Fitzgerald Enterprises (WA) Pty Ltd as trustee for the Jones Family Trust v Bob Slight's Boat School Pty Ltd

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: FITZGERALD ENTERPRISES (WA) PTY LTD as trustee for the Jones Family Trust & ANOR -v- BOB SLIGHT'S BOAT SCHOOL PTY LTD & ORS [2009] WADC 50

CORAM: SCHOOMBEE DCJ

HEARD: 24 - 28 NOVEMBER 2008

DELIVERED : 7 APRIL 2009

FILE NO/S: CIV 1878 of 2006

BETWEEN: FITZGERALD ENTERPRISES (WA) PTY LTD as trustee for the Jones Family Trust (ACN 057 499 000)
First Plaintiff
STEPHEN JONES and JOANNA JONES
Second Plaintiff
AND
BOB SLIGHT'S BOAT SCHOOL PTY LTD (ACN 116 028 365)
First Defendant
WILLIAM ROBERT SLIGHT
Second Defendant
GAVIN FOORD
Third Defendant
OLIVER DOUGLAS
Fourth Defendant

Catchwords:

Trade practices - Misleading and deceptive conduct - Franchise agreement - Boat license training school - Financial projections of future profit - Representations by franchisor with respect to future matter - Whether reasonable grounds for the representations - Reliance - Plaintiffs' failure to obtain advice - Disclaimer clause - Knowingly concerned - Director and servant of franchisor - Actual knowledge of facts making representation misleading - Onus on plaintiffs to prove actual knowledge of absence of reasonable grounds

Tort - Misstatement - Duty of care of franchisor - Duty of care of director and servant - Assumption of personal responsibility - Reasonable reliance on personal responsibility - Effect of disclaimer clause on claim in tort

Legislation:

Trade Practices Act 1974 s 51A, s 52, s 75B

Result:

Plaintiffs' claim allowed against First and Second Defendants
Plaintiffs' claim dismissed against Third and Fourth Defendants

Representation:

Counsel:

First Plaintiff                  :     Mr A Metaxas
Second Plaintiff             :     Mr A Metaxas
First Defendant              :     Mr M Levitan
Second Defendant         :     Mr M Levitan
Third Defendant            :     Mr M Levitan
Fourth Defendant           :     Mr M Levitan

Solicitors:

First Plaintiff                  :     Metaxas & Hagar
Second Plaintiff             :     Metaxas & Hagar
First Defendant              :     Melvyn Levitan
Second Defendant         :     Melvyn Levitan
Third Defendant            :     Melvyn Levitan
Fourth Defendant           :     Melvyn Levitan

Case(s) referred to in judgment(s):

Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112
Bankstown Foundry Pty Ltd v Braistina (1986) 160 CLR 301
Bell v A/Asian Recyclers (WA) Pty Ltd (1986) ATPR 40 ‑ 644
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592
Caple v All Fasteners (WA) (A Firm) [2005] FCA 1558
Dalecoast Pty Ltd v Guardian International Pty Ltd [2003] WASCA 142
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Demagogue v Ramensky (1992) 110 ALR 608
Derring Lane Pty Ltd v Fitzgibbon (2007) 16 VR 563
Elders Trustee & Executive Company Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193
Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241
Fairline Shipping Corporation v Adamson [1975] QB 180
Frewin v Emmdale Sports Club Incorporated [2003] NSWSC 108
Giorgianni v The Queen (1985) 156 CLR 473
Gould v Vaggelas (1985) 157 CLR 215
Graham Barclay Oysters Pty Ltd v Ryan (2002) 211 CLR 540
Grainger v Williams [2009] WASCA 60
Grant v Australian Knitting Mills Ltd [1936] AC 85
Gunston v Lawley [2008] VSC 97
Hamilton v Whitehead (1988) 166 CLR 121
Hatt & Ors v Magro [2007] WASCA 124
Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 2) (1989) 40 FCR 76
Henville v Walker (2001) 206 CLR 459
Hollis v Vabu (2001) 207 CLR 21
HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640
Interchase Corporation Ltd (in liq) v Grosvenor Hill (Qld) Pty Ltd (No 3) (2003) 1 Qd R 26
Jasmine Glen Pty Ltd v Falkirk Nominees Pty Ltd t/as Australian Property Consultants & Ors [2006] WASC 49
Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950
Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR 46‑048
Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281
Lister v Romford Ice & Cold Storage [1957] AC 555
March v E & MH Stramare Pty Ltd (1991) 171 CLR 506
Marks v Gio Australia Holdings Ltd (1998) 196 CLR 494
Middleton v AON Risk Services Australia Pty Ltd [2008] WASCA 239
Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700
Mutual Life & Citizens' Assurances Co Ltd v Evatt (1968) 122 CLR 556
Natwest Australia Bank Ltd v Tricontinental Corporation Ltd (1993) ATPR 46‑109
P J Berry Estates Pty Ltd v Mangalore Homestead Pty Ltd (1984) 6 ATPR 40‑459
Parker v The Commonwealth (1965) 112 CLR 295
Perre v Apand Pty Ltd (1999) 198 CLR 180
Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211
Pyrenees Shire Council v Day (1998) 192 CLR 330
Quinlivan v Australian Competition and Consumer Commission (2004) ATPR 42–010
Ramsay v Pigram (1968) 118 CLR 271
Richard Ellis (WA) Pty Limited v Mullins Investments Pty Ltd (in Liq) (1995) Aust Torts Reports 81 – 319
Ritter v North Side Enterprises Pty Ltd (1975) 132 CLR 301
San Sebastian Pty Ltd v Minister (1986) 162 CLR 340
Spencer v The Commonwealth of Australia (1907) 5 CLR 418
Sullivan v Moody (2001) 207 CLR 562
Sungravure Pty Ltd v Meani (1964) 110 CLR 24
Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233
Sykes v Reserve Bank of Australia (1998) 88 FCR 511
Tepko Pty Ltd & Ors v Water Board (2001) 178 ALR 634
Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1
Toomey v Scolaro Concrete Constructions and Others (No.2) [2001] VSC 279
Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517
Waltip Pty Ltd and Anor v Capalaba Park Shopping Centre Pty Ltd (1989) ATPR 40-975
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40 ‑ 940
Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830
Wright v Wheeler Grace & Pierucci Pty Ltd (1988) ATPR 40‑865
Yorke v Lucas (1985) 158 CLR 661

SCHOOMBEE DCJ: On 20 January 2006 the first plaintiff, Fitzgerald Enterprises (WA) Pty Ltd as trustee for the Jones Family Trust ("Fitzgerald Enterprises") entered into a franchise agreement with the first defendant, Bob Slight's Boat School Pty Ltd ("Bob Slight's Boat School") pursuant to which Fitzgerald Enterprises obtained the right to establish and operate a franchise business consisting of a boat training school ("the Franchise Agreement"). The second plaintiffs, Stephen Jones and Joanna Jones, were guarantors for Fitzgerald Enterprises in respect of the Franchise Agreement.
Mr Jones initially met with representatives of Bob Slight's Boat School in September 2005 after responding to an advertisement about the franchise, and a number of meetings took place between Mr and Mrs Jones and various representatives of Bob Slight's Boat School. Over the period 14 September 2005 to 30 November 2005 Fitzgerald Enterprises paid a total of $150,000 to Bob Slight's Boat School as consideration for the franchise.
The plaintiffs claim that Bob Slight's Boat School made misleading or deceptive representations contrary to s 52 of the Trade Practices Act 1974 ("the Act") on the basis of which they were entitled to terminate the Franchise Agreement and that they are entitled to damages in the sum of $150,000 representing the amount paid for the acquisition of the franchise together with the sum of $32,200 for trading losses. The plaintiffs further claim that each of the second, third and fourth defendants were knowingly concerned in respect of the misleading or deceptive conduct pursuant to s 75B of the Act and are therefore personally liable to repay the sum of $150,000 to the plaintiffs.
Prior to responding to the advertisement Mr Jones had operated a truck driving business as a contractor for EG Green and Sons Pty Ltd trading as Harvey Beef. When EG Green and Sons Pty Ltd went into receivership, Mr Jones was looking for a change of work environment. He said that he had been working "on the road" for a long time and thought it would be good to work "on the sea" for a change. Mr Jones had no prior experience of boating. His wife, Mrs Jones, was a book keeper with Costello Partners and also had no experience of boating.
The second defendant, Mr William Slight, who is known as Bob, was the managing director of Bob Slight's Boat School. The franchise disclosure document provided to Mr and Mrs Jones ("the Franchise Disclosure Document") sets out an impressive list of Mr Slight's qualifications and experience in boating and the training of boat drivers. The document reveals that amongst other achievements Mr Slight grew up sailing on Sydney Harbour and participated in a championship winning team at age 12, has 50 years of boating experience, served as president of the Boating Industry Association of Western Australia and Vice President of the National Australian Boating Industry Association, wrote and published the "Aussie Power Boat Buyers' Guide", created high speed boat handling courses, presented a television programme on fishing and boating and was a qualified instructor in various boating skills.
In about August or September 2005 Mr Jones spoke to the third defendant, Mr Gavin Foord, on the telephone in relation to the advertisement that he seen. Mr Foord was an employee of Bob Slight's Boat School at the time and had been charged with handling the franchises that Bob Slight's Boat School intended to establish. Mr Jones met with Mr Foord at the premises of Bob Slight's Boat School in Kingsley, Perth. Mr Foord told him that there would be an explosion in the demand for training for recreational skipper's tickets in the near future and that it was important that the new franchise business opened shop by 12 December 2005 in time for the announcement by the West Australian Government regarding the need for boat owners and users to have a recreational skipper's ticket. Mr Jones discussed the proposed franchise with a friend, Mr Wayne Purdy, who was interested in going into a partnership with Mr and Mrs Jones. Mr Jones and Mr Purdy had previously operated a partnership providing truck driving services to EG Green and Sons Pty Ltd. Mr Jones and Mr Purdy had another meeting with Mr Foord at which the imminent high demand of training for the recreational skipper's ticket was again discussed and Mr Jones was provided with the Franchise Disclosure Document. Although the Franchise Disclosure Document tendered by the plaintiffs is dated 30 January 2006, the parties are in agreement that this must be a later version of a similar document that was provided to Mr Jones on 13 September 2005, as Mr Jones signed a receipt for this document on that date.
Annexure "C" to the Franchise Disclosure Document contains Financial Projections for a period of 12 months ("the Financial Projections"). The income shown in the Financial Projections is based on a certain number of customers attending four different courses as well as income from "DVD" and miscellaneous equipment sales. The income increases quite rapidly from month to month as the number of customers increase from, for example, 20 in the first month for the basic course to 210 in the 12^th month. The sales income for DVD sales also increases rapidly from $400 to $1,141 in the 12^th month and for miscellaneous equipment from $2,000 to $5,706. The Financial Projections further list direct expenses and show a "net income to owner" of $202,694.
Mr Jones took home the Franchise Disclosure Document and the Financial Projections and showed them to his wife. Mr Jones said in evidence that he was enthusiastic about the proposed business venture as it was a new lifestyle that he was looking for and the net figure at the bottom of the Financial Projections was very important. A net income of $202,694 was much more than he had ever earned as a contractor for EG Green and Sons Pty Ltd. Mrs Jones, who has no formal accountancy training, went through the Financial Projections and discovered an arithmetical error. It is easy to spot this error as instead of multiplying the number of "intermediate customers" with the price of the relevant course, after the first month the Financial Projections show an addition of the number of "intermediate customers" to the previous line of income which results in far smaller amounts than what should be the case.

