Glover v Clark
[2009] VCC 1867
•29 June 2009
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT WANGARATTA
CIVIL DIVISION
Case No. CI-08-04343
| NICHOLAS GLOVER and ORS | Plaintiffs |
| v. | |
| DAVID JOHN CLARK and ORS | Defendants |
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| JUDGE: | HIS HONOUR JUDGE ANDERSON |
| WHERE HELD: | Wodonga |
| DATE OF HEARING: | 19-20 May 2009 |
| DATE OF JUDGMENT: | 29 June 2009 |
| CASE MAY BE CITED AS: | Glover & Ors v. Clark & Ors |
| MEDIUM NEUTRAL CITATION: | [2009] VCC 1867 |
REASONS FOR JUDGMENT
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Catchwords: | Trade Practices – Misleading or deceptive conduct – Sale of shop selling chicken products – Representation that products sold in the shop were made from free range and chemical free chicken – |
| Damages resulting from the defendants’ conduct. |
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J.L. Smith | Nevin Lenne & Gross |
| For the First Defendant | In person | |
| For the Second and | By leave, represented by the | |
| Third Defendants | First Defendant | |
| HIS HONOUR: |
1 In 2004, David Clark and his wife, Lorraine Ritchens-Clark opened a shop in Wangaratta selling chicken products. They called it The Poultry Place and advertised the products as made from free range and chemical free chicken. They developed common menus, marketing and product supply strategies which they licensed others to use when establishing further shops at Benalla, Yarrawonga and Myrtleford. The Clarks hoped to franchise further shops, initially throughout northern Victoria and southern New South Wales.
2 In March 2006, Nicholas Glover and his wife, Wendy Glover, decided to purchase the business to be established in leased premises at Benalla. The purchase price was $135,000 and the Glovers, through their company, Wennick Investments Pty Ltd, were licensed to use The Poultry Place concept.
3 In December 2006, they entered into a franchise agreement with the defendants. They operated the business from April 2006 until August 2008. In May 2008, the Glovers discovered that the chicken products they sold from the Benalla shop were
made from ordinary chicken and not free range and chemical free chicken as they had believed. They closed down the business in August 2008 as they found it was uneconomic to use free range chickens and felt they could not continue to operate a
business which advertised its products as made from free range and chemical free
chicken.4 Mr Glover had left his employment as a tourist development officer with the Alpine Shire to commence The Poultry Place at Benalla. He drew limited wages from the business and, apart from the first year, the business ran at a loss. When the
business was closed down, the Glovers were only able to sell the business
equipment for $46,750.5 The issues for determination in the present proceeding are:
(a)
whether the Glovers were induced to enter into the Sale of Business Agreement and the Franchise Agreement by misleading and deceptive conduct on the part of Mr Clark and the other defendants as to the nature of the business, and specifically whether it was an essential feature of the business that the products sold at The Poultry Place at Benalla would be made from free range and chemical free chicken; and
(b)
if Mr Clark and the other defendants had engaged in misleading and deceptive conduct, to what damages were each of the plaintiffs entitled and by whom should the damages be paid?
Background facts
6 In January 2004, Mr Clark opened The Poultry Place shop in Wangaratta. He had been a butcher for about twenty-five years. His last job was at Safeway where he developed the idea of a shop selling products made from free range and chemical free chicken. He spent some months researching where the chickens might be
evidence that when the Wangaratta shop opened, he was “totally focussed on
chemical free and free range chicken” and the signage in the shop, the posters
displayed and brochures available to customers, related to these types of chicken.purchased and the products he would offer customers in the shop. Mr Clark said in the possibility of establishing a further shop in Benalla.
7 In 2005, Mr Glover was working as a radio announcer at a local radio station in Wangaratta. He conducted weekly “interviews” with Mr Clark to promote his shops. In late 2005, Mr Glover left the radio station and took up employment at the Alpine Shire as a tourism development officer. In February 2006, Mr Clark telephoned Mr Glover and offered to sell him The Poultry Place business proposed to be opened in Benalla. Mr Glover was familiar with Mr Clark’s operations from the radio interviews and as Mrs Glover was a customer at the Wangaratta shop. Mr Glover understood the concept as being that the shop would sell free range and chemical free chicken products.
