caboolture.

1. In the course of acting for BMWP the first plaintiff sought financial information from Coco P.L concerning the likely profitability or financial viability of the franchise which it was negotiating to sell to Orlabowl/BMWP.

1. In the course of discussions with the second and third defendants who of course were the authorised officers of Coco P.L. the plaintiffs assert that various representations were made as to the likely profitability of conducting the fruit and vegetable franchise at Caboolture.  Subsequent to the initial representations in about July 1995 BMWP entered into a franchise agreement with Coco P.L. under which it was to conduct a fruit and vegetable retail shop in Caboolture.  This shop had been leased to Coco P.L.  It was in August 1995 - subsequent to the acquisition of the franchise by BMWP in July 1995 that BMWP commenced to operate the franchise that it had acquired from Coco P.L.  The first plaintiff asserts that relying upon the representations to which I have referred made on behalf of Coco P.L. he became a shareholder and director of BMWP.  Whether representations made to an agent in capacity of agent may be categorised as representations to that agent in his personal capacity if and when he ceases to act as agent was not debated.

1. It is the case for the first plaintiff that the representations made to him as agent for the Valentines and/or their company Orlabowl which induced him to become a shareholder and director of BMWP were untrue, misleading and deceptive.

1. In early October 1995 the second plaintiff also became a shareholder and director of BMWP. 

1. It is the case for the plaintiffs that in November 1995 both Coco and McPhee made representations to them as to the financial viability and future profitability of the franchise business that they were then conducting; it is said that these representations were also untrue, misleading and deceptive.

1. The plaintiffs assert that in about July 1996, Coco and McPhee (the second and third defendants) both represented to them that they would have to incur considerable expense during the first six months of the business without earning profit and that they should not expect to make money in this initial period but that they would do very well financially thereafter.  The plaintiffs allege that these representations were also untrue, misleading and deceptive.

1. The plaintiffs allege that on various occasions between November 1995 and May 1997 – a period of approximately 18 months – Coco P.L. by its authorised representatives, Coco and McPhee, made further representations as to the profit that the franchise operation in Caboolture could generate.  It is said that these representations were also untrue, misleading and deceptive.  It is alleged also that in making the various representations the defendants were in breach of the duty of care that they owed to the plaintiffs having regard to the relationship between them.

1. It is the case pleaded for the plaintiffs that relying upon what Coco and McPhee advised them they expended money and borrowed other money in an attempt to operate the fruit shop franchise obtained from Coco P.L. through BMWP.

1. It was a term of the Franchise Agreement between Coco P.L. and Orlabowl/BMWP that BMWP would pay to Coco P.L. a franchise service fee of 10% of the actual cost of the fruit and vegetables to Coco P.L. which it supplied to BMWP.  The plaintiffs allege that in fact Coco P.L. misrepresented the cost to it of the fruit and vegetables it supplied to BMWP.  The plaintiffs contend that because BMWP was significantly over charged by Coco P.L. for the fruit and vegetables it supplied, BMWP was deprived of funds which it should have had to discharge its various business obligations.  The plaintiffs allege that in September 1998 BMWP went into liquidation and it became impossible for them to recover the loans they had made to that company and as BMWP’s guarantors they became liable to  meet certain of its obligations under guarantees which they had provided as directors/shareholders of BMWP. 

1. The plaintiffs claim damages from Coco P.L. and also from Coco and McPhee, the persons through whom Coco P.L. operated and who said the various things of which the plaintiffs’ complain.

1. The plaintiffs claim damages against all three defendants pursuant to the TradePractices Act and also in negligence.

1. The defendants essentially deny the allegations made against them.  In particular they deny making the various misrepresentations as to profitability and financial viability etc alleged against them but in the alternative plead that if such representations were made, Coco and McPhee had a reasonable basis for making them having regard to the profitable operation of other fruit and vegetable franchising operations in which Coco P.L. had been involved.

1. The defendants contend that the plaintiffs are prevented from prosecuting their action by clauses in the deed of termination which it is agreed became operational on or about 11 April 1997.