Mr and Mrs Jones' evidence

Mr and Mrs Jones and Mr Purdy then arranged another meeting with Mr Foord which was also attended by Mr Slight and the fourth defendant, Mr Oliver Douglas. Mr Douglas was introduced to Mr and Mrs Jones as the business manager of Bob Slight's Boat School. In fact he was a consultant who had operated his own franchises as franchisor and was engaged by Mr Slight to assist in preparing the necessary documentation for the proposed Bob Slight's Boat School franchises. Mrs Jones pointed out to Mr Douglas the arithmetical error in the Financial Projections. Mr Douglas assured Mrs Jones that the error only resulted in an increase in income and said that he would provide Mr and Mrs Jones with revised Financial Projections. Mr Douglas also told Mr and Mrs Jones that he had asked Mr Slight to prepare the Financial Projections on the worst case scenario and Mr Slight confirmed at the meeting that he had done so.
Mrs Jones said in evidence that she had been concerned as to why boat owners requiring training would necessarily come to the new business as she had done some research on the internet and had seen that there were other organisations that could offer the required training, including a business called "Boat Smart". However, Mr Slight assured Mrs Jones at the meeting that anybody offering the training had to have the necessary qualifications and be linked to a registered training organisation and as Boat Smart consisted mostly of retired people they would not have the time to obtain the necessary qualifications. Mr Slight further said that the various sea rescue centres operated with volunteers and would not have the resources to offer the necessary courses. Mrs Jones stated that Mr Slight told her that Bob Slight's Boat School was also not yet a registered training organisation but would be soon and would then be linked to the government website providing information about the recreational skipper's ticket. Mr Slight was confident that customers would come to Bob Slight's Boat School and the new franchise business as they would be trained and registered organisations. Both Mr and Mrs Jones gave evidence that Mr Foord indicated that there was a waiting list of people who wished to be trained. Mrs Jones further said that Mr Douglas remarked that it was not very often that one could buy a business and make a profit straight away. Mr Slight printed a feasibility study ("the Feasibility Study") off his computer which he said he had prepared and provided a copy to Mr and Mrs Jones.
Mr and Mrs Jones disclosed that they did not have finance available to pay the $150,000 franchise fee. Mr Douglas then rang his financial advisor and gave Mrs Jones the opportunity to speak to him. Mr and Mrs Jones decided at the meeting that they wished to go ahead with the proposal and wrote a cheque for $5,000 as a deposit for the franchise fee. The cheque butt for this cheque is dated 14 September 2005.
Mrs Jones said that about a week later or perhaps as late as early October 2005, Mr Jones brought home a copy of revised financial projections ("the Revised Financial Projections") after another meeting with Mr Slight and Mr Foord. The Revised Financial Projections contained the same information as the earlier version, but had the arithmetical error corrected. This resulted in a "net income to owner" of $307,337.
Mr and Mrs Jones decided to proceed with the acquisition of the franchise and paid a further amount of $145,000 in three instalments as follows:
$40,000 on or about 8 November 2005;
$80,000 on or about 18 November 2005;
$25,000 on or about 30 November 2005.
Mr and Mrs Jones were not able to obtain a loan in order to pay the franchise fee and instead sold their family home, a half share in a rental property, Mr Jones' truck and a van which they owned. Mrs Jones said that the total amount realised from the sale of these assets was $360,000 in cash. After payment of the additional amount of $145,000, Mr and Mrs Jones had approximately $70,000 left as working capital.
At the time of making the payments the parties had not yet signed the Franchise Agreement. Mr and Mrs Jones were unclear as to when they first received a copy of the Franchise Agreement. A first version of this agreement supplied to them was in their own names and they returned it to Mr Slight as they wished to enter into the Franchise Agreement in the name of Fitzgerald Enterprises. The Franchise Agreement was eventually signed by Mr and Mrs Jones on behalf of Fitzgerald Enterprises and as personal guarantors on 30 January 2006.
Mrs Jones gave evidence that she had perused both the Franchise Disclosure Document and the Franchise Agreement in detail at some stage. Both Mr and Mrs Jones acknowledged that the Franchise Disclosure Document states on the first page that they should get independent legal, accounting and business advice before signing the Franchise Agreement. The Franchise Agreement itself provides that the franchisee acknowledges that the franchisor has recommended that the franchisee obtain legal advice in respect of the Franchise Agreement and that the franchisee had the opportunity to obtain that advice and to consult with financial advisors of its choice. However, Mrs Jones said in evidence that they chose not to get legal or financial advice because she trusted what she had been told at the meeting at which the deposit was paid ("the main meeting") and was satisfied that every question she had asked was answered in a manner that made her feel comfortable. Mrs Jones further stated that she had done some research on the internet and had confirmed that there would be a new law requiring boat owners to have a recreational skipper's ticket and that the government would make an announcement soon. This reassured her that what she had been told at the main meeting was true.
Both Mr and Mrs Jones said in evidence that they relied on the Financial Projections, and by implication also on the Revised Financial Projections, as they understood the Financial Projections to reflect the cash flow which they could expect to earn in the new business. Both Mr and Mrs Jones acknowledged in cross-examination that the Financial Projections were only a guide or an estimate of what the net income was likely to be. They both agreed that they had read in the Franchise Disclosure Document that the Financial Projections did not include a number of items such as depreciation, a salary for the franchisees, the cost of serving any loan, costs of any interest, GST recovered or income tax payable by the franchisee. The Franchise Disclosure Document also stated that the franchisor was not able to assess the impact on turnover of the particular location of the franchise business, seasonal factors or varying economic conditions and that the projections therefore had to be treated by the franchisee as a guide only and could not be relied upon as an accurate prediction or guarantee of business performance.
Mr and Mrs Jones both acknowledged that they had read these disclaimers, but said that they had relied on the oral assurances by Mr Foord, Mr Slight and Mr Douglas that the Financial Projections represented the worst case scenario that could be expected for the new franchise business. Mr Jones said that he regarded this statement as a verbal guarantee and that the Financial Projections as well as the Feasibility Study which Mr Slight had provided to them influenced him in deciding to go ahead with the acquisition of the franchise. Mrs Jones also gave evidence that although she understood that the Financial Projections were only a guide she relied on them as representing the cash flow that the new business could be expected to earn because of what she had been told by Mr Bob Slight. Mr Slight had advised her that he was an expert in the field and she had relied on his expertise. Mr Slight had also told her that the Financial Projections represented the income that the new business could hope to earn in the first two years as there were more than 100,000 people who required training, but after the first two years the income would decrease.

Mr Wayne Purdy's evidence

Mr Purdy gave evidence and confirmed most of what Mr and Mrs Jones had said regarding the meeting which Mr Jones and Mr Purdy attended and the main meeting at which Mrs Jones was also present. Mr Purdy confirmed that Mr Oliver Douglas had said that the Financial Projections were based on the minimum number of students that would come to the new school and therefore on the worst case scenario. Mr Purdy also stated that Mr Foord had said that they had a number of customers on their books who were waiting for training. Mr Purdy further gave evidence that Mrs Jones was concerned about whether potential customers would choose their new school, but Mr Slight assured her that Boat Smart would not be a competitor as it was not a registered training organisation. Mr Purdy also confirmed that Mrs Jones was present at the meeting when the deposit cheque was handed over.

Mr Bob Slight's evidence

Mr Bob Slight is the managing director of Bob Slight's Boat School which he established in 2005. He gave evidence that Mrs Jones was nervous about entering into the Franchise Agreement because she was concerned whether the new business would attract sufficient customers and whether people would choose their training school. Mr Slight said that he told Mrs Jones that he could not guarantee the figures in the Financial Projections as they were only his best "guesstimate", but that he was confident that they were feasible. He explained to Mrs Jones that he had also put everything into Bob Slight's Boat School and that he had a good name in the industry, as he had already worked in training of boat drivers and that the combined advertising for his school and the new business would assist Mr and Mrs Jones. Mr Slight gave evidence that this explanation seemed to appease Mrs Jones' concerns. Mr Slight agreed that he had shown Mrs Jones the Feasibility Study to indicate to her the calculations that he had used to draft the Financial Projections. Mr Slight further said that Mrs Jones was concerned about her and her husband's financial position after the "hard knock" that they had suffered when EG Green & Sons Pty Ltd went into receivership and that she regarded the franchise agreement as their last chance. Mr Slight said that he told Mrs Jones that if she had any doubts she should not go ahead and suggested that she should obtain independent advice.

Mr Gavin Foord's evidence

Mr Foord also had considerable experience in the boating industry as a marine mechanic, manager of boat yards and sales person of boats. Mr Foord's evidence did not contradict that of Mr and Mrs Jones in any material respect. He confirmed that he had told them at the main meeting that the Financial Projections reflected what he expected to happen because of the number of people who required training for the recreational skipper's ticket. He had made it very clear to Mr and Mrs Jones that they were only projections, but also said that Bob Slight's Boat School was gearing up to be the largest training organisation in Western Australia. Mr Foord admitted that he had told Mr and Mrs Jones that the Financial Projections reflected the minimum income that the new franchise business was expected to earn. He said at first that he did not hear Mr Slight say that the Financial Projections reflected the worst case scenario, but recalled at a later stage in his evidence that he had heard Mr Slight say that.

Mr Oliver Douglas' evidence

Mr Douglas gave evidence that he had prepared the Franchise Disclosure Document, the Franchise Agreement and the Financial Projections. He had been given the information regarding the income set out in the Financial Projections by Mr Slight and Mr Foord. He had not verified this information and had not made any investigations with regard to the potential market as this was not what he had been engaged to do.
Mr Douglas said that he told Mrs Jones at the main meeting that if she had any queries with regard to the income set out in the Financial Projections she would have to direct those questions to Mr Slight and Mr Foord. Mr Douglas advised Mrs Jones that he could only provide information relating to the expenses in the Financial Projections, as he had some experience in this regard, and in respect of the lease of the premises which was to be taken out in the name of Bob Slight's Boat School with a sub-lease to be entered into between the franchisor and franchisee. Mr Douglas said that he advised Mr and Mrs Jones that he was not a director or shareholder of Bob Slight's Boat School and was only a consultant. Mr Douglas said that he also made a point of telling Mr and Mrs Jones to get legal and financial advice.
Mr Douglas denied in evidence that the Financial Projections were prepared on a worst case scenario or that he had said anything like that to Mrs Jones. He gave evidence that he told Mr Slight that the Financial Projections should give the franchisee a genuine reflection of what the new business could earn without being optimistic.