8 There were meetings in March 2006 and it was agreed that Mr and Mrs Glover, through their company, Wennick Investments Pty Ltd, would purchase the Benalla business. For two Saturdays in February 2006, Mr Glover worked in the Wangaratta shop with Mr Clark. He noted that a number of customers asked Mr Clark whether all the chicken sold in the shop was free range. Mr Clark assured the customers that it was. Specific enquiries by Mr Glover to Mr Clark and to the shop’s assistant manager, Mr Jeremy Johnson, elicited similar responses; that all the chicken sold in the shop was free range. This representation as to the essential nature of the Wangaratta business and the business to be established at Benalla, which the Glover’s would purchase, was at the crux of this case. The critical feature of the businesses which differentiated them from regular chicken outlets was the fact that the shops were to supply fresh free range and chemical free chicken products.
9 The Sale of Business Agreement in April 2006 was between Mr and Mrs Clark as vendors and Wennick Investments Pty Ltd as purchaser. Mr and Mrs Glover guaranteed the company’s obligations under the Agreement. Clause 12(a) of the Agreement provided that, “The parties acknowledged that this Agreement is not a
Franchise Agreement and that nothing in this Agreement shall create a franchise
relationship between the parties”.
10 On 31 December 2006, the parties entered into a Franchise Agreement. The parties to the Franchise Agreement were the third defendant, The Poultry Place Franchising Pty Ltd, as the Franchisor, Wennick Investments Pty Ltd as the Franchisee, and Mr
and Mrs Glover as Guarantors. By Clause 9.2 of the Franchise Agreement, the
Franchisee was required to purchase all goods “from approved suppliers”. It was
said that this was required “to preserve the integrity of the franchise image, the
franchise system and the franchise business”. Before the parties entered into the
Franchise Agreement, a disclosure document was provided by Mr Clark to the
Glovers, together with a copy of a business plan for the Franchisor.Disputed issues in the proceeding
11 In the defence filed by the Clark’s former solicitors there was a specific denial that any representations had been made to the effect that “the retail outlet trading as The Poultry Place sold only free range and chemical free chicken”. The defence in paragraph 6B referred to the state of knowledge of “the Clarks” at the relevant time. Mr Clark acknowledged in evidence that this should have referred to “the Glovers”, and this was obvious from the context. The pleading stated that, “The Clarks
[Glovers] well knew at all times that the Yarrawonga and Wangaratta shops did not, and the Benalla shop would not, sell only free range and chemical free chicken but also sold and would sell chicken and products made from chicken that was neither
free range nor chemical free”.
12 In April 2009, the defendants’ solicitors withdrew. On 11 May 2009, the defendants sent a letter to the plaintiffs’ solicitors which read as follows:
“I am writing this letter on behalf of all the Defendants in the claims that I have listed.
In mid February 2009 I was informed that the chicken being supplied to The Poultry Place businesses was not a free-range product. I spoke directly to the company that was supplying the chicken products, and it was confirmed to me that they had not
been supplying free-range products.
Up until receiving this information, I firmly believed that free-range product was being supplied. I accept that this is a mistake for which I must accept responsibility.
I wish to sincerely apologise to the Plaintiffs for the mistake that occurred.
Since I became aware of the failure to supply free-range chicken, I have attempted to settle all the claims that have been made. I am aware that a trial involving the claim brought by Mr Glover is listed to commence on 18 May 2009. If settlement of the dispute does not occur prior to the trial date, I want it to be clearly understood that I accept that free-range chicken was not supplied to the Plaintiffs.
The financial information I have received from the plaintiff does not in my opinion verify the losses the plaintiff have claimed. It is my position that the Plaintiffs will need to have their claims of loss independently assessed to verify what, if any, amounts they are entitled to receive”.
13 On 13 May 2009 the defendants sent a further letter to the plaintiffs’ solicitors in the following terms,
“We refer to the letter forwarded to your office on 11 May 2009 on behalf of all of the
defendants. We confirm that we accept responsibility for the failure to supply free
range chicken products and therefore we do not challenge that aspect of the claim
made by the plaintiffs. We confirm that we do not accept the losses the plaintiffs
have claimed and therefore it is our position the losses claimed need to be assessedto verify what if any amounts the plaintiffs are entitled to receive”.