1. That deed of termination contains inter alia the following clauses –

Cl. 2 provides –

“Subject to the terms of this Agreement the Franchise Agreement is terminated with effect on and from the Release Date.”

There is no dispute that the release date is 11 April 1997.

1. Cl. 3  provides inter alia –

“Prior to either party being released by the other in accordance with clauses 4 and 5 the parties must comply with the following release conditions: -
it is unnecessary for me to analyse conditions (a) to (e).

Cl 4 provides:

“4   RELEASE BY COCO’S            
Subject to the due and punctual performance and observance of the terms of this Agreement by Orlabowl and the fulfilment of the Release Conditions and not withstanding any provision in the Franchise Agreement to the contrary, Coco’s releases Orlabowl the Guarantors and Orlabowl’s Authorised Representatives on and from the Release Date from any further Obligation to comply with Orlabowl’s or the Guarantor’s Obligations under the Franchise Agreement and from all Claims which Coco’s or Coco’s Authorised Representatives may have or be entitled to bring or would but for this Agreement be entitled to have had or been entitled to bring against Orlabowl the Guarantors or Orlabowl’s Authorised Representatives law or in equity or under the provisions of any statute, save and except as set out in this Agreement.”

Cl. 5 provides:

“5.   RELEASE BY ORLABOWL
Orlabowl releases Coco’s and its Authorised Representatives on and from the Agreement Date from any further obligation to comply with Coco’s Obligations under the Franchise Agreement and from all Claims which Orlabowl or Orlabowl’s Authorised Representatives may have or be entitled to bring or would but for this Agreement be entitled to have had or been entitled to bring against Coco’s or its Authorised Representatives at law or in equity or under the provisions of any statute, save and except as set out in this Agreement.”

Cl 6 provides     :

“6.   PLEADING AS A BAR
Other than proceedings instituted for breach of this Agreement, on and from the Release Date, the provisions of this Agreement may be pleaded as a bar in any legal or other proceedings:

(a)to which the parties are a party or are sought to be made a party; or

(b)from which costs are or are sought to be awarded against a party, in respect of the matters which it touches and concerns.”

1. Under the definition clause 1.1 “Authorised Representative” is defined to mean –

(a)        “In respect of a party which is a corporation:

(i)         a company’s secretary or director or any officer of the corporation whose title or office includes the words “manager” or “director” or;

(ii)       a person acting with the title or in the office of manager or director; 

(b)        In respect of each party, a solicitor of that party or a person nominated by Notice to the other party as an authorised representative”

1. The “Franchise Agreement” is defined to mean –

“the franchise agreement between Cocos, Orlabowl and the Guarantors dated 10 July 1995 for the operation of the Franchise Business”

1. Under the franchise agreement between Coco P.L. and Orlabowl, Mr and Mrs Valentine signed as Guarantors as well as signing presumably as directors under the seal of Orlabowl. 

1. Under clause 13.2 of that agreement the guarantors assume all the obligations of their company as a “principal contracting party”, and under clause 13.3 jointly and severally indemnify Coco P.L. against all losses etc arising directing or indirectly from the non performance by Orlabowl of its obligations under the franchise agreement.

1. As a consequence of Mr Dangerfield and Mr Baksh acquiring the interest of the Valentines in Orlabowl, they executed a deed of guarantee and indemnity on 1 June 1996 under which they undertook performance of the obligations which Orlabowl owed to Coco P.L. in the terms which the Valentines had undertaken under clause 13 of the original franchise agreement to which I have referred.  Stated shortly, they became liable as principal contracting parties for Orlabowl’s performance of its obligations to Coco P.L. and as well they jointly and severally indemnified Coco P.L. against damage, loss etc resulting from any breach by Orlabowl of its obligations under the franchise agreement.