Credibility of witnesses

I accept the evidence given by both Mr and Mrs Jones and Mr Purdy in its totality. Mr and Mrs Jones impressed me as open and honest witnesses who did not have a tendency to embellish or withhold any information. Both Mr and Mrs Jones were relatively careful in giving evidence and Mr Jones admitted that he was not on top of the financial aspects of the discussions and the proposed business as he left this to the attention of his wife. Mr Jones readily made concessions that the Financial Projections were not a guarantee of income, that he did not obtain legal advice and that he did not take steps to find out what the law was before signing the Franchise Agreement. Mrs Jones was also prepared to make concessions. She said initially that she was certain that the meeting which she attended had been on 15 September 2005, but agreed in cross-examination that it must have been on 14 September because it appeared that this was the date on which the deposit cheque had been written out by her.
The defendants' case was that the main meeting with Mr and Mrs Jones, Mr Purdy, Mr Slight, Mr Foord and Mr Douglas took place in early November 2005. Mr Douglas produced an extract from his electronic diary which showed a meeting with Mr Bruce Strickland on 2 November 2005. Mr Strickland was also a consultant to Bob Slight's Boat School. Mr Strickland said in evidence that he had met Mr and Mrs Jones, but did not recall a meeting which Mrs Jones and Mr Douglas attended.
It seems to me that Mr Douglas must be mistaken about the entry in his diary relating to the meeting with Mr and Mrs Jones. It is also highly unlikely that Mr and Mrs Jones would have started to sell their assets prior to Mrs Jones having had the opportunity to have her various concerns dealt with or that Mr and Mrs Jones would have managed to realise enough of their assets after a meeting on 2 November 2005 to pay the amounts of $40,000 on or about 8 November 2005, $80,000 on or about 18 November 2005 and $25,000 on or about 30 November 2005. The defendants admitted in their defence that the amounts had been paid on or about those dates.
Apart from the date on which the main meeting occurred, there is little deviation of significance between the evidence given by Mr and Mrs Jones on the one hand and Mr Bob Slight and Mr Gavin Foord on the other. My impression was that Mr Slight tried to give an honest account of the events. He came across as a "big picture" person who likes to talk a lot and is likely to be a very good sales person. His recollection of detail was not that good. He said that Mrs Jones was not present at the meeting when the deposit of $5,000 was paid, but as I have indicated earlier it is very unlikely that the meeting with Mrs Jones occurred only in November 2005. Mr Slight also thought that the Franchise Agreement was signed in November 2005, whereas it is dated 30 January 2006. Mr Slight further gave evidence that at the main meeting he was not that involved in what Mr Foord and Mr Douglas had said to Mr and Mrs Jones as he had to attend to other matters in between. It seems to me that Mr and Mrs Jones had a better and more detailed recollection of events, which is understandable, as such a big decision hinged on the information that was provided to them at the various meetings.
Mr Foord initially said that he could not recall Mrs Jones being present at a meeting when the deposit was paid, but later in his evidence stated that he was certain that she had not been present. It seems that Mr Foord was undecided about this issue and I prefer the evidence of Mrs Jones who said she was present when the deposit was paid at the main meeting which seems to have occurred on 14 September 2005 according to the date on the cheque butt. Even though Mr Slight told Mr Jones that the deposit was refundable, it is unlikely that Mr Jones would have paid a deposit without his wife first having had the opportunity to speak to the representatives of Bob Slight's Boat School and satisfy herself that her queries could be properly answered. Mr Jones gave evidence that his wife was in control of all their finances and this was also the impression one obtained from hearing Mr and Mrs Jones give evidence.
There were some substantial deviances between the evidence of Mr Douglas and that of Mr and Mrs Jones. Apart from the date of the main meeting, Mr Douglas denied ever telling Mrs Jones that the Financial Projections were based on a worst case scenario. Mr Douglas also denied that Mrs Jones had pointed out the arithmetical error in the Financial Projections to him and said that he had discovered this error himself prior to the main meeting and had provided the Revised Financial Projections to Mr Foord. Mr Douglas produced an email by himself to Mr Foord dated 16 September 2005 which said the following:
"I just found another $100,000 pa net income. These figures are embarrassingly good. I can't get any more conservative with them! Sorry, but a programming error on the spreadsheet."
I do not accept the evidence of Mr Douglas with regard to the discovery of the arithmetical error. There is no reason why Mrs Jones would have made this up, as there was no allegation that Mr Douglas or anyone else was sloppy in providing information. The only reason why Mr Douglas may deny that the arithmetical error was pointed out to him was because of some feeling of embarrassment (which may be reflected by the words "embarrassingly good" in the email) or because Mrs Jones' evidence in this regard points to the main meeting having taken place in September rather than in November. It is quite possible that Mr Slight and Mr Foord did not hear Mrs Jones point out the arithmetical error at the meeting because it was common cause that the attendees had moved around and that Mr Jones and Mr Foord had smoked a cigarette outside on the steps. Mrs Jones gave evidence that she mainly spoke to Mr Douglas who answered most of her queries and Mr Slight said that he attended to other matters in between. Mr Douglas' denial that Mrs Jones pointed out the arithmetical error to him casts some doubt on the remainder of his evidence and I do not accept his evidence in so far as it contradicts that of Mr and Mrs Jones.
It is also likely that Mr Douglas would have said that the Financial Projections reflected the worst case scenario, as both Mr Slight and Mr Foord admitted having said that at the main meeting and as Mr Douglas' own email says that he could not "get any more conservative" with the figures in the Financial Projections.

Ms Ferne Meynert's evidence

Mr and Mrs Jones admitted freely that they had not obtained legal or financial advice. As indicated earlier, Mrs Jones said that she relied on the experience of Mr Slight and was satisfied by the explanations that she had received with regard to her queries. In January 2006 Ms Jones approached Ms Ferne Meynert to write a letter to support an application that Mr Jones had been invited to make for a grant to ex-employees and ex-contractors of EG Green & Sons Pty Ltd to enable them to find new employment or start a new business. Ms Meynert was an accountant with Costello Partners and had known Mr and Mrs Jones as clients for 15 years and Mrs Jones as an employee for a similar period. In a letter supporting the application she stated that Mr and Mrs Jones had a "sound business plan for the setup of there (sic) new franchise with a comprehensive profit and loss forecast." However, Ms Meynert gave evidence that at that time she had not been provided with any documentation regarding the proposed Franchise Agreement and Mr and Mrs Jones had not sought any advice from her with regard to the proposed venture. The "sound business plan" that she had referred to was the Franchise Agreement of which Mrs Jones had told her and Mrs Jones had also advised her that she and her husband had been provided with financial projections. I accept that Mr and Mrs Jones did not receive any independent financial advice with regard to the Franchise Agreement.
Counsel for the defendants said that Mrs Meynert's evidence should be rejected as she was initially reluctant to admit that she had brought along documents to the court or given them to Mr and Mrs Jones' solicitors and when the documents were produced by the solicitors they included copies of the letters that she had written on behalf of Mr and Mrs Jones and the Financial Projections. It is difficult to assess whether Mrs Meynert was reluctant to disclose what was in her possession or whether she misunderstood the questions asked by counsel for the defendants. Counsel initially asked her whether she had brought along her files or her letters and she answered "no" to this. However she was then about to say that she gave them to someone and before she could finish her sentence the instructing solicitor for Mr and Mr Jones produced a manila folder with documents. The folder included a copy of the Financial Projections. Ms Meynert said that she had asked for a copy of the Financial Projections about three weeks prior to her appearance in court as she wanted to make sure that she had not previously seen them.
I am not prepared to find on the basis of Ms Meynert's apparent initial reluctance to produce the documents that she intended to mislead the court and had in fact given advice to Mrs Jones with regard to the proposed business venture. Even if she had done so, there is no evidence that Mr and Mrs Jones relied entirely on her advice and did not place any reliance on the Financial Projections or what was said at the main meeting.

Events after the main meeting

Soon after the main meeting on or about 14 September 2005 Mr Jones started his training to become an accredited instructor. Mr Slight said that he had organised for someone to provide this training at Bob Slight’s Boat School. After his training Mr Jones started presenting some of the courses that Bob Slight's Boat School was offering to gain experience and Mr Slight described Mr Jones as an excellent instructor who showed full promise. Mr Jones, Mr Foord and Mr Slight located suitable rental premises at 9 Ameer Street in Rockingham and Mr and Mrs Jones spent a considerable sum on the refurbishment and furnishing of those premises. Annexure "A" to the Franchise Disclosure Document sets out a list of items required to set up the business and their costs which amount to a total of $63,150. Mrs Jones gave evidence that most of these items were acquired, although she and her husband only paid $22,000 for a boat and not $35,000. It therefore appears that Mr and Mrs Jones still had a substantial amount of capital left after paying the franchise fee and the set-up costs. Mrs Jones said that there was approximately $70,000 left to provide for cash flow.
Mr Slight gave evidence that the new premises looked very pretty and were entirely suitable. There was some disagreement between Mr Slight and Mr Jones regarding the presentation of the premises, such as whether a tree on the verge should be cut down or trimmed and whether customers should be able to see the training room from the street frontage. However, nothing much turns on these disagreements as the defendants did not allege in their counterclaim that the plaintiffs failed to sufficiently advertise or promote the business.
The new business started operating towards the end of February or early March 2006. Mr Jones said that he was available to provide training courses earlier, but there were no customers. After the official opening of the business Mr Jones spent weekdays at the office between approximately 9 am and 4 or 5 pm. When he was not at the office his phone was diverted to his mobile number. Sometime after Christmas Mr Wayne Purdy who had initially decided not to join the new business venture and had gone up north to work on the mines as a machine operator returned to Rockingham and decided to join Mr and Mrs Jones in partnership in the new business. Mr Jones and Mr Purdy also made the acquaintance of Mr Don Harris who was a retiree with contacts in the boating industry. Mr Harris assisted Mr Purdy in promoting the new business to people in the boating industry by visiting boat ramps, businesses and contacts. Mr Harris also answered the phone at the office when Mr Jones had to go out.
However, despite their efforts, there were very few customers who signed up for training courses. Mr Jones said that he conducted only two full courses which involved three evenings of theoretical training and half a day of practical training. Most of the people who attended these courses were relatives and friends of Mr and Mrs Jones and Mr Purdy. Mr Slight had suggested that Mr Jones invite relatives and friends to participate in the courses so that he could gain experience and the impression was created that the business was fully operative.
On 19 April 2006 Mr Jones and Mr Purdy wrote to Mr Slight and Mr Foord expressing their serious concerns about the financial situation they found themselves in. The letter said that they had only received about 5 per cent of the projected earnings for the relevant period despite the fact that they had not yet paid outgoings such as rent, electricity, water and phone bills. Mr Slight responded by email on 21 April 2006 making certain suggestions of how the new business could be better promoted and promising to run an advertising campaign on Channel 31. An advertisement was subsequently filmed at the Ameer Street premises and shown on Channel 31. However, the availability of customers did not improve and on 13 June 2006 Fitzgerald Enterprises served a notice to rescind the Franchise Agreement on Bob Slight's Boat School. Bob Slight's Boat School sent a letter in reply, dated 16 June 2006, stating that the notice of rescission was accepted and regarded as repudiation of the Franchise Agreement by Fitzgerald Enterprises.
The plaintiffs pleaded that they had made a trading loss of $41,666.71 during the period of their trading which was based on commissions received in the total amount of $4,915.28 minus expenditure of $46,581.99. These figures were not proven in evidence. Instead, the parties indicated that they had agreed on a trading loss of $32,200.
After the plaintiffs had left the new business Mr Slight decided to run the business as part of Bob Slight's Boat School and asked one of his employees to man the office in Mandurah. However, people did not rush to attend the courses for the recreational skipper's certificate. Mr Slight said that he found the same situation at Bob Slight's Boat School in Kingsley. In Mr Slight's words there was a "massive resistance to doing anything about it or to delay as long as possible." He estimated that his Kingsley business only trained about 450 ‑ 485 people for their recreational skipper's ticket in the first year and said that they only started arriving after the first four or five months.