14 Mr Clark conducted the defence at trial on behalf of all three defendants. He gave evidence that at all times until mid to late February 2009 he believed that the chicken supplied to the shops was either free range or chemical free and the way in which each of the shops was run had not changed since he opened the Wangaratta shop in January 2004. It was only in February 2009 that he discovered that most of the chicken supplied to the shops was not free range. He said that when he found this out he immediately changed the system to ensure that free range chicken was obtained.
15 This was the fundamental issue in the case. I reject, however, Mr Clark’s evidence on these matters and accept that at all relevant times:
(a) Mr Clark knew that most of the chicken sold in his shops, and to be sold in the Benalla shop, would not be free range or chemical free; (b) Mr Clark represented the contrary position to Mr Glover and promoted the fact that the products sold and to be sold in the shops were derived from free range and chemical free chicken as an essential feature of the business sold. Factual findings
16 I am satisfied that Mr Clark knew that the shops were primarily supplied with chicken that was not free range or chemical free. The matters which primarily lead me to that conclusion are as follows:
(a)
The inconsistency between the approach taken in the defence to the plaintiff’s claims until very recently and the position asserted at the trial.
(b)
The improbability of Mr Clark being unaware that the central feature of his business – its reliance upon free range and chemical free chicken as its differentiating characteristic – was a sham and that most of the chicken supplied to the business was not free range or chemical free. Mr Clark spent considerable time and energy developing and promoting the concept and sourcing supplies of free range and chemical free chicken. There was a significant price difference between chicken which was free range and chemical free, and chicken which was not. It is likely that Mr Clark determined early in his development of the project that the business was uneconomic unless products were sold in the Wangaratta shop as free range and chemical free, although in the main the products sold in the shop did not meet that description.
(c)
The defendants consistently refused and neglected to provide discovery of records of the supply of chicken to the Wangaratta and Yarrawonga shops, despite their discovery obligations and a specific court order on 21 April 2009.
(d)
Mr Johnson, the assistant manager of the Wangaratta shop for two years from April 2005, gave evidence that he had, shortly after his employment commenced, ascertained that most of the chicken ordered for the shop from
suppliers was standard chicken and not free range or chemical free. When Mr Johnson asked Mr Clark what he and other staff should tell customers if they enquired, Mr Clark instructed him that he and the other staff should tell customers that “all the chicken was free range and chemical free”. I accept Mr Johnson’s evidence and reject Mr Clark’s statement, “I can't believe he
has said that”.
(e)
In mid-May 2008, Mr Glover discovered that the chicken supplied to the Benalla shop and to the other shops, including Mr Clark’s shop in Wangaratta, was not free range chicken. A letter of demand was sent to the Clarks by the Glovers’ solicitors on 30 May 2008. The letter contained the statement, “It
has been drawn to our clients’ attention that in fact the chicken that is being
provided is not free range”. Mr Clark said that he immediately investigated
the allegations contained in the solicitors letter. A letter from the Clarks’
solicitors on 12 August 2008 asserted that the Clarks’ shop “sold and was
supplied with inter alia chemically free and free range chicken” and that “ourclient was at all material times being supplied with free range chicken,
chemically free chicken and also free roaming chicken”. The letter also
referred to the supply of chicken from the supplier, Poultry Palace which, it
was asserted, contained a mixture of “both free roaming and free range
chicken in boneless forms”.(f) On 8 August 2008 Mr Clark obtained a letter from the supplier Poultry Palace which stated, “Further to our discussion today, I am pleased to confirm the following. The Poultry Palace is supplied by Baiada and Hazeldene and both companies supply certified free range whole birds to our establishment. If you
require further information please do not hesitate to contact me”.
A copy of this letter was provided to the plaintiffs’ solicitors by the defendants’ solicitors. The letter was deceptively selective and does not address the issue of the type of chicken provided by the Poultry Palace to The Poultry Place shops and whether it was free range chicken.