1. In their reply and answer the plaintiffs deny various allegations made by the defendants concerning the viability of other fruit and vegetables franchise operations in which they were involved and deny that Coco and McPhee had any reasonable grounds to make representations to the effect of those upon which the plaintiffs rely as being deceptive, misleading and/or negligent.  The plaintiffs contend that the causes of action pursued in their statement of claim against the defendants do not arise from any breach of the terms of the franchise agreement with which the deed of termination dealt.  They plead, presumably as a matter of law rather than fact, that the deed of termination does not operate as a bar to prevent the plaintiffs pursuing their action against the defendants at least under the Trade Practices Act and in particular “does not effect any release that is valid as against the plaintiffs personally in these proceedings”

1. The plaintiffs in their reply and answer seek to rely upon the deed of termination as releasing them from the claims brought by Coco P.L. against them and as operating as a bar to Coco P.L.’s counterclaim against them.  However, in the alternative they claim the following relief –

(d)A declaration that they are released by the terms of the deed of termination from liabilities to the first defendant herein; alternatively

(e)Orders pursuant to sections 82 and 87 of the Trade PracticesAct for:

(f)A declaration that the Franchise Agreement is void ab initio alternatively that it is voidable at the election of the plaintiffs; alternatively

(g)An order varying the arrangements made between the parties; alternatively

(h)Damages for breaches of the provisions of part 5 of the Trades Practices Act; alternatively

(i)Orders for the delivery up and cancellation of any guarantees or other securities given by the plaintiffs; alternatively

(j)A declaration that in the premises the defendants are not entitled to recover any monies from them pursuant to the provisions of section 4 (3) of the Mercantile Act

1. The plaintiffs seek relief substantially based upon ss52 and 52 A of the Trade Practices Act with respect to the alleged misleading statements made concerning the financial viability of Coco P.L.’s franchising operation – at lease insofar as its potential to produce income of the sort allegedly represented after BMWP had borne the losses involved in the establishment of the business for a period of six months or so. The onus will clearly be on the defendants under s51 A of the Act to show that they had reasonable grounds for making those representations if they are established. The Plaintiffs seek one or more of the many orders that the court has jurisdiction to make under s87 of the Act, and particularly under s87 (2) (f), (g) and (h).

1. Although it is contended for the defendants that the plaintiffs do not seek relief against the deed of termination, clauses 4, 5 and 6 of which the defendants rely upon as barring the asserted right of action of the plaintiffs, they certainly do seek the exercise of power under s87 with respect to the franchise agreement itself of which the deed of termination in my view is arguably “a collateral arrangement” relating to the franchise agreement. A “collateral arrangement” under s 87 does not necessarily or even probably have the attributes of a “collateral contract” at law. It is the plaintiffs’ case that they were really induced to acquire the interest of the Valentines in the franchise agreement by the pleaded misrepresentations and misleading and deceptive conduct on the part of all defendants. Their assumption as guarantors of the obligations to perform the franchise agreement when they acquired the interest of the Valentines in it and their agreement to become principal contracting parties arguably empowers the court under s87 (f) and (g) to refuse to enforce the provisions not merely of the franchise agreement but also the provisions of the deed of termination as an arrangement “collateral to” that agreement.

1. The real issue in this rather complicated case in my view may be shortly stated: on the assumption that the plaintiffs succeed in establishing the misrepresentations and the misleading and deceptive conduct on the part of the defendants particularised in their statement of claim, whether the defendants may effectively plead clauses 4, 5 and 6 of the deed of termination under which Coco P.L. received $7,000.00 from the plaintiffs, as a complete bar to their claim for losses allegedly resulting from the alleged breaches of s52 of the Trade Practices Act prior to the execution of  that deed upon which they bring their action.

1. In my view although Coco P.L. frames its counterclaim upon rights under the Mercantile Act it seems reasonably clear when one looks at the deed of termination, that the assignment of the lease from Coco P.L. to Orlabowl/BMWP was executed merely as part of the working out of the terms of the termination of the franchise agreement.