The defendants pleaded that for the period 1 July 2006 to 4 November 2008 the new business in Mandurah received income of $52,374 and had expenditure of $129,418 which left a net loss of $77,044.

Preparation of the Financial Projections

Mr Slight gave evidence that he had been a member of a Compulsory Competency Training Discussion Group which had been chaired by a representative of the Department of Infrastructure and Planning. The recreational skipper's ticket which was introduced by regulations in February 2006 was initially referred to as a compulsory competency certificate. At a meeting of the Compulsory Competency Training Discussion Group on 18 November 2004 it was discussed that approximately 140,000 people (or a maximum of 150,000) would require compulsory competency training in Western Australia. Mr Slight said that this figure was based on 69,000 registered boats which were in the category for which compulsory training would be required. The members of the Compulsory Competency Training Discussion Group relied on a ratio used in New South Wales pursuant to which it was estimated that for every registered boat 1.9 people required training, as there would be more than one driver of each boat. The group also discussed that some of the 140,000 drivers would not require compulsory training as approximately 30,000 would already have been trained and approximately 45,000 ‑ 50,000 people would have owned their boats for more than five years which allowed certain exemptions.
There was no evidence that Mr Slight checked the number of boats then registered in Western Australia or made enquiries as to who had devised the ratio of 1.9 drivers to each boat and on what basis. It seems that Mr Slight relied on the information discussed by the members of the Compulsory Competency Training Discussion Group.
Mr Slight prepared the Feasibility Study in about June/July 2005. It appears from the content of the Feasibility Study that its main purpose was to work out how many man hours would be required to train or examine the estimated 140,000 boat drivers for the recreational skipper's ticket. The Feasibility Study proceeded on the assumption that 130,000 drivers in Western Australia required training over a period of three years which meant that approximately 43,000 people per year would require training and/or examination. Mr Slight assumed (and no explanation was provided for this assumption) that a third of all boat drivers would require a theory examination only (and not a practical examination) and that two thirds of that group would require some instructions prior to the theory examination. Mr Slight further assumed that the remaining two thirds of the 43,000 candidates per year needed to complete a theory and practical examination and needed instructions for both. Again no explanation is provided for this assumption. The remainder of the Feasibility Study is dedicated to working out that approximately 539 instructors would be required to work full time to conduct the training and examination of the 130,000 people over a period of three years.
Mr Slight said in evidence that based on this information and his experience of having worked as a trainer for boat drivers for another organisation prior to starting Bob Slight's Boat School he put together the data from which the income set out in the Financial Projections was calculated. The Financial Projections reflect the following four sources of income from training or examinations:

Customers	Type of Income	Amount per customer	Total per year
1,530	Basic Income	$ 40	$61,200
1,530	Intermediate Income	$140	$64,710
523	Full TL3 Income	$330	$172,631
Practical Boat Training	$ 15 per hour	$45,900

In addition to income from training and examinations Mr Slight also estimated that there would be sales of a DVD of the theoretical part of the courses which would sell for $10 per copy and would result in $8,554 income per year. There would also be miscellaneous equipment sales income totalling $42,769 per year.
It was not explained by Mr Slight what type of training or examination the basic income at $40 per customer represented. Mr Slight said that the intermediate income represented a course of theory training over two nights. The full TL3 income represented a course of three nights' theoretical training plus a half day practical training. The practical boat training at $15 per hour was geared at people who did not need any theory training or had studied the relevant material themselves, but required some practical training.
No explanation was provided by Mr Slight regarding the basis on which he calculated how many customers would require the various forms of training or examination and how the categories used by him for purposes of the Financial Projections fitted in with the categories established by the regulations which came into operation in February 2006. In fact Mr Slight said he had no foundation as to who was placed in what category. He tried to do this "fairly and equitably" and worked "on the bottom of the scale".
Regulations 47 to 47I of the Navigable Waters Regulations 1958 dealt with the requirement of a recreational skipper's ticket and were promulgated on 10 February 2006. Regulation 47AB provided in essence that between 1 April 2007 and 31 March 2008 a person under 25 years of age should not drive a registrable vessel unless he or she held a recreational skipper's ticket or was under the direct supervision of a person who was at least 25 years of age or, if the person was between 18 and 25 years of age, held a recreational skipper's ticket. Regulation 47A relevantly provided that after April 2008 every person over the age of 16 years should not drive a registrable vessel unless he or she held a recreational skipper's ticket or was under the direct supervision of a person who held a recreational skipper's ticket and was at least 18 years of age. Regulation 47CA(1) essentially stated that where a person had been the owner or part owner of a registered vessel for all of the five years immediately proceeding the commencement date of the regulations, had lodged an application for a recreational skipper's ticket before 1 April 2007 and had passed a theoretical knowledge examination this could be accepted as compliance with the requirements for a recreational skipper's ticket. Regulations 47C(2) and regulation 47CA(2) relevantly provided that where a person already possessed a higher qualification such as the completion of the boating safety course known as "Boat Smart", a TL3 certificate or a TL5 certificate and had lodged an application for a recreational skipper's ticket before 1 April 2007, this could entitle the person to obtain a recreational skipper's ticket.
Mr Slight did not explain how each category of drivers provided for in the regulations would have an effect upon the general demand for theoretical and practical training in the period immediately preceding 1 April 2007. However, it seems that the conclusions that can be drawn from these regulations are that firstly, persons over the age of 18 would not necessarily have felt under compulsion to obtain a recreational skipper's ticket until shortly prior to 1 April 2008. Secondly, persons under the age of 25 would similarly not necessarily have felt the urgent need to obtain a recreational skipper's ticket until shortly prior to 1 April 2007. Of course, there may have been some people in these two groups who may have regarded it prudent, for whatever reason, to respond early to advertising by providers of training for the recreational skipper's ticket and to comply with the regulations before they were compelled to do so. On the other hand, some boat owners may not have made regular use of their boats and may have felt under no compulsion to obtain the recreational skipper's ticket by the applicable deadline.
It would be a fair assumption that at least some of the owners who had owned or part owned a registered vessel for five years immediately prior to February 2006 may have wished to receive theoretical training before 1 April 2007 so that they could obtain a recreational skipper's ticket on the basis of a theoretical exam only. But the content and time frame of the requirements under these regulations indicate that, given the general reluctance of people to embrace learning a new skill which is forced upon them and which they may not regard as necessary, it was unrealistic to expect that large proportions of the boat owning and boat driving population would have signed up for training and examinations on the day that the regulations came into force and in the immediate months thereafter.
Mr Slight said in evidence that there was no way of predicting how many people would be involved in which training course and when they would take up training. He said that he took the reticence of human nature into account but not to the extent that it did occur. He provided the data for the Financial Projections on the assumption that 60 customers would turn up for some type of training or examination in the first month and that an additional 40 hours of practical boat training would be in demand. The Financial Projections further relied on 105 customers turning up in the second month and 80 hours of additional boat training being provided. In the third month the figures jumped to 150 customers and 120 hours of practical boat training.
In my view this simple analysis of the categories of drivers in the regulations as compared to the number of potential customers in the Financial Projections indicates that there were no reasonable grounds on the basis of which the assumptions in the Financial Projections could have been made.
There are other problems with the information contained in the Financial Projections. Mr Slight based the data contained in the Financial Projections on 130,000 customers over two years. A document from the Department of Planning and Infrastructure containing registration statistics of boats was tendered on behalf of the defendants by consent. This indicated that during the period of 27 November 2004 to 31 December 2007 a total of 62,496 boats were registered in Western Australia. The document also showed that 12,546 boats were registered with a late fee and counsel for the defendants submitted that this number should be added to the 62,496 boats. However, it is not clear from the document whether the registrations for which a late fee was paid should be added to the normal registrations or whether they were already included in that number. No explanation by a representative from the Department of Planning and Infrastructure was provided, but someone had inserted the words "Total Registrations = 62 496" in handwriting on the document. It is also not clear whether there were 62,496 registrations in about September 2005 when the Financial Projections were provided to Mr and Mrs Jones, and it is likely that the total number would have been at least slightly less at that time.
Despite this, I am prepared to assume in favour of the defendants that approximately 62,496 boats were in fact registered in September 2005. It is more difficult to accept that it was reasonable for Mr Slight to have relied on the figure of 1.9 users per boat which had only been mentioned at the Compulsory Competency Training Discussion Group as the ratio used in New South Wales, but I have also done so for the purpose of testing Mr Slight's calculations. If these assumptions are made, it means that approximately 118,742 people ultimately required training and examination for the recreational skipper's ticket in Western Australia.
The Final Projections assumed that a total of 3,583 customers per year would rely on the new franchise business for basic, intermediate and full TL3 training over a period of two years plus that additional hours of practical boat training would be provided. Leaving aside the practical boat training, the Financial Projections were therefore based on a total of 7,166 customers over the two year period, which represents 6 per cent of the 118,742 boat drivers in Western Australia who ultimately required training. No evidence was presented which indicated that allocating this particular percentage of the potential market to the new franchise business was a reasonable assumption.
Bob Slight's Boat School also intended training and examining people for the recreational skipper's ticket and another franchise agreement was entered into with a franchisee operating out of Fremantle. The same Financial Projections were provided to this franchisee. This meant that the Bob Slight's Boat School and the two franchise businesses together would have to capture 18 per cent of the market in order to meet the Financial Projections. Mr Slight said that there were at least 10 to 12 competitors including the Fremantle TAFE, various voluntary sea rescue organisations and yachting associations.
Mr Slight did not work on 118,742 boat users in Western Australia but on a slightly higher figure of potential customers, namely 130,000 which would have made the percentage of the market that the new franchise business was said to be able to capture a little lower, namely 5.5 per cent. However, the registration figures as contained in the document from the Department of Planning and Infrastructure show that Mr Slight's assumption of 130,000 boat users was inflated by at least 11,258. Further, the assumption that the Bob Slight's Boat School and the two new franchise businesses would together capture 18 per cent of the market (or at least 16.5 per cent if 130,000 boat users are relied upon) does not seem to be realistic and no reasonable explanation was provided for this assumption.
There also seems to be no reasonable foundation for the assumption that all of the 118,742 people (or 130,000 on Mr Slight's calculations) who potentially needed training and examination would actually bother to obtain the recreational skipper's ticket prior to the respective deadlines. A substantial number of this potential all encompassing group may not have used their boats or may have had a higher qualification or may have been under 25 years of age and may have only driven a boat under the supervision of another person with a recreational skipper's certificate.
In addition Mr Slight agreed that he had no idea how many boat owners were living in the Mandurah/Rockingham area which was assigned to Fitzgerald Enterprises in the Franchise Agreement. Mr Slight further made no enquiries as to which other organisations were intending to provide training and examinations for the recreational skipper's ticket and how many trainers they would employ. He had no idea what other instructors were intending to charge, but was of the view that price was not a sensitive issue with customers, as the services that Bob Slight's Boat School offered were far superior to those of his competitors. Further, Mr Slight had no marketing plan, but assumed that as much advertising and marketing would be undertaken as was necessary.
Mr Slight also admitted that the projected income for DVD sales of $8,554 never eventuated as they soon realised that if they provided the theory training on DVD, people would not bother to attend the theory courses.
Mr Slight readily agreed that the information on which the income set out in the Financial Projections was based was a matter of guess work, but said that it was based on his experience and that he used the lowest possible figures to represent a worst case scenario. However, the statement that the income figures relied on a worst case scenario is not brought out by the analysis of the requirements under the regulations, the number of boat owners registered in Western Australia and the number of competitors. It does not require any experience as a boating instructor nor as a financial advisor to realise that the Financial Projections were based on large and over-enthusiastic assumptions for which there was no reasonable basis.