(g)
Mr Clark’s evidence was generally unsatisfactory in a number of critical respects. In my judgment, he is a capable and intelligent person. He appeared to have little difficulty following the proceedings at trial and appreciating the importance of particular issues. Nevertheless, in his evidence, the explanations he offered on the central issue of his own knowledge of the supply of products to the businesses were evasive, unconvincing and untrue. I am conscious that the conclusion I have reached necessarily involves a finding that Mr Clark deliberately misled and deceived not only Mr Glover but also the customers of the Wangaratta shop who were induced by the advertising and response to specific queries to believe that all the chicken products sold in the shop was free range and chemical free chicken. However, I consider that in the circumstances this is the only likely conclusion open on the evidence.
17 It is clear that prior to the Glovers and their company purchasing the Benalla business, that Mr Clark represented to them that the essential feature of the business was that it involved the sale of products which were made from free range and chemical free chicken and that the plaintiffs relied upon this representation when they entered the agreement to purchase the business in April 2006. The principal matters which lead to these conclusions are as follows:
(a) the Agreement provided for a purchase price at $135,000 which was, “for taxation purposes”, apportioned as to $72,962 for equipment, fittings, fixtures and plant and as to $49.765.28 for goodwill. It was clear that the “goodwill” of the business comprised the Clarks’ intellectual property. This was referred to in Recital D of the Sale Agreement as follows: “The vendors operate businesses known as The Poultry Place,
Wangaratta, and The Poultry Place, Yarrawonga (the vendors’ businesses), and have created the concept of chemical free, free range chicken selling outlets called The Poultry Place (the name) including but not limited to all branding, promotional material, quality
standards and recipes (the vendors’ intellectual property)”;
(b) during the “interviews” conducted on radio between Mr Glover and Mr Clark in 2005, and in similar later radio advertising, Mr Clark described The Poultry Place businesses as involving the sale of products from free range and chemical free chicken;
(c)
at the Wangaratta shop there were signs, posters and brochures promoting free range and chemical free chicken without any suggestion that these were not the only types of chicken sold at the shop;
(d)
during the “training” days in February 2006, Mr Clark and Mr Johnson told Mr Glover that only free range and chemical free chicken was sold at the Wangaratta shop;
(e)
the ordering system from suppliers was put in place by Mr Clark during the two weeks he assisted Mr Glover to commence operating the shop at Benalla. After that, it was only necessary for Mr Glover to notify the quantities of chicken he wished to order;
(f)
The Disclosure Document which formed part of the Franchise Agreement contained the statements that, “Trading since 2003, The
Poultry Place is a retail-based food, goods and services operation providing fresh free range and chemically free chicken and poultry
goods to the retail and wholesale market customers” (Clause 2.3).
18 Other material given to the plaintiffs, before the Franchise Agreement was entered into in December 2006, reinforced Mr Clark’s emphasis on free range and chemical free chicken products as the basis of the business sold:
(a) The business plan of the franchising company contained these statements: (i) “The Poultry Place Franchising Pty Ltd is a company that franchises
fresh free range and chemically free chicken retail and wholesale spent many hours on researching product development, sales techniques, presentation and marketing. The core of this business is
outlets. The business itself is very unique in the way it was developed.
the chicken; chemically free and free range; this is what it is all about!”
(Executive Summary);(ii) “The Poultry Place is a fresh chicken retail outlet that produces free
range and chemically free chickens to the consumer as well as the wholesale market. All of the fresh free range chicken is prepared in our retail outlets … the whole concept of the chemically free and free
range chicken is to give the consumer an alternative in the fresh alternative product such as chemically free and free range chicken. Our industry in chemically free and free range chicken is in great demand throughout the whole of Australia … now is the time to take advantage of this open market in chemically free and free range
chicken market. Before opening our first store we researched the
market in what the consumer wanted in their fresh chicken. Our team
spent over six months on this through market research as well as
getting out there personally and talking to the public about chemically
free and free range concept. The response was outstanding that 83
per cent of the consumers eat fresh chicken three times per week.