1. In my view whether any rights of contribution and/or indemnity based upon s4 of the Mercantile Act 1867 (Qld) could survive should either or both the franchise agreement and the guarantee of its performance by the plaintiffs when they acquired the interest of the Valentines in it, should it and the deed of termination be declared void or perhaps be varied under s87 (2) of the Trade Practices Act is not sufficiently clear to permit the defendants to recover summary judgment either upon the plaintiffs’ statement of claim or upon Coco P.L.’s counterclaim.  In Fancourt v Mercantile Credits (1983) 154 CLR 87, it was observed

“The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried … In our view, it is not possible to say without doubt, on the whole of the material that there is no question to be tried …”

1. In General Steel Industries Inc v Commissioner for Railways (N.S.W) (1964) 112 CLR 125 at 129 Barwick C.J. observed:

“The test to be applied has been variously expressed;  ‘so obviously untenable that it can not possibly succeed;’ ‘manifestly groundless;’ ‘so manifestly faulty that it does not admit of argument;’ ‘discloses a case which the Court is satisfied cannot succeed;’ ‘under no possibility can there be a good cause of action;’ ‘be manifest to allow them’ (the pleadings) ‘to stand would involve useless expense’”.

1. His Honour also adopted the observation of Dixon J in Dey v Victorian Railways Commissioners (1949) 78 CLR 62, where he says at 91

“A case must be very clear indeed to justify the summary intervention of the court to prevent a plaintiff submitting his case for determination in the appointed manner by the court…..The fact that a transaction is intricate may not disentitle the court to examine a cause of action alleged to grow out of it for the purpose of seeing whether the proceeding amounts to an abuse of process or is vexatious. Once it appears that there is a real question to be determined whether of fact or law and that the rights of the parties depend upon it then it is not competent for the court to dismiss the action as frivolous and vexatious and an abuse of process”.

1. His Honour continued at 130

-----“In my opinion great care must be exercised to ensure that under the guise of achieving expeditious finality a plaintiff is not improperly deprived of his opportunity for the trial of his case by the appointed tribunal.”

1. In my view, that approach should be adopted upon this application by the defendants for summary judgment both under rr 293 and 292. Both the plaintiffs’ claim and defendant’s counterclaim will involve not merely the determination of disputed issues of fact but also the power of the court under s87(2) of the Trade Practices Act not merely to set aside the franchise agreement, the deed of termination and the plaintiffs’ guarantees to which I have already referred but also to vary contractual obligations arising upon those agreements and “collateral arrangements”.

1. I decline to enter summary judgment in favour of the defendants either on the plaintiffs’ statement of claim or upon the defendant’s counterclaim.

1. It is unnecessary for me to embark upon a consideration of all the authorities canvassed on the application relating to the defendant’s counterclaim for the whole or part of the monies paid by the defendant to the lessor of the property in which the plaintiffs through Orlabowl/BMWP conducted their fruit and vegetables franchising operation. While that is a matter of interest in my view it would be unhelpful to consider it separately from the real issue in dispute between the parties on the pleadings which involves s52 and 51 (A) of the Trade Practices Act and the relief which is arguably available to the plaintiffs under s87 (2) of that Act.

1. I refuse each of the applications by the defendants for summary judgment.

1. I find it unnecessary to give consideration to the issues raised by the plaintiffs as to abuse of court process.

1. In my view this matter ought be brought to a speedy conclusion and I would invite counsel to consider what directions might be given to achieve that result.

1. Counsel for the defendants pointed out that pursuant to an order of Santow J. in New South Wales, the defendants were required to pay into court the sum of $1.5 m  being the somewhat hurriedly put together estimate of the damages that might be recovered by the plaintiffs should they succeed entirely in their action.  Subsequently however, I am informed that expert evidence obtained by the plaintiffs to support their case demonstrates the maximum sum that is likely to be recovered is about $1,090,600.  Counsel for both parties agree on this sum.

1. I am asked in effect to vary the order made by Santow J having regard to the new information that has now become available but which was unavailable to him when he made that order.

1. It seems to me that if the plaintiff indicates that the maximum sum to be recovered if it succeeds on all the issues it pursues on its expert evidence is unlikely to reach $1.5 m then it would be appropriate in effect to vary the order made by Santow J. and permit the defendants to reduce the sum to be held in court by way of security for any judgment the plaintiffs may recover against them to the sum of $1,090,600.  I order that of the $1.5m paid into court by the defendants on 8 September 2000 pursuant to the order of Santow J in the Supreme Court of New South Wales on 27 August 2000 the sum of $.409,400 m be released and paid to the defendant/s together with accretions if any upon that sum.