Misleading or deceptive conduct

The plaintiffs claim that Mr Slight, Mr Foord and Mr Douglas, as representatives or agents of Bob Slight's Boat School, made the following representations which were each misleading or deceptive contrary to s 52 of the Act:
1.Mr Slight provided the plaintiffs with the Financial Projections and the Revised Financial Projections which indicated a net annual income of $202,694 and $307,337 respectively.
2.Mr Slight told Mr and Mrs Jones that the new business would generate annual income in excess of the income reflected in the Financial Projections for the first two years and would then decrease.
3.Mr Slight advised the plaintiffs that potential customers of the new business would have to engage the services of the business to comply with the law.
4.Mr Slight represented in the Feasibility Study that records maintained by the State of Western Australia showed that there were 70,000 boat owners registered in the State and that there were 140,000 boat users which would require licensing by law.
5.Mr Foord represented that the annual income in the Financial Projections was the minimum net income that the business would generate each year.
6.Mr Douglas represented that the Financial Projections had been prepared by taking into consideration the minimum number of expected customers and on a "worst case scenario".
The plaintiffs say that each of the representations, except the fourth one which was contained in the Feasibility Study, were representations as to future matters within the meaning of s 51A of the Act and that there were no reasonable grounds for the making of these representations. Although the last representation is about the manner in which the Financial Projections had been prepared, that is about an existing matter, the implication inherent in that representation is that the net income set out in the Financial Projections would be the minimum income that the new franchise business could be expected to produce. Read in that way, it is also a representation about a future matter.
Counsel for Bob Slight's Boat School accepted that save for the fourth representation, the representations were made with respect to future matters and that Bob Slight's Boat School carried the burden of proving that there were reasonable grounds for making the representation. Counsel for the defendants relied on Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513 where Heerey J held that where a representation had been made as to a future matter, s 51A required the representor to show that there were some facts or circumstances, existing at the time of the representation, on which the representor in fact relied, which were objectively reasonable and which supported the representation made.
Counsel for the defendants submitted that Bob Slight's Boat School had discharged this burden by reason of Mr Slight's evidence concerning his discussions with the members of the Compulsory Competency Training Discussion Group, the promulgation of regulations 47 to 47(1) of the Navigable Waters Regulations 1958, the Feasibility Study that he had prepared and his experience in the boating industry. In dealing with the information relied upon by Mr Slight in preparing the Financial Projections I have come to the conclusion that there was no basis for the large assumptions made. There were therefore no reasonable grounds for the representation of the future net income in the Financial Projections. There were also no reasonable grounds for the other representations made with regard to the future matters, such as that the estimated future income represented a "worst case scenario" which also follows from what I have discussed under the heading "Preparation of the Financial Projections".
Counsel for the defendants submitted that the conduct of Bob Slight's Boat School had to be viewed as a whole and that seen in its proper context the statements made on behalf of Bob Slight's Boat School and the content of the Financial Projections were not misleading or deceptive, because Mr Slight had made it clear that the figures in the Financial Projections were only his best guesstimate and the plaintiffs were told repeatedly to obtain their own legal and financial advice. However, apart from telling Mr and Mrs Jones that the future net income was his best guesstimate, Mr Slight also advised them that he was confident that this could be achieved and both he and Mr Douglas told Mr and Mrs Jones that the figures in the Financial Projections were based on a worst case scenario. Mr Foord informed Mr and Mrs Jones that the net income set out in the Financial Projections was the minimum that they could expect.

These statements were made by people who indicated to Mr and Mrs Jones that they had intimate knowledge of the boating industry and its likely future requirements for training in respect of the recreational skipper's certificate. Mr Slight held himself out to be extremely knowledgeable of and experienced in the boating industry, Mr Foord was an employee of Bob Slight's Boat School and Mr Douglas was introduced to Mr and Mrs Jones as the business manager of Bob Slight's Boat School. If Mr Slight had told Mr and Mrs Jones that he really had no idea how many people would take up the offer of training, undertake which course and within what time period and that he had not done any market research to try and establish the potential market in the Mandurah/Rockingham area, but that his best guesstimate was what was contained in the Financial Projections, although this was not reliable, and that the plaintiffs should do their own research in this regard, it may have been another matter. But this was not what Mr Slight and the others told Mr and Mrs Jones. Mr and Mrs Jones were told that the net income set out in the Financial Projections was feasible and based on the worst case scenario and that this was the minimum that they could expect.
The plaintiffs also relied on the representation set out in the Feasibility Study regarding the number of boat owners requiring licensing in Western Australia, which was not a representation with regard to a future matter. The burden of proof is on the plaintiffs to show that this was a misleading or deceptive representation. The plaintiffs have pleaded that the Feasibility Study stated that there were 70,000 boat owners in Western Australia and that 140,000 boat users would require licensing. In fact the Feasibility Study does not refer to either 70,000 boat owners or 140,000 persons requiring licensing. The Feasibility Study is based on an estimate of 130,000 boat drivers. It was only in the minutes of the Compulsory Competency Training Discussion Group that there was reference to 140,000 people requiring training in Western Australia. However, the Feasibility Study stated that the estimate of 130,000 boat drivers was possibly conservative and that "informed alternative estimates" were in excess of that figure by more than double within a three year period.
Even if it is accepted that the Feasibility Study only referred to 130,000 people who required training, this was still an incorrect and misleading statement. As I have set out earlier, even if one accepts that approximately 62,000 boats had been registered in Western Australia in about September 2005 there was no reasonable basis for assuming that 1.9 users per boat would require licensing and take up training. Further, even if the figure of 1.9 users per boat is accepted, this only amounts to 118,742 people. More importantly, the Feasibility Study appears to have been prepared for the purpose of establishing how many man hours were required if as many as 130,000 boat users needed training and examination. On the other hand the provision of this document to the plaintiffs together with the Financial Projections implied that there were at least 130,000 boat users who would require training and examination and would enrol for courses prior to the relevant deadlines. I therefore find that the representation set out in the Feasibility Study was also misleading or deceptive.
All of the representations were made by Mr Slight, Mr Foord or Mr Douglas who were either a director, employee or agent of Bob Slight's Boat School. Mr Foord had been asked by Mr Slight to deal with all aspects of the proposed franchise and Mr Douglas had also been employed to assist with the franchise documentation and the preparation of the Financial Projections. There does not seem to have been any dispute that Mr Slight, Mr Foord and Mr Douglas were either a servant or agent of Bob Slight's Boat School and that they acted in that capacity and within their authority. Section 84(2) of the Act provides that any conduct engaged in on behalf of a body corporate by a director, servant or agent of the body corporate within the scope of that person's actual or apparent authority is deemed for the purposes of the Act to also have been engaged in by the body corporate.
Accordingly, I have come to the conclusion that there was misleading or deceptive conduct in breach of s 52 of the Act by Bob Slight's Boat School in respect of each of the representations relied upon. It is trite law that a breach of s 52 is established even if there was no intent to mislead or deceive the representee and even if the company acted honestly: Yorke v Lucas (1985) 158 CLR 661 at 666.

Reliance and the plaintiffs' failure to obtain advice

Section 82 of the Act provides that a person who suffers loss or damage "by" conduct of another person that was done in contravention of the Act may recover loss or damage. It has generally been accepted that the word "by" expresses the notion of causation: Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525. Causation is essentially a question of fact to be determined by reference to common sense and experience and one into which policy considerations and value judgements necessarily enter: March v E & MH Stramare Pty Ltd (1991) 171 CLR 506 at 515-516. A person claiming damages under s 82 of the Act must show that he has been induced by the misleading or deceptive conduct to do something or to refrain from doing something which gives rise to damage: Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 at 50,378.
In this case, Mr and Mrs Jones both said that the net income shown in the Financial Projections was very important to them and Mrs Jones stated that her concerns as to whether people would make use of the services of the new franchise business were allayed when she was told that the Financial Projections were prepared on a "worst case scenario". Mr Jones said that he regarded this statement as a verbal guarantee and that it influenced him and his wife to go ahead with the acquisition of the franchise.
In Gould v Vaggelas (1985) 157 CLR 215 at 238, Wilson J held that where a defendant had made misleading statements which were likely to induce the plaintiff to enter into a contract and the plaintiff did in fact enter into the contract and suffered damage, common sense demanded the conclusion that the false representation played at least some part in inducing the plaintiff to enter into the contract.
There seems to be little doubt on the facts as I have found them that the plaintiffs were induced to enter into the Franchise Agreement by the representations in the Financial Projections as well as by the representations made orally to the effect that the future net income would be the minimum income that the plaintiffs could expect. It is not necessary that the misleading or deceptive conduct be the only cause of the loss and damage suffered by the plaintiffs. As long as the misleading or deceptive conduct is a cause of the loss or damage this is sufficient to establish causation under s 82 of the Act: Henville v Walker (2001) 216 CLR 459 at [14] per Gleeson CJ; [60] per Gaudron J; [106] per McHugh J. Accordingly, even if the plaintiffs relied on factors other than the misleading or deceptive conduct in deciding to enter into the Franchise Agreement, this does not mean that reliance and a causal connection between the misleading or deceptive conduct and the loss and damage has not been established.
Counsel for the defendants submitted that the misleading or deceptive conduct complained about was not in the circumstances a real inducement to the plaintiffs entering into the Franchise Agreement and that they were misled by their own misconceptions. Counsel for the defendants relied on Elders Trustee & Executive Company Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193 at 241 where Gummow J held that s 52 of the Act was not designed for the benefit of persons who failed to take reasonable care of their own interests. Counsel for the defendants also referred to Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 40,793 where Hill J held that people who are misled by misconceptions of their own would not be regarded as having relied upon the misleading or deceptive conduct.
The defendants' contention seems to be that the plaintiffs' failure to obtain their own legal and financial advice was the real cause of them entering into the Franchise Agreement and that their negligence was of such a level that it broke the chain of causation between the misleading or deceptive conduct and the loss and damage suffered by the plaintiffs. In Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 138 Hill J held that a case could be imagined where a plaintiff was so negligent in protecting his own interests that the representation complained of was not in the circumstances a real inducement to the plaintiff entering into a contract. In such a case, the causal connection would have been severed by the intervention of the negligence of the plaintiff.
Both Mr and Mrs Jones explained that they relied on the representations because Mr Slight held himself out as highly experienced in the boating industry and Mrs Jones said that she did not consult a lawyer or financial advisor because she was satisfied by the explanations provided to her by Mr Slight, Mr Foord and Mr Douglas. There is no basis on which it could be said that the plaintiffs' failure to obtain their own legal or financial advice was negligence of such an extent that it severed the causal connection between the misleading or deceptive conduct and the damage suffered. There was no evidence led and no submissions were made as to what this legal or financial advice was likely to contain and how it would have ensured that the plaintiffs did not enter into the Franchise Agreement.
In Sutton v AJ Thompson Pty Ltd (in liq) (1987) 73 ALR 233 at 240 ‑ 241 the Full Court of the Federal Court held as follows:
"..if a person is so determined to enter into a contract that he is not in truth influenced by some false representation made to him, he clearly has no case. But there is nothing in the principles cited, or in any other authority which has been brought to our attention, to suggest that a person who has been misled into entering into a contract, by false representations of a type which were likely to produce that result, and in fact did so, can be deprived of his remedy because of the failure to check the accuracy of those representations…"