chicken” (Mission Statement);
(iii) “The Poultry Place Franchising Pty Ltd has been established since July
2006, the business itself has been operating from January 2004. We are formed by two directors, David Clark and Lorraine Ritchens-Clark, who are the founders of this dynamic enterprise … The Poultry Place is a profitable retail and wholesale business … we have expanded in such a short-term to be the leaders in chemically free and free range chicken … for the next three years this company is certain it can
franchise 12 new stores in the region” (Company History);
(iv) “At The Poultry Place we produce from chemically free and free range chickens over 55 different varieties of gourmet chicken” (Products and Services);
(v) “The percentage for the consumer eating chicken per week is at a high
rate. As a company all we have to do is given them an alternative
product to choose from and we will be right there. The demand for the
chemically free and free range product is growing by consumer
awareness, we have to capture that and improve it to the best of our
ability … it is of high periodicity that we must keep up our high
standard of training, skills and technology in the production ofchemically free and free range chicken” (Economics);
(vi) “Our unique products and the taste far outweighs our competitors in all aspects of the chemically free and free range chicken” (Niche);
(vii) “The chemically free and free range chickens are delivered to our stores fresh every morning by our approved suppliers” (Production);
(b) A product list/brochure for The Poultry Place, prominently described its products as follows, “Free range chicken, chemical free chicken, gourmet cuts, bulk orders. The difference is in the flavour!” (c) A Poultry Place publicity flier contained the following statement, “The Poultry Place takes its service a few giant chicken leaps ahead. The Poultry Place supplies only the best products to the general public and wholesalers and ensures that customers only get presented with the freshest free range and
chemical free chicken”.
(d) On 9 November 2006 Mr Clark sent Mr Glover a copy of a media release which contained the following statement, “The Poultry Place believes that its distinct difference is in the flavour of its meals. Its good tasting meals, made
from the freshest free range and chemical free gourmet chicken, are all
prepared daily … even the National Heart Foundation believes eating poultry
in moderation is an important part of a healthy well-balanced diet. The
Poultry Place sources its free range and chemical free product and preparesits chicken cuts with this in mind”.
19 The Glovers relied upon the representations made by Mr Clark and as a result they were induced to enter into the Sale of Business Agreement and the Franchise Agreement. The representations were untrue and Mr Clark engaged in conduct which was misleading and deceptive.
Loss and damage claimed by the plaintiffs
20 In my view, the plaintiffs are entitled to recover the purchase price paid pursuant to the Sale of Business Agreement, totalling $135,000. They must, however, bring to account the sum of $46,750 realised from the sale of plant and equipment and any profits derived from the business operations.
21 at the shop which had been purchased and installed at a total cost of about $80,000
in April 2006. The third plaintiff had leased the premises at Benalla for a period ofWhen the Glovers closed the business in August 2008, they had plant and equipment agreement with Mr Chris Niklaus. He agreed to purchase the plant and equipment at the Benalla shop for a total price of $46,750 and Mr Niklaus and his brother agreed to enter into a lease of the property for the balance of the term of five years which expired on 19 February 2011. The Glovers were obliged to guarantee the tenants’ obligations for the term of the lease.
22 I am satisfied that the Glovers have appropriately sought to mitigate their loss. There is no suggestion that the equipment could have been sold for more than the sum that was realised. It is likely that the sale to the persons who took over as tenants of the
premises meant that the equipment remained in place and therefore had more value
to them than if the equipment had been removed from the Benalla shop and relocated
to other premises.23 The business conducted by the Glovers’ company in Benalla made a small profit in the limited period before the end of the financial year to 30 June 2006 of $3,979.41; in the year to 30 June 2007 there was a loss of $1,266.83; in the year to 30 June 2008 there was a loss of $9,210.35 and to the year ended 30 June 2009 a loss of $21,983.06.
24 It is necessary to examine these losses further in the light of the claims made by Mr Glover. Before he entered The Poultry Place business at Benalla, Mr Glover was employed by the Alpine Shire at an annual salary of $54,500. He claimed lost wages from 15 March 2006 to 15 August 2008, being a total of $131,700. This is the amount that he said he would have earned if he had not been induced to purchase the business. Against this sum must be offset wages paid to him from the business, being $6,500 for the financial year ended 30 June 2006, $32,254.23 for the financial year to 30 June 2007, and $13,172.05 for the financial year to 30 June 2008.
27 of $71,428.38 or average weekly sales of over $6,000. For the following year to 30
June 2007 the total sales were $322,196.58 or average weekly sales of over $6,000.