Reliance and disclaimer clauses

Counsel for the defendants further submitted that the plaintiffs did not rely on the misleading or deceptive conduct and that there was no causal connection between this and the plaintiffs' damage suffered because of the disclaimer clause contained in the Franchise Agreement. Clause 14.10 of this agreement provides as follows:
"This Agreement contains the entire understanding and agreement of the parties concerning the matters contained. The Franchisee agrees and acknowledges that it has not been induced to enter this Agreement in reliance upon, nor as a result of any statements, representations, warranties, promises or inducements, whether oral or written and whether directly related to the contents of this Agreement or collateral to it made by the Franchisor, its officers, directors, agents, employees or contractors."
Mr Jones said in evidence that when he and Mrs Jones were given the first version of the Franchise Agreement, they had a look through it. He said that he could not recall every clause of the document. Mr Jones was not specifically asked whether he had read cl 14.10. Mrs Jones said that she had taken her time to go through the Franchise Agreement. However, she was also not asked whether she had read cl 14.10. Further, it was not clear on the evidence whether the plaintiffs had been provided with the first version of the Franchise Agreement prior to them agreeing to proceed with the transaction and paying over the sum of $150,000. The plaintiffs only signed the Franchise Agreement on 20 January 2006.
Counsel for the plaintiffs submitted that the disclaimer clause was in any event of no effect as clauses limiting or excluding any liability for any representations made had repeatedly been held by the Federal Court to be of no effect in defence of a claim pursuant to s 52 of the Act. In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83 at 98-99 Lockhart J, in the full Court, held as follows with regard to a disclaimer clause in similar terms to the one under consideration:
"Section 52 is a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act. It has been held that exclusion clauses, of which special conditions 6 and 7 are examples, cannot operate to defeat claims under s 52. It may be, as the judgment of Sweeney J in PJ Berry Estates Pty Ltd v Mangalone Homestead Pty Ltd (1984) 6 ATPR 40-459 at 45, 638 suggests, that such exclusion clauses will generally be ineffective because they cannot break the nexus between the conduct in contravention of s 52 and the making of the agreement in issue."
This approach was followed in a number of subsequent cases cited by counsel for the plaintiffs, for example: Waltip Pty Ltd and Anor v Capalaba Park Shopping Centre Pty Ltd (1989) ATPR 40-975 at 50,661 – 50,662 and Natwest Australia Bank Ltd v Tricontinental Corporation Ltd (1993) ATPR 46‑109 at 53, 503.
In Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [61] and [69] the High Court referred to the submission by counsel in that case that the Federal Court had repeatedly held that disclaimers excluding liability for any representations made were not likely to overturn the effect of otherwise misleading or deceptive conduct. Gleeson CJ, Hayne and Heydon JJ did not indicate any disagreement with this approach, but pointed out that the disclaimer clause under consideration in that case was of a different nature in that it stated that the author of the information provided could not guarantee its accuracy. Gleeson CJ, Hayne and Heydon JJ also referred to Waltip Pty Ltd v Capalaba Park Shopping Centre (supra) where the agreement contained a general acknowledgment that no misleading statements had been made. Their Honours held that a disclaimer clause providing that no pre‑contractual statement had been relied on was of a different type to the disclaimer clause under consideration in Butcher v Lachlan Elder Realty Pty Ltd (supra).
Counsel for the defendants on the other hand relied on Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211 at [102] – [104] where the Full Court of the Federal Court referred to the judgment of Morling and Wilcox JJ in Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1989) ATPR 46‑048 and concluded that a well-drafted disclaimer, drawn to the attention of the contracting party and acknowledged in writing to have been made, could be sufficient to negate reliance. The Full Court held that reliance was a question of fact and that the existence of an exclusion or qualification clause was relevant to a determination of the question whether a plaintiff had established reliance. In Poulet FraisPty Ltd v The Silver Fox Company Pty Ltd (supra) the disclaimer clause contained, amongst other matters, an acknowledgement by the applicant that it had not relied on the financial projections, understood that the figures in that document had been given as a sample only and did not constitute forecasts. In addition, the applicant acknowledged that it had or would obtain professional advice and would make its own independent inquiries and then choose its own target figures. The applicant had signed the particular acknowledgement (at [61]).
In Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (supra) the lease recited that it was frequently alleged by lessees that statements had been made which induced them to enter into a lease and in order to avoid such a dispute the parties acknowledged that the following statements had been made which the lessee had relied upon and which had induced the lessee to enter into the lease. In the space provided for such statements, the lessee had put in handwriting: "No such statements have been taken into account in any manner whatsoever by me".
Accordingly, it may be the case that the particular wording of a disclaimer clause, particularly a clause which qualifies a statement made or indicates that the maker has no personal knowledge of its accuracy, together with evidence that the plaintiff's attention was drawn to this clause and that he agreed to it, may lead to the conclusion that a plaintiff did in fact not rely on a particular representation made. However, the facts in this case are quite to the contrary. The disclaimer clause is in general terms and states that the plaintiffs have not relied on "any statements, representations, warranties, promises or inducements". The disclaimer clause does not qualify the representations made in the Financial Projections, for example, it does not say that the Financial Projections should not be relied upon because they could not be verified. Further, the disclaimer clause was never drawn to the attention of Mr and Mrs Jones and they only signed the Franchise Agreement containing this clause after they had already handed over the acquisition price for the franchise. In Poulet FraisPty Ltd v The Silver Fox Company Pty Ltd at [103] the court also noted that in that case as well as in Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd the plaintiffs had been provided with legal advice prior to signing the relevant agreement. This did not apply in the present case.
Accordingly, the disclaimer clause in this case does not prevent the plaintiffs from relying on the misleading and deceptive conduct and does not have the effect of showing that the plaintiffs did not rely on the representations made.
In addition to the disclaimer in cl 14.10 the First Schedule to the Franchise Agreement contained a qualification under the heading "Performance Criteria" which dealt with the basis on which the Financial Projections had been compiled. It included the statement that the franchisor was not able to assess either the impact on turnover of the particular location of the proposed franchise business nor the impact of seasonal or varying economic conditions. It advised that the Financial Projections therefore had to be treated by the franchisee as a guide only and could not be relied upon as actual predictions or guarantees of business performance.
It could be argued that this qualifying statement amounted to a disclaimer or qualification clause of the type discussed in Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd and in Butcher v Lachlan Elder Realty Pty Ltd and that this indicates that the plaintiffs did in fact not rely upon the information contained in the Financial Projections. However, the statement in the First Schedule does not go as far as informing the plaintiffs that Mr Slight had not done anyo market research before arriving at the future income figures or that there were no reasonable grounds for their calculation and that the plaintiffs should not regard the Financial Projections as reliable forecasts. The statement in the First Schedule refers to matters such as the location of the business and seasonal factors or varying economic conditions and says that "therefore" the Financial Projections can be treated as a guide only. This statement does not amount to a disclaimer or qualification that there was no reasonable basis for the calculation of the future income of the new franchise business.

Accordingly, I find that Bob Slight's Boat School breached its duty of care to Fitzgerald Enterprises not to make any misrepresentations, because the implied representation that it knew of reasonable grounds for the predictions made in the Financial Projections was false and Mr Slight as the controlling mind of Bob Slight's Boat School ought to have known that.
It is not necessary to deal with the other representations made by Mr Slight, Mr Foord and Mr Douglas on behalf of Bob Slight's Boat School, as I have already found that the implied representation that Bob Slight's Boat School knew of facts which provided reasonable grounds for making the predictions in the Financial Projections was false. As regards the oral representations made by Mr Foord and Mr Douglas on behalf of Bob Slight's Boat School, I have indicated earlier that the evidence does not establish that Mr Foord and Mr Douglas knew that there were no reasonable grounds for the representations made by them.

Duty of Care of Mr Slight, Mr Foord and Mr Douglas

The plaintiff's claim in tort is also made against Messrs Slight, Foord and Douglas personally. This raises the question whether each of these persons had a duty of care in their personal capacity to Fitzgerald Enterprises. The issue whether a director of a franchisor company owes a duty of care to a prospective franchisee not to make any negligent misstatements in his personal capacity was discussed by the House of Lords in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 835. In that case the franchisor company which had previously operated a retail health food shop provided false information on the future profitability of a new franchise business. Lord Steyn pointed out that a company was a separate entity, distinct from its directors, servants or other agents. A trader who incorporated a company to which he transferred his business created a legal person on whose behalf he might afterwards act as a director, but who had a separate and distinct identity. A director or servant acting on behalf of a company could incur personal liability in tort, as well as impose vicarious or attributed liability upon the company. However, in order to establish personal liability the existence of a special relationship between the plaintiff and the director or servant was required. It was not sufficient that there should have been a special relationship by the plaintiff with the company.
Lord Steyn further explained at 835 – 837 that in order to create such a special relationship there must have been an assumption of personal responsibility by the director or servant and there must have been reasonable reliance by the plaintiff. The test for assumption of responsibility as well as for reliance was an objective test and the primary focus was on the exchanges, including statements and conduct, between the director or servant and the plaintiff. The crucial question was whether the director or servant conveyed directly or indirectly to the plaintiff that he or she assumed personal responsibility towards the plaintiff. It was also necessary to prove that the plaintiff reasonably relied on the director's assumption of responsibility, as otherwise the assumption of personal responsibility had no causative effect.
Lord Steyn came to the conclusion that on the facts of the case before him the director of the franchisor did not assume personal responsibility. Although the director owned and controlled the franchisor company, it was the company that held itself out as having the expertise to provide reliable advice to the franchisees. The brochure provided to the franchisees made it clear that this expertise derived from the director's experience in the operation of a similar business, but that in itself was insufficient to amount to an assumption of personal responsibility by the director. Lord Steyn referred with apparent approval to a statement by the Judge at first instance that in a small one‑man company the managing director would almost inevitably be the one possessed of qualities essential to the functioning of the company. Lord Steyn concluded that this factor in itself did not convey that the managing director was willing to be personally answerable to the franchisee.
A similar test was applied in Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 at 523 – 524, 527 and 531 – 532 where the New Zealand Court of Appeal held that a director of a company did not owe a duty of care in his personal capacity unless he had assumed personal responsibility to the plaintiff. That case concerned negligent advice given by a one‑man agricultural and horticultural company to a commercial fruit grower. Cooke P at 524 emphasised that the formation of a company indicated to all the world that limited liability was intended. Even though the plaintiffs might have given little thought to that in entering into the contract with the company, such limitation was a common fact of business and the consequences should be accepted, also in respect of the existence of a duty of care, unless the owner of a one‑man company had assumed personal responsibility.
Hardie Boys J stated at 527 that under normal circumstances the acts of a director were in truth the company's acts and that clear evidence was needed to displace this basic premise with a finding that the director was not acting as the company but in his personal capacity.
McGechan J analysed the facts at 531 ‑ 532 and came to the conclusion that the director had made it plain that the plaintiffs were dealing with his company. Although the director's name was well recognised in the field of supply of agricultural and horticultural materials and the director agreed to be the "man on the ground", it was clear from the conduct of the parties that the company was the contracting party. McGechan J held that where a director was highly prominent and his company barely visible, resulting in a focus predominantly on the man himself, a finding might be open that the director assumed personal responsibility. However, a director of a one‑man company should not be regarded as automatically accepting tort responsibility for advice given on behalf of the company by himself.
In Fairline Shipping Corporation v Adamson [1975] QB 180 the managing director of a company was held personally liable in tort to the plaintiffs for the negligent storage of perishable goods. Kerr J held at 191 that the director assumed personal responsibility for the storage of the goods which was reflected by him sending an invoice to the plaintiffs in his own name.
The principles discussed in Williams v Natural Life Health Foods Limited (supra) and Trevor Ivory Ltd v Anderson (supra) accord with the principles relevant to determining a duty of care in respect of misstatement in Australian law. Assumption of responsibility and reasonable reliance are the salient factors which determine the existence of a duty of care in respect of a claim for misstatement. It is also established law in Australia that a company is a separate entity and that a director acting as director does so as the controlling mind of the company. There is no basis for assuming that a director or servant of a company who acts in that capacity is automatically personally responsible to a plaintiff.
I note that Master Newnes (as he then was) in Jasmine Glen Pty Ltd v Falkirk Nominees Pty Ltd t/as Australian Property Consultants & Ors [2006] WASC 49 expressed doubt as to whether Williams v Natural Life Health Foods Limited could be regarded as a statement of settled law in Australia. Newnes M referred in this regard to Interchase Corporation Ltd (in liq) v Grosvenor Hill (Qld) Pty Ltd (No 3) (2003) 1 Qd R 26 at [77] where McPherson JA expressed "serious misgivings" about the decision in Williams v Natural Life Health Foods Limited on the basis that where a principal was vicariously responsible to a plaintiff for the conduct of an employee, it did not make sense to say that the employee did not owe a duty of care to the plaintiff.
In Interchase Corp Ltd (in liq) (supra) the issue was whether a valuer, employed by Hillier Parker, owed a personal duty of care to the plaintiff in respect of misstatements made in a valuation of a commercial property. It is not clear from the judgment whether Hillier Parker was a company or a firm. McPherson JA (with whom McMurdo P and Thomas JA agreed) came to the conclusion that Hillier Parker was vicariously liable to the plaintiff because the valuer employed by it had been personally negligent in carrying out the valuation. McPherson JA stated that vicarious liability "proceeds on the footing that the individual wrongdoer and the person who is vicariously liable are joint tortfeasors". His Honour then concluded that it would be an inversion of the doctrine of vicarious liability to say that the principal was legally liable but the actually wrongdoer not. McPherson JA was also of the vieww that the approach in Williams v Natural Life Health Foods was fundamentally opposed to the decision in the House of Lords case of Lister v Romford Ice & Cold Storage [1957] AC 555, where it was held that an employer who was liable vicariously might recover indemnity against the employee for breach of an implied term in his contract of employment that he would use reasonable care and skill in performing the duties of his employment.
The first observation to be made with regard to Interchase Corp Ltd (in liq) is that the situation where an employee or servant acts on behalf of a company or firm is different from that where a director acts as the controlling mind of the company. In the latter situation the company's liability is direct and not vicarious: Wheeler Grace & Pierucci Pty Ltd at 50,256 –50,257. However, even where an employee acts on behalf of a company or firm which results in vicarious liability, this does not mean that the employee necessarily had a duty of care in his or her personal capacity to a plaintiff. As noted by Hardie Boys J in Trevor Ivory Ltd v Anderson at 527 what must always first be determined in the area of negligence is the existence of a duty of care.
There are two different theories for why vicarious liability is assigned to an employer for the negligent conduct of its employee. They are discussed in Balkin and Davis, "Law of Torts", 3^rd ed, [26.36] ‑ [26.38]. The so‑called "master's theory" is based on the assumption that the employer has a duty of care to the third party and that any negligent act performed by its employee is imputed to him. The employer's duty is separate to that of the employee and although in most instances the extent of these duties coincide, they may diverge and the employer is then liable for breach of its own duty of care by reason of the negligent act of the employee: Ramsay v Pigram (1968) 118 CLR 271 at 278. The learned authors of Balkin and Davis state at [26.38] that the master's theory has useful application in a situation where a third party has been injured by one of several employees and it is not possible to say who of the employees was negligent. Such a situation arose in Grant v Australian Knitting Mills Ltd [1936] AC 85 at 101 where a manufacturer was held liable for personal injury to a consumer of its product without there being evidence as to which employee had been negligent.
The second theory is referred to in Balkin and Davis, "Law of Torts", op cit as "the theory of strict liability" and is based on the premise that vicarious liability should be imposed whenever the employee commits a tort in the course of his employment. This theory does not focus upon the master's duty of care, but upon the policy considerations for imposing vicarious liability on employers. It appears that this theory was adopted in Hollis v Vabu (2001) 207 CLR 21 at [32] – [45] where the issue was whether the employer was vicariously liable for the negligent act of a bicycle courier and whether the courier was an employee or independent contractor. The majority discussed the reasons for the imposition of vicarious liability and the criteria for such liability in terms of policy considerations and not in terms of whether the employer had a duty of care. The negligent act in that case involved personal injury to a third party. In cases dealing with personal injury a duty of care by both the employer and the employee is generally accepted and the issue of who owed the duty of care to the third party may therefore not be specifically considered.
In Parker v The Commonwealth (1965) 112 CLR 295 at 301, Windeyer J referred to both theories and stated the following:
"But, however the principle of liability should be expressed, I think that the Commonwealth is only liable for the acts or omissions of a servant if the servant would himself be liable."
This was again a case involving personal injury and the fact that there may be a divergence between the duty of care of the employer and the employee did not arise.
It seems that the reasons and criteria for the imposition of vicarious liability are not that well defined and that there may be a difference in approach when dealing with the issue of a duty of care depending on whether the matter involves personal injury or economic loss. In cases involving personal injury the issue of who owed the duty of care is often not specifically dealt with while in claims for economic loss, this may be a crucial question. In any event, whichever theory is applied, in my view, it cannot be said that a principal can only be vicariously liable if its employee had a personal duty of care to the third party. That such a principle would lead to curious results may be illustrated by taking the example of a low‑ranking employee, or a number of low-ranking employees who work together to compile a report containing a misstatement. A court would not be likely to impose a personal duty of care on these employees even though their conduct would cause their employer, who was engaged by the third party to provide advice, to be vicariously liable. On the other hand, where the employee was a professional, like a valuer, a personal duty of care may be more readily established.
It also seems to me that the question whether an employer may recover damages from an employee for breach of an implied term in the contract of employment that the employee would use reasonable care and skill in performing the duties of his employment arises from the contractual relationship between the employer and the employee and does not impact in any way upon the question whether there was a personal duty of care by the employee to a third party.
The decision in Interchase Corp Ltd (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No 3) did not fully explore the basis on which vicarious liability is assigned to an employer and I am not bound by the observations made in that regard. I prefer to adopt the principles set-out in Williams v Natural Life Health Foods Limited. The latter casewas cited with apparent approval in Frewin v Emmdale Sports Club Incorporated [2003] NSWSC 108 at [26].
The issue of vicarious liability may in any event not apply to Mr Douglas' representation as he was not an employee of Bob Slight's Bob School. It is not necessary to decide whether Bob Slight's Boat School was vicariously responsible in common law for Mr Douglas' representation, as I have already found that Bob Slight's Boat School was liable for the representation made by Mr Slight in the Financial Projections.
The existence of a personal duty of care by Mr Slight, Mr Foord and Mr Douglas should therefore be determined on the basis of the principles adopted in Tepko Pty Ltd v Waterboard which I have discussed previously. Although the findings in Williams v Natural Life Health Foods Limited were based on the principles of English law regarding the determination of a duty of care including the notion of proximity, which no longer applies in Australian law, as far as misstatements are concerned, the principles adopted in Tepko Pty Ltd v Waterboard overlap and accord to a large extent with the approach taken in Williams v Natural Life Health Foods Limited . Further, the statements in the latter case regarding the separation of identity of a company from its director acting in a personal capacity have similar application in Australian law.
The question is therefore whether Mr Slight assumed personal responsibility for the correctness of the information supplied and any potential loss or damage suffered by the plaintiffs as the result of their reliance on the Financial Projections and the other representations made by him. On the available evidence, this does not appear to have been the case. The documentation supplied to the plaintiffs indicated that the franchisor was Bob Slight's Boat School and the plaintiffs must have known that they were dealing with a company. Although this was clearly a small company and Mr Slight was the managing director and the main operator of the company's business, this does not mean that he acted in any capacity other than as a director of Bob Slight's Boat School. The fact that the Franchise Disclosure Document referred in great detail to Mr Slight's experience and Mr and Mrs Jones said that they relied on Mr Slight's experience, does not in itself mean that Mr Slight assumed personal responsibility for the plaintiffs' potential loss or damage. Mr Slight was present at the main meeting, but even on that occasion left most of the negotiations with Mr and Mrs Jones to Mr Foord. There is no indication, either by way of written communication or by way of conduct that Mr Slight assumed personal responsibility to the plaintiffs. For the same reasons it was also not reasonable for the plaintiffs to rely on Mr Slight accepting personal responsibility and Mr and Mrs Jones gave no evidence to this effect.
Mr Foord was an employee of Bob Slight's Boat School. Although he had considerable experience in the boating industry, it was not clear from the evidence whether this was actually conveyed to Mr and Mrs Jones. In any event, like in the case of Mr Slight, there is no indication on the evidence that Mr Foord held himself out to be personally responsible to the plaintiffs for any potential loss or damage. His conduct was at all times on behalf of Bob Slight's Boat School.
Similar considerations apply to Mr Douglas. Although Mr and Mrs Jones said that he had been introduced to them as the business manager of Bob Slight's Boat School, he gave evidence that he told Mr and Mrs Jones that he was not a director of Bob Slight's Boat School, but only a consultant. Even though Mr and Mrs Jones saw Mr Douglas as a representative of Bob Slight's Boat School, there is no evidence which indicates that Mr Douglas held himself out to assume personal responsibility for the correctness of the information supplied and for any potential loss arising from the lack thereof. In fact Mr Douglas gave evidence that he told Mrs Jones at the main meeting that she would have to direct any queries with regard to the estimated future income to Mr Slight and Mr Foord. Mr Douglas was not cross-examined with regard to this statement.
Accordingly, I have come to the conclusion that neither Mr Slight, nor Mr Foord or Mr Douglas owed a duty of care in their personal capacities to Fitzgerald Enterprises.