In the following year to 30 June 2008 the total sales were $261,587.35 or average
weekly sales of $5,000. However, the respective profit or loss figures each year25 Until May 2008, the Glovers believed that they were selling free range chemical free chicken products from the Benalla shop. There is no evidence that their business was detrimentally affected by the fact that the products sold from the shop were not free range and chemical free. The Glovers promoted the business and it operated as if the products sold fitted the description of free range and chemical free. The business should therefore have been successful. It was not. Much of the losses claimed by Wennick Investments Pty Ltd and by Mr Glover arise from the continued operation of a business which had clearly become uneconomic. In my view, these losses cannot be attributed to the Clarks, in the sense that the misleading and deceptive conduct did not contribute to them.
26 Before the Glovers purchased the Benalla shop, they were given “indicative projections” prepared by Mr Clark, apparently in January 2006. The projections were based on an anticipated turnover per week of $5,000, $5,500 and $6,000, which on the calculations in the projections should have yielded a net profit of $12,686, $24,406 and $36,026 respectively.
It appears that for the two and a half months to 30 June 2006 the business had sales for the year to 30 June 2008 a net loss of -$9,210.35, and for the year to date, leaving aside the income from the sale of assets, a net loss of $21,983.06.
can't be in two places at the same time. Plus, I have other opportunities with Gloria ring you in the next day or two and give you first option on the shop. If you decide you don’t want it I will be going through the motions of selling it via various methods. 28 The indicative projections are not relied upon by the plaintiffs as misleading and deceptive conduct. The anticipated profit from the business depended on many factors, most significantly the wages structure. The projections stated that, “This structure is at the owner’s discretion”. It provided for the owner to be the manager
and for there to be two assistants, at least one of which was clearly not a full-time
employee. It appears that Mr Glover soon found that he did not have the necessary
skill level to prepare the chicken products and, as a result, at some stage he
employed a boner. Both Mr Clark, at his shop in Wangaratta, and the Glovers, at
their shop in Benalla, later commenced to order mainly boneless chicken. It is not
clear on the evidence what effect this had on the cost of chicken supplies, although it
is likely that it reduced the wages bill.29 In 2007, the Glovers purchased the business of a Gloria Jean coffee shop franchise in Wangaratta. It is not clear what effect this had upon the operation of the Benalla shop. Both the Glovers and the Clarks (as a result of a requirement in the Franchise
Agreement that weekly sales figures be notified to the franchisor in order that the three per cent advertising levy could be calculated) had knowledge of the weekly sales figures of the Benalla shop. Mr Glover said that although he spent one month
at Wangaratta establishing the Gloria Jean coffee shop, the weekly sales figures of the Benalla shop, during this period, demonstrated that business was not affected.
30 There are a series of emails between Mr Glover and Mr Clark in evidence. On 12 November 2007, Mr Glover notified Mr Clark that, “I have decided to sell my Benalla
business ASAP as it just won’t work for me with my Wang business going as well as it is. This is confidential info, Dave, and I don’t expect you to be telling everyone about it. I have had my section done and the figures look healthy at the moment but I just
It’s been fun but for the amount of work to amount of reward just not worth it!”
31 On 21 November 2007, Mr Clark drew Mr Glover’s attention to the obligations under
Mr Clark indicated that he would not be interested in purchasing the Benalla shop. “Mate, I need to sell and sell quickly, if too many probs come up, I’ll just close the doors”.
32 On 11 March 2008, Mr Glover wrote to Mr Clark stating: “If you have any ideas on
how else I can shift this business, please let me know, need to offload it ASAP, got a
few people interested, but not hot enough to sign ”. In an email dated 28 March 2008, permanent part-time employee working 25 hours per week and a casual worker for 15 hours each week.
33 On 1 April 2008, Mr Glover wrote to Mr Clark stating, “Mate, as discussed not the
best looking books in the world, but with my mind not completely on the job … you
can see what happens. I thank you for your help here, mate, I think you know I needto get out for more than just one reason. I am really over it! Hope this all helps”.