Effect of disclaimer in respect of claim in tort

Having found that Bob Slight's Boat School owed a duty of care to Fitzgerald Enterprises and breached that duty of care, it becomes necessary to briefly deal with the effect of the disclaimer clause, cl 14.10 of the Franchise Agreement, on the company's liability in tort. I have already cited the disclaimer under the heading "Reliance and Disclaimer Clauses". It is important to note that this disclaimer clause does not exclude any liability by Bob Slight's Boat School, but provides that the franchisee agrees and acknowledges that it has not been induced to enter into the Franchise Agreement in reliance upon any statements, representations, warrantees, promises or inducements.

In Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510, the High Court held the following with regard to the interpretation of an exclusion or limitation clause:
"These decisions clearly establish that the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig (footnote omitted), the same principle applies to the construction of limitation clauses."
Although the present clause does not attempt to exclude the liability of Bob Slight's Boat School for any claim in tort, it is still a clause which purports to limit the franchisor's liability and the statement by the High Court is applicable to it. There appears to be very little case law (and counsel did not refer me to any) that deals with a clause in similar terms to cl 14.10 in the context of a claim in tort. The cases dealing with disclaimer clauses in the context of claims made in tort usually relate to clauses which purport to exclude any liability in respect of third parties to whom the advice was not directly provided (see, for example, Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465 at 492 and 504; Derring Lane Pty Ltd v Fitzgibbon (2007) 16 VR 563 at [24] and Interchase Corp Ltd (in liq) v Grosvenor Hill (Queensland) Pty Ltd (No 3) at 47). In these cases the relevant issue is whether the disclaimer clause negates the finding of a duty of care to the third party. The wording of cl 14.10 is more relevant to reliance and raises the question whether it is still open to Fitzgerald Enterprises to say that it relied on the representations made despite signing the Franchise Agreement which contained the disclaimer clause.
In Mutual Life and Citizens' Assurance Co Ltd v Evatt (supra) at 570 Barwick CJ referred to the fact that a duty of care is imposed by law and not by contract and further said the following:
"Because it is so imposed, I doubt whether the speaker may always exempt himself from the performance of the duty by some express reservation at the time of his utterance. But the fact of such a reservation, particularly if acknowledged by the recipient, will in many instances be one of the circumstances to be taken into consideration in deciding whether or no (sic) a duty of care has arisen and it may be sufficiently potent in some cases to prevent the creation of the necessary relationship. Whether it is so or not must, in my opinion, depend upon all the circumstances of and surrounding the giving of the information or advice."
The decision of the High Court was reversed by the Privy Council, but the statement by Barwick CJ was not undermined. Although the statement was, strictly speaking, an obiter dictum, and dealt with the question whether a disclaimer prevented the creation of the necessary relationship for a duty of care, Barwick J's comments should apply equally to the question whether a disclaimer clause indicates the absence of reliance.
As discussed earlier, it has repeatedly been held by the Federal Court that a disclaimer clause in terms similar to that contained in cl 14.10 of the Franchise Agreement was of no effect in defence of a claim based on misleading and deceptive conduct under the Act. In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (supra) at 98 – 99 Lockhart J referred to P J Berry Estates Pty Ltd v Mangalone Homestead Pty Ltd (1984) 6 ATPR 40‑459 at 45,638 where Sweeney J held that such exclusion clauses where generally ineffective because they did not break the nexus between the misleading and deceptive conduct and the making of the agreement in issue. Lockhart J pointed out that there were also wider objections to allowing a disclaimer clause to oust the effect of a public policy statute such as the Act.
I can see no reason why a disclaimer clause of this particular type should be given more force if pleaded in response to a claim under the Act than with regard to a claim in tort. In my view the acknowledgement of the franchisee that he or she was not induced by any misrepresentation is one of the circumstances to be considered when reliance is considered, in the same manner as Barwick CJ suggested in Mutual Life and Citizens' Assurance Co Ltd v Evatt it be taken into account when deciding whether a duty of care had arisen.
I have already dealt with the circumstances under which the Franchise Agreement was signed and the fact that no evidence was led to prove that the disclaimer clause was brought to the attention of Mr or Mrs Jones. The plaintiffs also did not have any legal advice with respect to the Franchise Agreement. Bob Slight's Boat School provided the Financial Projections to the plaintiffs with the intention that they should rely on them and the plaintiffs did so at the time when they paid over the franchise fee. The mere fact that Fitzgerald Enterprises signed this agreement, including the disclaimer clause, at a later stage cannot break the nexus between the misrepresentations made in the Financial Projections and the plaintiffs' reliance. There may be situations where the circumstances under which a written acknowledgment is made in an agreement indicate that there was in fact no reliance on earlier representations, but this is not such a case.
Accordingly, I have come to the conclusion that the disclaimer clause as contained in cl 14.10 does not negate the claim in tort by Fitzgerald Enterprises against Bob Slight's Boat School, nor does it indicate that there was no reliance by the plaintiffs on the misrepresentations made.
As I have found that the disclaimer clause is of no effect and that Mr Slight, Mr Foord and Mr Douglas did not owe a duty of care in their personal capacity to Fitzgerald Enterprises, it is unnecessary to decide whether a disclaimer clause has any effect in respect of the personal liability of servants or agents of a party to an agreement.

Contributory Negligence

Another issue that arises by reason of the finding that Bob Slight's Boat School breached its duty of care to Fitzgerald Enterprises by making the misrepresentations in the Financial Projections is the question whether Fitzgerald Enterprises should be liable for contributory negligence on the basis that it did not obtain independent financial and legal advice. A person will be guilty of contributory negligence if he ought reasonably to have foreseen that, if he did not act as a reasonable and prudent person, he would be exposed to risk of loss or injury and if he failed to take reasonable steps to protect himself from loss or injury: Astley v Austrust Ltd (199) 197 CLR 1 at 11 and Bankstown Foundry Pty Ltd v Braistina (1986) 160 CLR 301 at 310.
In dealing with the issue of reliance I have pointed out that the representations in the Financial Projections were made with the intention of inducing the plaintiffs to enter into the Franchise Agreement and Mr Slight held himself out to have extensive knowledge and experience of the boating industry. Although the Franchise Disclosure Document and the Franchise Agreement stated that the plaintiffs should obtain independent legal and financial advice, a letter from Bob Slight's Boat School to Mr Jones, dated 14 September 2005 stated that it was recommended, but not a necessity, that Mr Jones seek professional advice from qualified business and legal advisers prior to entering into the Franchise Agreement. Mr and Mrs Jones said that they relied on Mr Slight's extensive experience in the boating industry and Mrs Jones stated that she was satisfied that Mr Slight, Mr Foord and Mr Douglas had satisfactorily answered all the queries that she had raised. She therefore did not see a need for independent advice.
In my view the plaintiffs did not fail to take reasonable care to protect Fitzgerald Enterprises from loss. It was reasonable for them to rely on the assurances given by Mr Slight, Mr Foord and Mr Douglas and they could not be expected to take independent advice in a situation where they received all the information they asked for and more and where the subject matter of any enquiry was a new and unproven service in respect of which the defendants held themselves out to have particular knowledge and expertise.

Defendants' counterclaim

Fitzgerald Enterprises served a notice to rescind the Franchise Agreement on Bob Slight's Boat School on 13 June 2006. The ground on which the Franchise Agreement was rescinded was said to the misleading and deceptive conduct arising from the provision of the Financial Projections.
At common law rescission is not an available remedy for fraudulent misrepresentation: Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 at 709. Pursuant to s 87(2)(a) of the Act it is open to a court to declare a contract void at ab initio where the plaintiff was induced to enter into the contract by the defendant's misleading or deceptive conduct and where the plaintiff has suffered loss or damage as a result thereof. However, this is a remedy which may be awarded by a court; it is not a right that a representee may exercise of its own accord. A court may endorse a plaintiff's purported rescission of a contract where the contract was induced by misleading or deceptive conduct and the plaintiff's conduct was appropriate in order to mitigate its loss. Cheshire and Fifoot "Law of Contract", 9^th Australian Edition, 11.130 comment as follows:
"In theory, at least, a person who 'rescinds' a contract for misleading conduct is committing a breach. Yet 'rescinding' the contract may be the best course of action in the circumstances and may indeed be an important step in mitigating the potential loss, something that the applicant is under a duty to do. Of course, the court has the power to endorse that course of action and may do so by ordering rescission (Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700)."
The plaintiffs had only commenced the new business at the end of February or early March 2006, but by June 2006 had hardly made any income. In my view it was a reasonable approach in order to mitigate any further potential losses to attempt to rescind the Franchise Agreement at that stage. As is born out by Mr Slight's evidence, the situation did not improve substantially after June 2006. A plaintiff under s 82 of the Act has an obligation to take reasonable steps to mitigate his loss consequent upon the respondent's conduct: Munchies Management Pty Ltd v Belperio (supra) at 713.
Although the plaintiffs did not specifically include a prayer for rescission of the Franchise Agreement, I endorse the plaintiffs' earlier conduct and I am prepared to make an order for rescission of the Franchise Agreement.
Bob Slight's Boat School filed a counter claim on the basis that the notice of rescission was a repudiation of the Franchise Agreement and that Bob Slight's Boat School was entitled to damages resulting from the breach of the Franchise Agreement. The parties agreed that the amount of the damages should be $6,001.02 for advertising expenses incurred by Bob Slight's Boat School on behalf of Fitzgerald Enterprises, $9,834 in unpaid royalties due by Fitzgerald Enterprises and $77,044 for trading losses incurred in operating the business after the plaintiffs abandoned the premises.
In light of the fact that I have found that the plaintiffs acted reasonably and in mitigation of their losses and that rescission should be granted ab initio by reason of the misleading and deceptive conduct, none of the items of damages are recoverable by Bob Slight's Boat School. If these damages were held to be recoverable on the basis that the plaintiffs were not strictly speaking entitled to rescind the Franchise Agreement, the result would be merely that the same damages would then become part of the loss or damage suffered by Fitzgerald Enterprises as a result of the misleading and deceptive conduct.

[2009] WADC 50

7 MARCH 2009