34 On 3 April 2008, Mr Glover wrote to Mr Clark as follows, “Mate, as discussed I told
you the figures did not look good. I am happy to look at the price, but won’t be able to
move too far back, as I have a loan on the business that needs to be paid back. You
need to explain to these people my situation and the fact that I am selling the shop
because I can't keep an eye on both at the same time! If I don’t sell in the next monthor so, the shop won’t exist anyway, so one way or the other, I will be getting out”.
35 On 25 April 2008 Mr Glover wrote to Mr Clark stating, “Dave, I hear that Myrtleford
has sold. Can you please let me know what the sale price was. I believe it was very low. This is a concern for me as I am trying to sell my business. I am seeking legal advice inasmuch as what this means to me regards your ability to keep the franchise growing, which it most certainly is not at the moment. I am looking at all options to
protect me and my investment”.
36 Mr Clark continued until it became apparent that the concept of The Poultry Place at
Benalla was based on a false premise. Until May 2008, the Glovers were not aware
of that fact. When they became aware of that matter, they acted to protect their
position. However, at an earlier time, the Glovers had apparently decided that the
business was not going to be financially successful and they would need to pursue
other options. Whilst I consider that the Clarks remained liable for the losses sufferedIn my view, the plaintiffs’ loss arising from the misleading and deceptive conduct of the later operating losses which arose from other factors which resulted in the Glovers pursuing the Gloria Jean business option.
37 In my view, the losses of Wennick Investments Pty Ltd for which the Clarks are responsible are:
Purchase price paid pursuant to the Sale of Business Agreement $135,000.00
Less sum realised from sale of plant and equipment $46,750.00
$88,250.00
Less net profit for period to 30 June 2007 $2,712.58 Total loss $85,527.42 38 In relation to Mr Glover, the loss for which the Clarks are responsible should be calculated as follows:
Lost wages for period from 15 March 2006 to 30 June 2007 at $70,476.71 $54,500 per annum.
Less wages paid from business to 30 June 2007 $38,754.23 Total loss $31,722.48 39 I have chosen the date 30 June 2007, as it seems to me to be an appropriate time by which it was apparent that the business as it was operating, although achieving reasonable sales, was not financially successful and apparently did not suit the Glovers. Soon after, they decided to invest elsewhere and to devote their energies to building up an alternative business. Because of the Clarks’ misleading and deceptive conduct, in my view it would not have been possible for the Glovers to have effectively sold the business or, if they had done so, any such sale could have been set aside because the nature of the business would have been misrepresented. In these circumstances, damages should be calculated on a similar basis as if the business had closed down at the end of June 2007, with a sale of the equipment and an assignment of the lease of the Benalla premises.
40 A further head of damage is claimed for both Mr and Mrs Glover, being the sum of $10,000 each for “mental distress and vexation”. However, by the time the Glovers ascertained the nature of the misleading and deceptive conduct of the Clarks, they had moved on to another business and it is not suggested that that business, which is conducted in Wangaratta, has been prejudiced by their involvement in The Poultry Place at Benalla. In these circumstances, I do not consider it appropriate to allow any damages under this head.
41 Mr Clark was responsible for the misleading and deceptive conduct. His wife was his business partner. She was a vendor of the business. She did not give evidence at the trial and, although in his evidence Mr Clark tried to protect her, it seems to me that she must equally bear responsibility for the misleading and deceptive conduct and for the plaintiffs’ loss. The third defendant, the franchisor, was not incorporated until shortly before the Franchise Agreement was entered into. By that stage the business had been sold to the Glovers. Essentially, the representations were those of Mr Clark on behalf of himself and his wife. He later repeated them at the time the Franchise Agreement was entered into. This had the effect of reinforcing the earlier misleading and deceptive conduct. I do not consider, however, that any further loss arises from this conduct which should be the responsibility of the company itself.
42 Accordingly, there will be judgment for the first plaintiff against the first and second defendants for $31,722.48. The second plaintiff’s claim will be dismissed. There will be judgment for the third plaintiff against the first and second defendants for $85,527.42. The claims against the third defendant will be dismissed. I will hear further from the parties in relation to matters of interest and costs.
Certificate
I certify that these 18 pages are a true copy of the reasons for decision of His Honour Judge
Anderson delivered on 29 June 2009.
Dated: 29 June 2009
Caroline Dawes
Associate to His Honour Judge Anderson
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